There\’s a bubbling controversy over the \”secular stagnation\” hypothesis that investment levels are not only low, but likely to remain low. I\’ve posted some thoughts on the controversy here and there:
- \”Secular Stagnation: Back to Alvin Hansen\” (December 12, 2013),
- \”Sluggish US Investment\” (June 27, 2014),
- \”The Secular Stagnation Controversy\” (August 29, 2014), and
- \”Lower Working-Age Population and Secular Stagnation\” (November 28, 2014).
- The sharp contraction in private investment during the crisis, and the subsequent weak recovery, have primarily been a phenomenon of the advanced economies. For these economies, private investment has declined by an average of 25 percent since the crisis compared with precrisis forecasts, and there has been little recovery. In contrast, private investment in emerging market and developing economies has gradually slowed in recent years, following a boom in the early to mid-2000s.
- The investment slump in the advanced economies has been broad based. Though the contraction has been sharpest in the private residential (housing) sector, nonresidential (business) investment—which is a much larger share of total investment—accounts for the bulk (more than two-thirds) of the slump. …
- The overall weakness in economic activity since the crisis appears to be the primary restraint on business investment in the advanced economies. In surveys, businesses often cite low demand as the dominant factor. Historical precedent indicates that business investment has deviated little, if at all, from what could be expected given the weakness in economic activity in recent years. … Although the proximate cause of lower firm investment appears to be weak economic activity, this itself is due to many factors. …
- Beyond weak economic activity, there is some evidence that financial constraints and policy uncertainty play an independent role in retarding investment in some economies, including euro area economies with high borrowing spreads during the 2010–11 sovereign debt crisis. Additional evidence comes from the chapter’s firm-level analysis. In particular, firms in sectors that rely more on external funds, such as pharmaceuticals, have seen a larger fall in investment than other firms since the crisis. This finding is consistent with the view that a weak financial system and weak firm balance sheets have constrained investment.