Secular Stagnation
A theory describing prolonged periods of below-potential economic growth caused by persistently weak aggregate demand and excess savings over investment.
What is Secular Stagnation?
Secular stagnation is an economic theory describing a prolonged period of slow or negligible economic growth in an otherwise developed economy. Originally articulated by Alvin Hansen in the 1930s and revived by economist Lawrence Summers in 2013, the theory argues that chronically weak aggregate demand — driven by an excess of desired savings over profitable investment opportunities — can trap an economy in sustained low growth even at near-zero interest rates. Contributing factors include demographic aging, rising income inequality, declining productivity growth, and insufficient public infrastructure investment. The concept has significant implications for the design of monetary and fiscal policy.
Example
After the 2008 Global Financial Crisis, the US and much of Europe experienced a decade of sluggish growth despite near-zero interest rates and multiple rounds of quantitative easing. Summers argued this persistence of weak demand confirmed the secular stagnation hypothesis, calling for sustained fiscal stimulus rather than relying on monetary policy alone.