Identifying the determinants of secular stagnation after the Great Recession: Learning from Hansen ́s historical approaches and Harrod ́s model along 1938-1952

Please cite the paper as:
Adrián de León-Arias, (2016), Identifying the determinants of secular stagnation after the Great Recession: Learning from Hansen ́s historical approaches and Harrod ́s model along 1938-1952, World Economics Association (WEA) Conferences, No. 1 2016, Capital Accumulation, Production and Employment:, 15th May to 15th July 2016


In the recent debate about “back to business as normal” after the Great Depression (2008-?), the possibility of an extended condition of low economic growth in the U.S. and other countries in the medium term has been related to the pattern of secular stagnation; see for instance, works compiled by Teulings and Baldwin (2014), Solow (2014), and even mentioned by Greenspan (2014), among others.

However, while the concept and development of secular stagnation, as an eventual significant shift in the investment motives due to low growth in population, productivity growth, a specific pattern of technological change and geographical expansion, was developed fundamentally by Alvin Hansen in late 1930 ́s. And then, due to the economic expansion after II WW and the lack of a model to identify the condition of secular stagnation in an economy, the concept was neglected and almost forgotten in the economics toolkit, therefore its use in current times has brought some confusion.

In this paper, in order to amplify the explicative capacity of the concept of secular stagnation, I develop a framework to identify the elements that determines the condition of economic stagnation in an economy through the review of the original concept in Hansen, and other developments by Roy F. Harrod. In particular, this framework reflects an explanation of the determinants of economic stagnation due to disequilibrium between greater desired savings and lesser planned investment (mostly autonomous) given a technological change slowdown and slower population growth.

The conceptual clarification of the concept of secular stagnation will also help to differentiate other conditions of low rate of economic growth such as those related to negative real interest rates or price disequilibrium (Backhouse and Boianovsky, 2015) that have been close related to the secular stagnation à la Hansen/Harrod.

It may relevant to note that there are other explanations of current stagnation that follow different lineages: Cowen (year) à la Schumpeter and Koo (2009, 2014) à la Fisher. However they will not be reviewed in this paper, although they may be included in the framework to be developed here.

In this paper, I also suggest that the secular stagnation concept while localized in the economic growth/business cycle framework and as developed in my framework offers relevance for current discussion on secular stagnation in present times.

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Recent comments



  • Jerome Joffe says:

    As Harrod and Hansen were both systematically focused recursively on aggregate demand shortfall as the key determinant of investment and profit rate decline, impacts on the latter arising separately from technological change ie. from other than aggregate demand is ignored. Similarly the net impact on profits from the rising proportion of unproductive labor (as per Marxist theory) is not considered. These independent impacts on the profit rate and the latter’s impact on investment should not be overlooked.

    • ADRIAN DE LEON says:

      Dear Jerome Joffe, thanks for your comments. In fact, profit rate is not clearly included in Harrod, I should have to review Hansen in this matter. In particular, the difference between, for instance, Robinson and Kaldor´s growth model and Harrod´s is the role of profit rate. Certainly, the role of profit rate and other structural change should be included.

  • Arturo Hermann says:

    I appreciate your work on secular stagnation and the attempt to build a common thread between the most important contributions. As regards the latter, and in particular Hansen’s and Harrod’s works, they are very interesting but perhaps better fit to explain the dynamics of economic cycles than the trend of secular stagnation. In order to account for the latter, there is a need to analyse also the structural transformations of the economic and social structure. I will mention a number of intertwined factors:

    (I) The growing productivity of labour and the tendentially negative effect on employment; this happens because the increase in productivity signifies that, for a given level of production, fewer jobs are required; and that, in order to keep up with the same level of employment, more products should be produced and sold in the market. Of course, firms can introduce new products on the market, but this would not solve that structural issue. In fact, even if new jobs are created in these fields, the increase in productivity extends also, and perhaps even more, to the new products. This could contribute to explain that every innovative wave tends to create fewer and fewer jobs. For instance, it is easily observable that, whereas the durable goods typical of 1960’s and 1970’s involved hundred thousands workers, the innovative cycles of today high-tech products would employ no more than some thousands workers.
    All this suggests that a kind of “forced” over-consumption is the only and very imperfect way, in our present economies, for attaining some kind of full employment level.

