positive outlook

Is Larry Summers Right About “Secular Stagnation”? by John Cassidy

On this point, I am a bit more optimistic, for a couple of reasons. The comparison with Japan, although worrying, isn’t fully persuasive. For many years after the stock-market and real-estate busts of the early nineties, stricken Japanese banks hoarded money, refusing to lend, and Japanese consumers saved more, crimping consumer spending. In this country, following the Great Recession, banks repaired their balance sheets much more rapidly and started lending again. Indeed, as Summers notes, there are already signs that credit standards are deteriorating again. Consumer spending, after an initial fall, has rebounded surprisingly well.

What has held the economy back is restrictive fiscal policy and a reluctance on the part of businesses to invest in new capacity. (For the first time in decades, gross capital investment has fallen below twenty per cent of G.D.P.) Looking ahead, there are hopeful signs in both areas. The budget deal at the start of the year modified the sequester, and investment, particularly in new home construction, appears to be picking up. Barring some unforeseen calamity, it’s quite likely that 2014 will be the first year since the housing bubble in which G.D.P. growth reaches three per cent. And with plenty of slack left in the economy, there’s no obvious reason why 2015 shouldn’t be another good year.