First published: ft.com, 14/08/2009
In hard times, there is always an economic melancholy about the future. Yet, the periods after the two world wars of the 20th century, the inflationary 1970s, and the Asia and emerging markets crises of 1997-2000 were hardly disappointing. Today, despite some signs of financial and economic stabilisation, most economists expect economic growth over the next few years to be confined to a straitjacket. Could the current consensus about secular stagnation be wrong again?
Economic growth depends on the continuous discovery and expansion of markets, arising, for example, from a growing labour force and lower barriers to trade and capital movements and the interplay between capital investment and technological change. The unexpected boom of the 1920s witnessed a surge in output, manufacturing and productivity, the spread of mass production, and the development of household goods, not to mention a speculative real estate boom in the US that began in Florida, and the nefarious antics of one Charles Ponzi. After 1945, expectations of economic stagnation endured into the 1960s, in spite of more or less continuous expansion that was based on reconstruction, the reduction in trade barriers, a highly elastic labour supply, stronger educational attainment and rapid technological progress.
Today, we feel glum about economic prospects for all the normal reasons, but the most worrisome may be because the crisis…more