Secular stagnation hung over the annual meeting of more than 5,000 economists from around the world this past weekend -- as a description of the economy and not as comment on the liveliness of the cocktail parties.

Support for the thesis that the industrial world is mired in a prolonged period of slow or no growth was dimmed, though not banished, by the recent strength of the U.S. economy.

A standing-room only crowd packed a hotel ballroom on Jan. 3 to hear two leading proponents of the proposal, Professors Lawrence Summers of Harvard University and Robert Gordon of Northwestern University in Evanston, Illinois, defend their views.

“Just because we have 5 percent growth doesn’t mean we are out of the woods,” Summers, a former Treasury secretary and senior White House official, told the American Economic Association meeting in Boston, alluding to the U.S. economy’s pace of expansion in the third quarter.

He rattled off a variety of reasons for caution. Among them: the risk of financial bubbles, the difficulties the Federal Reserve may face in raising interest rates back to more normal levels, and continued excess capacity in Japan and Europe.

Summers also compared the euro area’s situation today with that of Japan in the late 1990s, before it slipped into a deflationary funk, and warned that the U.S. could be in for an extended period of a “dismal growth rate below 1-1/2 percent.”

Fellow Harvard professor Greg Mankiw took issue with that gloomy prognosis as far as the U.S. is concerned. In particular, he highlighted the improving labor market, where unemployment is at a six-year low and wages have begun to rise.

“We are returning to normalcy,” said Mankiw, who is also chairman of the economics department at Harvard in Cambridge, Massachusetts and a former chief White House economist.

There is “growing evidence of socioeconomic decay” as the U.S. economy struggles, Gordon said, pointing to the rise in the prison population and “the enormous increase in the number of children born outside of wedlock.”

“The fruits of the third industrial revolution” in information technology “may be coming to an end,” said Gordon, who is a member of the economic panel that dates the start and finish of U.S. recessions.

David Fuller's view

Good grief!  No offence to my charming economist subscribers, but 5000 other economists at the same meeting sounds like the equivalent of a biblical plague.  No wonder most stock markets were in swift retreat today.  An undertakers’ convention would have been a knees-up in comparison.   

Noting the last sentence of the article portion that I reproduced above, I wonder what evidence Mr Gordon cited for his claim that “the fruits of the third industrial revolution’ in information technology ‘may be coming to an end”?  

OK, I may be biased because I remain almost fully invested, although I expect plenty of volatility this year.  I also think Harvard professor Greg Mankiw is closer to the mark with his forecasts.