Secular Stagnation Redux?
In going through books and materials stored in a MAPI office, I found a first edition of Paul Samuelson’s text, Economics: An Introductory Analysis, published in 1948. Samuelson was the first American to win the Nobel Prize in Economics. He made an incredible number of contributions to economics, many of them highly mathematical. Samuelson died in 2009, but his textbook (coauthored with William Nordhaus of Yale University in later editions) is still in print and is in its 19th edition. Cumulative sales are said to exceed 4 million copies.
Samuelson’s book provided a model for many of the principles textbooks written by other economists. Anyone who has taken an introductory course in economics in more recent times would be amazed at the extent to which Samuelson’s text changed over time. I have a copy of the 7th edition (published in 1967) and it is full of the sorts of graphs and charts that typify the current generation of principles texts. In contrast, the first edition has far fewer graphs and is less technical, though most of the topics found in today’s textbooks are covered.
In perusing the first edition, I found one topic that receives little attention today, though it may be making a comeback. Samuelson summarized the work of Harvard’s Alvin Hansen, who argued that the U.S. economy could be subject to years of secular stagnation characterized by prolonged slumps, high unemployment, and “brief, anemic recoveries” in the decades following World War II. The cause of this was lagging investment coupled with technological innovation taking the form of inventions that “lessen rather than increase” the amount of investment spending required to bring these innovations to fruition. Examples of such innovations cited by Hansen included airlines, radios, and atomic energy.
At this point, I was surprised to find that Samuelson devoted two full pages to a discussion of George Terborgh’s book, The Bogey of Economic Maturity, published in 1945. Terborgh was the Research Director at the Machinery & Allied Products Institute (i.e., MAPI) for nearly 30 years before retiring in 1970. He challenged the view that economic maturity and a lack of investment opportunities would lead to the dire outlook predicted by Hansen. Terborgh believed that the stagnationist views of Hansen reflected the pessimism created by the experience of the Great Depression.
As it turned out, the U.S. economy did not stagnate after World War II but instead experienced a solid postwar expansion punctuated by occasional recessions from which recoveries were anything but anemic. Discussions of secular stagnation eventually fell by the wayside in later editions of Samuelson’s textbook, although the issue was very briefly mentioned in the 7th edition. That Samuelson paid any attention to the idea of secular stagnation in 1967 is somewhat surprising given that the U.S. economy was doing very well in the 1960s.
Since 2008, the United States has endured sharp recession, a continuing high level of unemployment, and an anemic economic recovery. Is the economy’s performance in recent years symptomatic of a lack of investment opportunities and secular stagnation? Terborgh argued that if investment is depressed, it is not because investment opportunities are lacking. Rather, it is “because of political and economic policies that discourage investment” that is otherwise economically justified. The current burden of regulations on manufacturers, corporate tax policy, the debate and irresolution on the “fiscal cliff,” and the ever growing level of the U.S. government’s debt are the sorts of things that Terborgh would argue discourage investment.
Don Norman, Senior Economist
 A notable exception is Alchian and Allen’s University Economics, 1964, which stands alone from other principles textbooks both in terms of style and sophistication.
 Atomic energy—as provided by nuclear power plants—hardly qualifies as an innovation that “lessens” the amount of investment required to generate electricity. At the time Hansen developed his ideas, however, little was known about nuclear power plants.
 George Terborgh, as quoted by Paul Samuelson, Economics: An Introductory Analysis, 1948, pp. 422-423.