Secular Stagnation? Modern Perspectives, Empirical Results and Economic Policy Implications

Prof. Dr. Eckhard Hein
Summer Semester 2017

I. Problems and Procedure

After the financial crisis and the Great Recession of 2008/09, the EU and Euro area in particular, but also Japan and even the US, have seen only weak recoveries. Therefore, the issue of long-run stagnation, or of ‘secular stagnation’, that is low or even negative growth over a prolonged period of time, seems to be on the agenda (again), for academic economists, economic policy advisers and policy making institutions. The start of the debate is usually associated with the contribution by Summers (2013) to the IMF Economic Forum and a follow-up paper, in which he argues that ‘the trend in growth can be adversely affected over the longer term by what happens in the business cycle’ (Summers 2014, p. 66). The Great Recession might therefore have caused a ‘secular stagnation’ for the years to come. This has triggered a debate on a tendency towards secular stagnation in developed capitalist economies.

However, this mainstream debate has suffered from serious shortcomings. First, it hardly pays any attention to the history of economic thought in the area of stagnation theories and does not refer to the contributions by Hobson (1902), Luxemburg (1913), Sweezy (1942), Keynes (1943), Steindl (1952), Kalecki (1954, Chapter 15, 1971, Chapter 13) and Baran/Sweezy (1966), for example, and those of their modern followers. Second, most of the modern contributions, in particular those by Summers (2014, 2015) are based on the notion of an equilibrium real or natural rate of interest equalising saving and investment in the capital market at full employment output levels, which, however, may currently not be feasible. This constellation is vulnerable to the critique from the ‘Cambridge controversies in the theory of capital’ (Harcourt 1969, 1972, Lazzarini 2011, Hein 2014, Chapter 3.6), questioning an interest rate-inverse and continuously downward sloping capital demand curve in a more-than-one-good economy. Third, the modern contributions also have to face the Keynesian critique with respect to the causalities between and adjustments of saving and investment in a monetary production economy and the claim that the principle of effective demand is valid for long-run growth, too (Robinson 1962, Hein 2014, Chapter 4). Fourth, most of the mainstream literature on secular stagnation seems to assume that the natural or potential rate of growth is more or less independent of aggregate demand dynamics, thus ignoring potential feedback and endogeneity channels (Hein 2014, Chapter 8). Fifth, in the modern discussion on secular stagnation changes in institutions and power relationships between social classes, as witnessed in the rise of finance-dominated capitalism over the last three decades for example (Hein 2012), does not seem to have an important role to play at all. And finally, in the mainstream version of this debate, as represented by Summers’s (2014, 2015) ‘secular stagnation’ hypothesis, distributional issues are ignored or only play a marginal role at best.

We have therefore first discussed the problems in the current mainstream approaches and we have provided an alternative theory of stagnation based on the post-Keynesian/Kaleckian work by Josef Steindl (1952, 1979) as the theoretical foundation for the project. In this alternative, changes in income distribution and the macreoeconomic policy stance, or the macroeconomic regime, are key determinants of economic development and thus of stagnation. Therefore, we have next focused changes of income distribution, before and after the financial crisis and the Great Recession, in six developed capitalist economies (France, Germany, Spain, Sweden, the UK and the US), making use of a post-Keynesian/Kaleckian theory of income distribution adapted to the period of finance-dominated capitalism or financialisation, which has dominted since the early 1980s. Based on these results, we have then examined the role of macroeconomic regime changes after the crisis for the tendencies towards stagnation in the same set of countries. Finally, we have turned towards the stagnation problems in the Eurozone, and we have applied our Steindlian approach of ‘stagnation policy’ and derived economic policy alternatives.

II. Results and Publications

Eckhard Hein: Secular stagnation or stagnation policy? Steindl after Summers, PSL Quarterly Review, 2016, 69 (276), 3-47.

The current debate on secular stagnation is suffering from some vagueness and several shortcomings. The same is true for the economic policy implications. Therefore, we provide an alternative view on stagnation tendencies based on Josef Steindl’s contributions. In particular Steindl’s (1952) book can be viewed as a pioneering work in the area of stagnation in modern capitalism. We hold that this work is not prone to the problems detected in the current debate on secular stagnation: It does not rely on the dubious notion of an equilibrium real interest rate as the equilibrating force of saving and investment at full employments levels, in principle, with the adjustment process currently blocked by the unfeasibility of a very low or even negative equilibrium rate. On the contrary, it is based on the notion that modern capitalist economies are facing aggregate demand constraints, and that saving adjusts to investment through income growth and changes in capacity utilisation in the long run. It allows for potential growth to become endogenous to actual demand driven growth. And it seriously considers the role of institutions and power relationships for long-run growth – and for stagnation.

