Is the Recovery an Example of Secular Stagnation?

Tuesday, September 08, 2015
secular stagnation

Many are wondering if a lack of adequate private investment opportunities may be contributing to the sluggish U.S. recovery from the Great Recession. One standard measurement suggests yes, but a recent Economic Synopses essay suggests otherwise.

Alvin Hansen first used the term secular stagnation in 1938, arguing that firms likely wouldn’t invest in new capital goods due to slower population growth and technological advance in the wake of the Great Depression.1 Hansen said: “It is my growing conviction that the combined effect of the decline in population growth, together with the failure of any really important innovations of a magnitude sufficient to absorb large capital outlays, weighs very heavily as an explanation for the failure of the recent recovery to reach full employment.”2

In an Economic Synopses essay, B. Ravikumar, vice president and deputy director of research with the St. Louis Fed, and co-authors3 asked: “How would a policymaker determine whether there are adequate private investment opportunities, an essential component of the secular stagnation hypothesis?”

Productive Capital

But is this the right way to measure investment opportunities? Or as the authors asked: “Aren’t the returns on productive capital more relevant for capital investment decisions than the returns on government debt?”

The authors cited their 2011 paper where they examined the real returns on productive capital using National Income and Product Accounts data.4 Using the same methodology, the authors found that the after-tax return on business capital is now more than 8 percent and the after-tax return on all capital is more than 6 percent. These are as high as they have been in the past three decades.


The authors concluded, “While many authors have documented the low and declining returns on government debt, these returns bear little resemblance to the returns on productive capital: The latter is a direct measure and a much better indicator of adequate private investment opportunities and has been rising for the past five years. … The takeaway here is that the current recovery is not an example of secular stagnation. The evidence on investment and returns on productive capital shatter the essential components of the secular stagnation hypothesis.”

Notes and References

1 Bernanke, Ben. “Why Are Interest Rates So Low, Part 2: Secular Stagnation,” Ben Bernanke’s Blog, March 31, 2015.

2 Hansen, Alvin. “Economic Progress and Declining Population Growth,” The American Economic Review, March 1939, Vol. 29, No. 1, pp. 1-15.

3 Paul Gomme, professor of economics at Concordia University, and Peter Rupert, professor of economics at the University of California, Santa Barbara.

4 Gomme, Paul; Ravikumar, B.; and Rupert, Peter. “The Return to Capital and the Business Cycle,” Review of Economic Dynamics, April 2011, Vol. 14, No. 2, pp. 262-78.

Additional Resources

Posted In Financial  |  Tagged b ravikumarsecular stagnationinterest ratesproductive capital
Commenting Policy: We encourage comments and discussions on our posts, even those that disagree with conclusions, if they are done in a respectful and courteous manner. All comments posted to our blog go through a moderator, so they won't appear immediately after being submitted. We reserve the right to remove or not publish inappropriate comments. This includes, but is not limited to, comments that are:
  • Vulgar, obscene, profane or otherwise disrespectful or discourteous
  • For commercial use, including spam
  • Threatening, harassing or constituting personal attacks
  • Violating copyright or otherwise infringing on third-party rights
  • Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments are limited to 1,500 characters, so please edit your thinking before posting. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.
comments powered by Disqus

The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.

Subscribe to
On the Economy

Get notified when new content is available on our On the Economy blog.

Email Alerts  |  RSS

About the Blog

The St. Louis Fed On the Economy blog features relevant commentary, analysis, research and data from our economists and other St. Louis Fed experts.

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

Contact Us

For media-related questions, email For all other blog-related questions or comments, email