    (II) The satiation for certain categories of goods; this happens because, since the needs of consumers are becoming increasingly tied to the immaterial and intellectual side of consumption (for instance, R.Skidelsky and E.Skidelsky, How Much Is Enough? Money and the Good Life, 2012), their fulfillment tend to depend less and less on the “material and quantitative” aspects of consumption. In fact, we do not buy books by kilos and cultural activities by mere numbers. Also, if we buy a high-tech product, we are likely to be more interested in learning well how to use it, than in changing it with every new model.
    These aspects constitute a significant explanation of the tendency of the socio-economic systems to move from work activities resting on “the economic motive” to activities — social, cultural, scientific, artistic — based on the true expression of the real needs and inclinations of persons. But these aspects square less and less with a rigid conception of labour.

    (III) It can be interesting to note that these more “qualitative” tendencies had been highlighted by important economists, and we can mention some significant examples. The first one can be found in the most “heterodox” classical economist, John Stuart Mill. In his appraisal of the long term economic evolution, he remarks that the structural tendency towards the stationary state does not imply a static way of living but, on the contrary, constitutes the necessary condition for the full expression of the more advanced aspects of personality. The central element for attaining such a state is the control of population. In his words,

    “It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the Art of Living and much more likelihood of its being improved, when minds ceased to be engrossed by the art of getting on. Even the industrial arts might be as earnestly and as successfully cultivated, with this sole difference, that instead of serving no purpose but the increase of wealth, industrial improvements would produce their legitimate effect, that of abridging labour. Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being….Only when, in addition to just institutions, the increase of mankind shall be under the deliberate guidance of judicious foresight, can the conquests made from the powers of nature by the intellect and energy of scientific discoverers, become the common property of the species, and the means of improving and elevating the universal lot.”, [John Stuart Mill, Principles of Political Economy, 1994, (1871): 128, 129, 130].

    Another relevant contribution to these issues has been provided by J.M.Keynes, in particular in the final part of the Essays in Persuasion. For him, focusing attention on short-term problems constitutes only a part of a more profound awareness of the structural transformations of society. The core of these changes will be on a substantial shortening of the working time, made possible by the increase of productivity. The main obstacle to the attainment of this potential rests not in a technical but in a psychological difficulty, which, in our opinion, can also be related to an unconscious feeling of guilt related to the presence of superego. He pinpoints, with great psychological intuition, the difficulty of people to employ leisure time for a better realization of their personalities. In his words,

    “We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour….But this is only a temporary stage of maladjustment. All this means in the long run that mankind is solving its economic problem….[but, despite this opportunity]….Yet there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy…[hence, in this perspective, economics]….should be a matter for specialists—like dentistry. If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!”, [Keynes, Essays in Persuasion, 1963 (1931), 364, 368, 373].

    Also J.K.Galbraith’s The Affluent Society complements in interesting ways with this analysis. In his words, “To furnish a barren room is one thing. To continue to crowd in furniture until the foundation buckles is quite another. To have failed to solve the problem of producing goods would have been to continue man in his oldest and most grievous misfortune. But to fail to see that we have solved it, and to fail to proceed thence to the next tasks, would be fully as tragic.”, [Galbraith 1998 (1958): 260].

    In conclusion, I think that these factors can make a good synergy with your analysis.


      Dear Arturo, do you receive my previous comments? Adrian

      • Arturo Hermann says:

        Hi, I did not receive the comments you mentioned in the previous answer. I agree with your latest answer.
        In this regard, it seems promising to bring together the various contributions on secular stagnation and link them in a kind of unified and flexible interpretative framework.

  • ADRIAN DE LEON says:

    Dear Arturo, thanks for your comments, very thought provocative, There was an intensive debate about the rol of “secular staganation” on business (trade) cycle and trend. I think it was a (not very wide) consensus on the effect as trend rather than business cycle, more as in Hansen (1957) “Trend and cycles in Economic Activity”. However, it a more “static” (no structural change) trend. Your certainly point out some characteristics that amplify the concept of trend and it should be reviewed in a more wide approach. I thank your for wonderful Mills, Keynes and Galbraith´s quotations