The Secular Stagnation of Productivity Growth

27 Pages Posted: 11 Feb 2020

See all articles by Servaas Storm

Servaas Storm

Delft University of Technology - Department of Economics

Date Written: December 12, 2019


The concern that an economy could experience persistent stagnation, caused by a structural weakness of aggregate demand, goes back to Alvin Hansen’s (1939) thesis of ‘secular stagnation’. Hansen’s thesis has been revived in recent times, when it became clear that productivity and potential growth in the OECD countries have been declining for decades. However, in line with deep-rooted theoretical beliefs, that inadequate demand can only affect growth in the short run, secular stagnation (of potential growth) is treated as an exclusively supply-side problem, the root of which is a worrying steady decline in productivity growth. This paper argues that it is a mistake to dismiss secular demand stagnation as main cause of declining potential growth in the OECD. We argue that the theoretical case for demand-caused secular stagnation is strong and empirical evidence that it has affected the U.S. economy after the mid-1970s is entirely convincing. Demand is leading supply, also in the long run. Hansen had it right, after all.

Keywords: Unbalanced growth, secular stagnation, total factor productivity, labor productivity growth, Solow residual, dual economy

JEL Classification: E02; E12; E31; F02; F15

Suggested Citation

Storm, Servaas, The Secular Stagnation of Productivity Growth (December 12, 2019). Institute for New Economic Thinking Working Paper Series No. 108, Available at SSRN:

Servaas Storm (Contact Author)

Delft University of Technology - Department of Economics ( email )

Jaffalaan 5
2628 EB Delft
31-15-2783548 (Phone)
31-15-2783480 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics