A great illustration of the complicated secular stagnation debate

If you’re reading up on the economy, a term you’re likely to hear thrown around is secular stagnation.

In a 2013 speech at the IMF, Harvard’s Larry Summers brought the phrase — first used by Alvin Hansen in 1938 — back to talk about the current economic malaise that the global economy seemed mired in following the financial crisis.

Citi analysts summarized Summers’ use of the term and the resulting popularization as follows in a note to clients this week: “The modern version of Secular Stagnation is a catch-all term for the ills of the global economy, such as weak growth and falling inflation.”

Citi added:

The most profound implications stem from demand-led secular stagnation. In particular, that the zero bound is a problem in delivering actual stimulus while bubbles may help deliver demand (and so may be part of the toolkit and landscape for long horizons) but their ultimate collapse further entrenches the core yield declines.

And so in other words, secular stagnation puts forward the idea that interest rates at 0% might not be low enough to sufficiently stimulate an economy facing a demand shortage as stark as what some economists think we’ve been grappling with since the crisis.

In its note, Citi included the following graphic, showing a broad outline of what secular stagnation is made up of, why it persists, and the problems it poses.

And this schematic at once makes it clearer what we’re talking about when we talk about secular stagnation, and why we still might not all be talking about the same thing.

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