Econ 2: Spring 2014: Week 1: Introduction
Things to Read on the Morning of January 21, 2014

Morning Must-Read: Ways Out of Secular Stagnation

Ryan Avent: Secular stagnation: The second best solution:

Larry Summers has revived discussion in the 'secular stagnation' hypothesis. Income has become concentrated in... groups... with low propensities to [spend]... generat[ing] excess saving.... [One solution] is to raise inflation expectations in order to reduce real... interest rates.... Mr Summers' preferred course of action.... It is a rare rich country that doesn't have a list of infrastructure needs that could justifiably be addressed in the best of times. Pulling those off the shelf and taking them on amid rock-bottom interest rates and weak demand is a no-brainer.... Mr Summers reckons that while fiscal policy is the first best means to address stagnation, using higher inflation to reduce real interest rates and boost private demand is a clear second best.... My sense is that Mr Summers reckons the inflation strategy is not... easy to deploy successfully.... I often return to higher inflation as a strategy because something like Mr Summers' five-year programme of deficit-financed public investment looks politically unachievable to me. Higher inflation, by contrast, is something the technocratic Fed could deliver.... But... central banks don't generally propel economies out of slumps like these without significant political pressure being applied...