10 Secular Stagnation

Benavav

By now “secular stagnation” has become a mainstream view, having no necessary association with Marxist or heterodox economic thinkers, like Robert Brenner or myself. Oliver Blanchard thinks that, alongside a too-high savings rate, the vanishing of investment opportunities means that secular stagnation is likely to return in the near future. As he recently said:

I believe that global secular stagnation was and is driven by deep structural factors that neither COVID nor inflation have done anything to reverse. Once central banks have won the fight against inflation, which they will, we shall most likely return to a macroeconomic environment not dramatically different, at least in this respect, from the one before COVID.

Of course, to say so is not to say that it is logically impossible that secular stagnation might one day be reversed. There could be breakthroughs that radically raise the productivity growth rates of capitalist economies. The issue is that, in spite of all the fanfare, and as Blanchard avers, “Such a technological explosion did not happen in the last 40 years, but it could.”

None of these secular stagnationists believe that the economic growth rate is likely to fall to zero, but that it will tend to fall to around 1 to 1.5 percent in the high-income countries. Still, many of them believe that, if the economy gets stuck at this growth rate, the results will be politically contentious.

Non-Marxist secular stagnationists fail to draw out the political implications of their theory in more detail. By contrast, Marxist long-wave theorists do offer a political account of changes in class relations over the course of long waves. Periods of low profitability are associated with rising class conflict. Capitalists are trying to make up for falling capital productivity by raising the capital share, resulting in wage stagnation. Economic and financial insecurity intensifies; capitalists encourage changes in the law allowing for the spread of precarious employment; and they fight politically for austerity. In downswing periods, advocates of compromise with capitalists mostly just organize the defeat of the working class. Does this theory feel so out of step with what has happened since 1973? Trades unions lost a lot of support as they stopped fighting for working people and instead organized the working-class defeat. The same is often said of social democratic and labor parties: they stopped fighting for people and instead organized their defeat.

In an era of secular stagnation, capitalists have given up on using the profits they have gained, through their success in raising capital shares, to fund further dynamic economic expansion.

Before transitioning to low-savings, low-investment, high-consumption economy, we would want to engage in one last effort to reshape the economy. In this effort, public investment would have to displace private investment as the main engine of growth.

Benanav (2023) We’re All Stagnationists Now

10.1 Space Economy to the rescue?

Weinzierl

In this speculative article, I argue that the expansion of economic activity in space may offer a uniquely promising way to escape indefinitely from what economists call “secular stagnation,” a state of self-fulfilling, persistently sluggish economic growth that has increasingly threatened high-income countries. Economists have pointed to both supply-side and demand-side drivers of secular stagnation, and space as a focal point for investment can—at least in principle—address both. On the supply side, space is an unlimited frontier that, as have frontiers in the past, may inspire the individualism, innovation, and world-building needed to sustainably increase productivity and population growth. On the demand side, public investment toward increased economic activity in space could meaningfully add to aggregate demand if it reached historical peak benchmarks in the United States.

Modern theories of secular stagnation suggest that sustained escape from it typically requires sharp increases in aggregate demand (from a depressed level) and sustained increases in aggregate supply, for example, through a surge in capital investment and lasting growth in productivity or population. Unfortunately, these requirements have recently proven increasingly hard for high-income countries to satisfy, and a long-term solution seems elusive. On the demand side, long-term declines in the cost of investment goods have not generated a surge in investment demand, with market-clearing real interest rates seemingly stuck far below zero. On the supply side, entrepreneurship, productivity, and innovation seem to be slowing, evidence suggests that economically transformative ideas are becoming more resource intensive to generate, and the average fertility rate among OECD countries has fallen from 2.84 to 1.59 (well below replacement levels) over the half-century from 1970 to 2020.

A concerted effort to expand economic activity in space has the perhaps unique potential, at least in principle, to address indefinitely both the demand and supply roots of secular stagnation. In brief, the potential is as follows. On the demand side, if the United States were to return to its historical peak levels of public-sector investment in space—as a share of federal government outlays or gross domestic product—it could directly add between $1.5 trillion and $3 trillion to demand over the next two decades and indirectly add, by inspiring private-sector investment in expanded space activities, potentially much more. On the supply side, space might serve as a new and essentially infinite physical frontier, spurring dynamism, innovation, and thus productivity growth as have frontiers throughout history, but this time with no end point. Similarly, expansion into space is humanity’s only real option for sustained population growth in the long run. As far as I am aware, only space offers this combination of attributes.

Weinzierl (2023) Expanding economic activity in space may offer a solution to secular stagnation