The Secular Stagnation Hypothesis in the theories of economic growth: a maze of theoretical inconsistencies

Abstract

The purpose of this study is to show that, in both the Hansen and Summers versions, the secular stagnation hypothesis is based on questionable theoretical foundations that seem inconsistent both with the neoclassical approach to growth and with the heterodox models of demand-led growth. We build on F. Petri´s recent critique of the incoherent use of the neoclassical investment function in situations with persistent labor unemployment, and show that the recent debate is directly connected with the old debate about the two problems raised by R. Harrod. The analysis allows us to understand some questions related to the current debate, such as the Gordon-Summers controversy on whether the causes of the recent stagnation tendencies in developed countries should be attributed to supply or demand factors.

Keywords:
Demand-led growth; Secular Stagnation; Neoclassical investment function