Secular stagnation. Growth rates will hit zero by mid-century, driving structural crisis.

Over the past several decades, economic growth rates have slowed down throughout the advanced capitalist economies. Figure 1 shows the 10-year trailing average growth rates of real GDP for the United States and the OECD countries.

The underlying trend growth rate of the US economy declined from about 4 percent in the 1960s to about 3 percent in the 1970s and 1980s. After recovering to about 3.5 percent in the 1990s, the US economy’s trend growth rate has declined further to about 2 percent over the last two decades. Similarly, the OECD countries’ average economic growth rate declined from about 5 percent in the 1960s to about 3 percent in the 1980s and 1990s. In recent years, the OECD countries’ average economic growth rate has been around 1.6 percent.

In this context, economists as well as scholars in other disciplines have debated the long-term implications of the structural slowdown of economic growth that has become known as “secular stagnation.”

The concept was originally proposed by Alvin Hansen in the middle of the Great Depression of the 1930s. Hansen (1938) was worried about the exhaustion of investment opportunities and a possible end of long-term economic progress.

In September 2013, writing for The New York Times, Paul Krugman raised the concern that persistent shortfall of aggregate demand could lead to “secular stagnation” though he dismissed the possibility by arguing that fiscal deficit spending in principle could have virtually unlimited ability to stabilize demand (Krugman 2013). In November 2014, at the IMF’s 14th Annual Research Conference, Larry Summers argued that secular stagnation caused by insufficient demand could be the underlying reason for the failure of the US economy to return to full employment (Summers 2013).

While economists influenced by the Keynesian theory emphasize insufficient demand as the underlying cause for “secular stagnation,” Robert Gordon argues that a substantial slowdown of the pace of technological progress has led to the recent decline of economic growth rate. Gordon (2016) argues that the historical growth rate of US per capita real GDP around 2 percent was made possible by the exceptionally long-lasting and widespread Second Industrial Revolution that started in the late 19th cen- tury and had spillover effects that lasted until the mid-20th century. By contrast, the Third Industrial Revolution that started in the 1990s has been limited to telecommunication and several related fields and appears to have petered out. In the future, the trend growth rate of the US per capita real GDP is likely to return to its pre-20th-Century “norm” of about 1 percent.

From the ecological perspective, the entire process of modern economic growth has been made possible by the unsustainable exploitation of natural resources and environmental space. In the famous 1972 report, Meadows et al. (1972) argued that unrestricted consumption of resources and environmental degradation would eventually lead to a catastrophic decline in population and industrial capacity. In a later updated study, Randers projects that, because of the decline of the labor force and the slowdown of productivity growth, the global economic growth rate will steadily decline in the future. By the mid-21st century, Randers expects that the US and OECD economies will begin to experience zero or even negative growth (Randers 2012, 62–98, 265–299).

According to the World System Theory, the essential feature of capitalism as a historical system has been the pursuit of endless accumulation of capital, and therefore, capitalism cannot survive with persistent zero or negative growth. According to Wallerstein (2004, 76–90), the rise of capit- alism was made possible by a specific set of historical conditions that favored capitalist expansion. However, long-term capitalist accumulation has led to several secular trends: the secular tendency for the workers to develop stronger bargaining power pushing up the labor cost; the secular tendency of resources depletion and environmental degradation that tend to raise the costs of material inputs; and the secular tendency for both the workers and the capitalists to demand more state services driving up the taxation cost. The long-term tendencies of rising labor, material, and taxation costs would depress capitalist profitability. As the capitalist system fails to meet the rising demands from the workers and effectively address the requirements of ecological sustainability, while maintaining a satisfactory level of profitability for the capitalists, the system will enter into a structural crisis that can no longer be resolved within its own historical framework.