GEOFF HARCOURT and PETER KRIESLER. Secular economic stagnation around the world

“Secular stagnation” refers to the long-run (or secular) tendency for growth rates to stagnate in advanced capitalist economies – associated with high unemployment and excess capacity.

It has been a major feature of the contributions of the classical, Marxist and heterodox economists especially Adam Smith and David Ricardo, Karl Marx, Maynard Keynes, Michal Kalecki, Kurt Rothschild, Stephen Hymer, Joseph Steindl, John Kenneth Galbraith, Paul Baran and Paul Sweezy and Alvin Hansen.

The American economist, Larry Somers, has recently brought a mainstream analysis of the ancient concept of secular stagnation back to centre stage. While we agree with him that secular stagnation now characterises the dominant process at work in the economies of much of the world, we do not agree with his analysis of its causes.

The characteristics/symptoms of contemporary secular stagnation include low, sometimes non-existent real wage growth, low levels of accumulation (investment), especially in physical capital goods, high rates of unemployment, under-employment and part-time employment, a high and increasing share of profits at the expense of wages in the pre-tax distribution of income, a rise in the inequality of wealth, great decline in union membership, especially in the private sectors of economies and the spread of globalisation throughout the world economy combined with deregulated capital markets and floating exchange rates.

The classical political economists and Marx identified a number of tendencies in capitalist economies associated with falling growth. These became particularly important in the analysis of Kalecki and Keynes who both stressed the role of effective demand in determining output, employment and growth. They both predicted the increased likelihood of stagnation as national income rose, due to declining average consumption levels associated with higher income, and falling investment due to lack of opportunities. These could be postponed by technological advances, wars or government expenditure.

Since the 1970s stagnationist tendencies have been reinforced by the poor performance of wages – at first in America and more recently in Australia. Real wages have not kept in touch with productivity growth, which has reduced the ability of wages earners to afford previous consumption levels. A corrupt financial system provided temporary solutions by allowing increased household debt – which is at record levels in both countries – reinforced by increased housing prices. In Australia this continues while it was brought to a halt in most of America by the GFC. While this debt prevented consumption from falling as much as it would have as a result of the stagnant wages, it currently inhibits household consumption from growing

This is reinforced by a world environment increasingly dominated by large multinational oligopolies, which influences both production and exchange. Effective demand, in turn, is the outcome of interrelationship between aggregate supply, what decision makers concerning employment and output require in order to establish different levels of the two, and aggregate demand. The latter depends on how the private sector divides its income between consumption and saving, and how much investment it plans to do. In an open economy with a government further components of aggregate demand are the levels of net exports (exports minus imports) and government spending on current goods and services and public capital formation less taxation.


A prominent feature of the modern world is the increasing dominance of finance capital over commercial and industrial capital. Much of financial capital consists of the purchase of financial assets, often as takeovers. Despite the rising share of profits in the national income, incentives to accumulate in new objects have become more sluggish. Because of rising inequality of income and wealth, consumption spending has failed to take up the slack so that the constraints on realising the potential surplus are rarely or ever operative. All these factors combine to result in the secular stagnation that is increasingly observed and will continue in more and more parts of our interrelated world.

Geoffrey Harcourt is Honorary Professor,School of Economics ,UNSW. Peter Kriesler is from the School Economics UNSW

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3 Responses to GEOFF HARCOURT and PETER KRIESLER. Secular economic stagnation around the world

  1. Charles Lowe says:

    Love your analysis (though I wrestle with your jargon!).

    Can you propose a ‘way out’?

  2. Jerry Roberts says:

    This neatly summarises the economics of our times. Finance writer Robert Gottliebsen, who is well acquainted with the big end of town, identifies a cause of stagnation that can be remedied easily. In a nutshell, big companies are taking longer and longer to pay their bills.

    Telstra is the latest to push out its payments to 62 days. One of our biggest companies takes 90 days. If you are running a workshop servicing this company’s vehicles you have to wait three months to get paid for your work. Meanwhile you have to pay staff and meet overheads. In plain English, big business is screwing small business. Money needs to circulate. The velocity of money is one of the variables in the equations beloved of economists.

    Gottliebsen, writing in The Australian 29 January, says these delayed payments are “a key reason why the Australian economy is so sluggish and the engineer of growth — small and medium business — is reluctant to expand….

    “One of the saddest parts of recent Australian large corporate life is that the ethical shortcomings of the banks that were so dramatically illustrated in the royal commission have spread to wide areas of business.”

    The writer’s solution is simple and is available to the Prime Minister now. Any company not paying its suppliers within 30 days should be banned from obtaining government work.

  3. Wayne McMillan says:

    Thanks Geoff and Peter for a good update on the current trends in international macroeconomics and the dominance of finance capitalism. To understand these trends we do need to study Marx, Keynes and Kalecki thoroughly and draw contemporary insights from their work. I would also suggest that the work of Hyman Minsky the Finance Institutionalist as he liked to be called, would also be very helpful. Minsky’s Financial Instability Hypothesis is more telling than what many financial pundits/ commentators would have us believe.

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