Lawrence Summers Sticks With Secular Stagnation Warning After Jobs Data

Former U.S. Treasury Secretary Lawrence Summers is sticking with his warning that the U.S. economy could be mired in an era of secular stagnation — even after Friday’s news of the biggest monthly job gains in almost three years.

“When I put forward secular stagnation it wasn’t to say that we were permanently doomed never to have a good month,” Summers said in a brief telephone interview. “Secular stagnation remains an important issue for the industrialized world,” including the U.S.

The term, coined by economist Alvin Hansen during the Great Depression, generally refers to an extended period of little or no economic growth. Summers revived it last year to describe the economic troubles facing the U.S. and other industrial countries.

Payrolls rose 321,000 last month as the unemployment rate held at a six-year low of 5.8 percent, according to figures released today by the Labor Department in Washington. Average hourly earnings of all workers rose 0.4 percent, the largest rise since June of last year.

“The economy certainly does not appear to be stagnant at the moment,” said Summers, who is now a professor at Harvard University in Cambridge, Massachusetts. However, “whether growth can be sustained at rapid rates at normal type interest rates conducive to financial stability is certainly not yet fully established.”

Normal Rates

He said his hypothesis posits that normal interest rates will be substantially lower on average than in the past and that the risks of financial instability will be higher. “I don’t think a good number undoes that,” Summers said, referring to Friday’s jobs report.

Summers, who also served as chief economic adviser to President Barack Obama in 2009 and 2010, said that secular stagnation is “certainly a more pressing issue right now for Europe and for Japan than it is for the U.S.”

The European Central Bank this week lowered its forecast for inflation and economic growth. Japan, meanwhile, has slipped back into recession, with its economy contracting by two quarters in a row.