Stagnation (economics)

Economic stagnation is a prolonged period of slow economic growth (traditionally measured in terms of the GDP growth), usually accompanied by high unemployment. Under some definitions, "slow" means significantly slower than potential growth as estimated by macroeconomists, even though the growth rate may be nominally higher than in other countries not experiencing economic stagnation.

The term "secular stagnation" was originally coined by Alvin Hansen in 1938 to "describe what he feared was the fate of the American economy following the Great Depression of the early 1930s: a check to economic progress as investment opportunities were stunted by the closing of the frontier and the collapse of immigration".

Warnings similar to secular stagnation theory have been issued after all deep recessions, but they usually turned out to be wrong because they underestimated the potential of existing technologies.

Secular stagnation refers to "a condition of negligible or no economic growth in a market-based economy". In this context, the term secular is used in contrast to cyclical or short-term, and suggests a change of fundamental dynamics which would play out only in its own time. Alan Sweezy described the difference:

"But, whereas business-cycle theory treats depression as a temporary, though recurring, phenomenon, the theory of secular stagnation brings out the possibility that depression may become the normal condition of the economy."

According to Alan Sweezy "the idea of secular stagnation runs through much of Keynes General Theory".

The U.S. economy of the early 19th century was primarily agricultural and suffered from labor shortages.

Capital was so scarce before the Civil War that private investors supplied only a fraction of the money to build railroads, despite the large economic advantage railroads offered.

As new territories were opened and federal land sales conducted, land had to be cleared and new homesteads established. Hundreds of thousands of immigrants came to the United States every year and found jobs digging canals and building railroads. Because there was little mechanization, almost all work was done by hand or with horses, mules and oxen until the last two decades of the 19th century.

The decade of the 1880s saw great growth in railroads and the steel and machinery industries. Purchase of structures and equipment increased 500% from the previous decade. Labor productivity rose 26.5% and GDP nearly doubled.

The workweek during most of the 19th century was over 60 hours, being higher in the first half of the century, with twelve-hour work days common. There were numerous strikes and other labor movements for a ten-hour day.

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