Eckhard Hein, Petra Dünhaupt, Marta Kulesza and Ayoze Alfageme: Financialisation and distribution from a Kaleckian perspective: the United States, the United Kingdom and Sweden compared – before and after the crisis, International Journal of Political Economy, 2017, 46 (4), 233-266.


In this paper we analyse the effects of financialisation on income distribution, before and after the Great Financial Crisis and the Great Recession, for the two liberal Anglo-Saxon economies, the US and the UK, and for a typical Nordic welfare state economy, Sweden. We apply a Kaleckian perspective in which the focus will be on functional income distribution and thus on the relationship between financialisation and the wage share or the gross profit share. According to this approach, financialisation may affect aggregate wage or gross profit shares of the economy as a whole through three channels: first, the sectoral composition of the economy, second the financial overhead costs and profit claims of the rentiers, and third the bargaining power of workers and trade unions. We examine empirical indicators for each of these channels, both before and after the crisis. We find that the types of countries investigated here have shown broad similarities regarding redistribution before the crisis, however, with major differences in the underlying determinants. These differences have carried through to the period after the crisis and have led to different results regarding the development of distribution since then.

Eckhard Hein, Petra Dünhaupt, Ayoze Alfageme and Marta Kulesza: A Kaleckian perspective on financialisation and distribution in three main Eurozone countries before and after the crisis: France, Germany and Spain, Review of Political Economy, 2018, 30 (1), 41-71.


The purpose of this article is twofold. First, we examine if, and to what extent, a general Kaleckian analysis of the potential effects of financialisation on income shares in advanced capitalist economies is of relevance for the three Eurozone countries under investigation—France, Germany and Spain—in the period before the recent financial and economic crisis. Second, we study changes in the financialisation-distribution nexus which have occurred in the course of and after the financial and economic crisis. We find that the countries examined here have shown broad similarities regarding redistribution before the crisis although there are some differences in the underlying determinants. These differences have continued during the period after the crisis and have led to different results in the development of distribution since then.

Eckhard Hein: Financialisation and tendencies towards stagnation: the role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007-9, Cambridge Journal of Economics, 2019, 43 (4), 975-999.


This paper argues that the re-emergence of stagnation tendencies in modern capitalism can be related to financialisation and its macroeconomic failures leading to the recent crises, and in particular to the macroeconomic responses towards the crisis and the respective regime shifts in mature capitalist economies. The focus of the paper is on the latter, and it examines the regime changes for six mature capitalist economies, the two liberal Anglo-Saxon economies of the USA and the UK, a representative country from the Nordic welfare states, Sweden, the three important Eurozone countries France, Germany and Spain, as well as the core Eurozone (EA-12) as a whole. The concept of macroeconomic regimes under the conditions of financialisation is recapitulated, applied to the period before the crisis, and finally the regime changes during and after the crisis are examined. It is shown that a dominant tendency towards export-led mercantilism, in particular in the Eurozone and its main member countries, imposes an aggregation problem on the global economy and thus contributes to stagnation and rising global macroeconomic risks. Finally, the required stance for short- and long-run alternative policies to deal with these problems is outlined.

Eckhard Hein: Stagnation policy in the Eurozone and economic policy alternatives: A Steindlian/neo-Kaleckian perspective, Wirtschaft und Gesellschaft, 2018, 44 (3), 315-348.


The macroeconomic institutions and the macroeconomic policy approach in the Eurozone have failed badly, both in terms of preventing the global financial and economic crisis from becoming a euro crisis and in generating a rapid recovery from the crisis, in particular. In this paper we argue that the dominating macroeconomic policy regime in the Eurozone can be seen as a version of what Steindl (1979) had called ‘stagnation policy’. To underline this argument, we provide a simple Steindlian distribution and growth model in order to identify the main channels through which stagnation policy affects aggregate demand, accumulation and productivity growth. This will also provide a set of elements of a Steindlian anti-stagnation policy. Against this theoretical background we then examine the macroeconomic institutions and the macroeconomic policy approach of the Eurozone which has been based on the New Consensus Macroeconomics (NCM) and we highlight the main deficiencies. This will then provide the grounds for an outline of an alternative macroeconomic policy approach for the specific institutional setup of the Eurozone based on a post-Keynesian/Steindlian/neo-Kaleckian approach.


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