The Mayekawa Lecture:
Wall of Worries:
Reflections on the
Secular Stagnation Debate
Barry Eichengreen
This paper oﬀers some reflections on the debate over secular stagnation.
It expresses doubts about explanations for the secular decline in real interest rates and economic growth rates that emphasize the possibility of a
global savings glut attributable to the rapid growth of emerging markets
and increases in income inequality in the advanced economies. It invokes
historical evidence to question whether the commercial potential of new
advances in technology have been exhausted. The most convincing explanation for the observed excess of desired saving over desired investment
and corresponding low level of real interest rates, it concludes, is probably a sharp, ongoing fall in the relative price of investment goods since
the middle of the 20th century. Whether this decline will continue is uncertain. The bottom line is that the case for secular stagnation is at best
unproven.
Keywords: Secular stagnation; Real interest rates; Economic growth
JEL Classification: E00, N1

George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, Universityof California, Berkeley (E-mail: eichengr@berkeley.edu).....................................................................................................................
Text of the Mayekawa Lecture, delivered to the Bank of Japan-IMES annual conference, Tokyo,
June 4–5, 2015. I am grateful to Miguel Moran and Donghyu Yang for helpful comments. The
views expressed in this text are those of the author and do not necessarily reflect the oﬃcial viewsof the Bank of Japan.

MONETARY AND ECONOMIC STUDIES / NOVEMBER 2015
DO NOT REPRINT OR REPRODUCE WITHOUT PERMISSION

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Since the financial crisis and in some sense longer—since the decade of the 1970s,
according to the now conventional narrative—growth in the advanced economies has
disappointed.1 The growth of total factor productivity has slowed in the U.S. and elsewhere.2 The demographic picture has darkened. Real interest rates have fallen to unprecedented levels, and nominal interest rates are perilously low. If this wall of worries
didn’t have a name, someone would have to give it one. In the event, someone alreadyhas, the name in question being “secular stagnation.”3
But along with the name comes confusion, or at least a plethora of associated definitions, hypotheses and interpretations.4 In sorting through this confusion I find it
useful to start with the real interest rate, which figures in all competing hypotheses andinterpretations. The secular decline in real interest rates in the advanced economies is
not a new phenomenon; the IMF argues that it has been underway since the 1980s.5
Nor is it newly noticed, having been the subject of analysis by researchers at the Bankof Canada as long as ten years ago.6 That ex ante real interest rates (ex ante rates being
what matter for economic activity) are not easy to measure may explain why it took solong for this attention to become general.
The equilibrium real interest rate is a matter of considerable uncertainty, as Janet
Yellen and Ben Bernanke have recently reminded us.7 Probably the simplest framework for thinking about it is the Ramsey optimal growth model. In balanced growthequilibrium without uncertainty and with optimal decision making by households, theRamsey model leads to the following formula:r = MPK = ρ + σg
where r is the real interest rate and MPK is the marginal product of capital. Assuming perfect foresight, the steady-state marginal product of capital is a function of therate of discount of future income (the subjective rate of time preference) ρ, the rate of
growth of per capita income g, and the rate at which households are prepared to substitute between current and future growth σ (where 1/σ is the intertemporal elasticity of
substitution).
Intuitively, the interest rate will be higher when individuals are more impatient (ρis higher), since it will have to rise to discourage borrowing against the future andthus equalize saving and investment. It will be higher when growth g is faster, sinceindividuals will again want to borrow more against their higher future incomes, andthe interest rate will have to rise to limit this tendency. How much it will have to rise
will depend on the intertemporal elasticity of substitution, since, with a high elasticity,
households will be more inclined to substitute future for current consumption.
................................
1. And now there are signs of this same disappointment spreading to emerging markets.
2. Fernald and Wong (2015) summarize the latest.
3. And that someone being Lawrence Summers.
4. Perhaps this is unavoidable, given the temptation to apply a prominent label to a variety of quite diﬀerent
tendencies and concerns. But that confusion is not helpful for either diagnosing the problem or identifying
potential solutions.
5. See IMF (2014).
6. See Desroches and Francis (2006).
7. See Yellen (2015) and Bernanke (2015).

30 MONETARY AND ECONOMIC STUDIES / NOVEMBER 2015

The Mayekawa Lecture: Wall of Worries: Reflections on the Secular Stagnation Debate

Figure 1 Ramsey Model Predicted Real Interest Rates

Note: Author’s Calculations.

This model oﬀers a prediction of how lower labor productivity growth g shouldaﬀect interest rates. With standard values for ρ and σ of 0.5 and 1.0, reducing therate of labor productivity growth from 1.8 per cent (the G7 average between 2001 and2007) to 0.9 per cent (the 2007–12 average for the same set of countries) suggests a
decline in real interest rates from 2.3 per cent to 1.4 per cent.8
Over the longer run, data on labor productivity growth and these parameters suggest
a decline in real interest rates from 3.4 per cent in the 1970s to 2.9 per cent in the 1980s
and 2.4 per cent in the 1990s (see Figure 1). This matches rather closely the IMF’s
estimate of the change in the equilibrium real return on equity over these same periods(IMF 2014).9 It suggests that some of the decline in ex post real rates observed since
the early 1980s, when these reached high levels, most notably in the United States,reflects mean reversion, but not all.10
Hamilton, Harris, Hatzius, and West (2015) provide a critique of this approach.
They find that changes in growth rates have little predictive power for the real interest................................
8. These are OECD-assembled data on the rate of change in GDP per hour worked.
9. Note however that the average level of the latter is higher, presumably reflecting the equity risk premium.
The picture would admittedly look diﬀerent, making the story more complex, were the data partitioned middecade to mid-decade, highlighting the relatively rapid growth of the 1995–2005 decade, in the United Statesin particular.
10. This is similarly the conclusion of the Laubach-Williams (2003) approach, as updated by Williams (2015),
where the nominal rate is adjusted for changes in the trend rate of GDP growth, estimated via a Kalman Filter.
As Williams (2015) shows, the real rate dips from its high early-1980s level before stabilizing (relatively
speaking), declining modestly in the 1990s and then falling persistently after 2001. The model’s estimate ofa natural rate of 3 per cent in 1990 is remarkably similar to the estimates here using the Ramsey model.

31

rate.11 They then argue on the basis of a narrative approach that business cycle fluctuations, changes in the intensity of financial regulation, inflation rates, and financial
bubbles are more important predictors or correlates of observed changes in real rates.
My interpretation of their findings is that these other variables dominate over shorter
horizons. It takes time for long-term trends in growth rates to be incorporated into
household behaviour and translate into secular changes in the real interest rate. But
once they are so incorporated such secular trends become evident.
A related argument is that the observed decline in real interest rates on treasury
bonds in the G7 countries reflects a shortage of safe assets (Gourinchas and Jeanne[2012]), which has driven up the price and depressed the yield on informationinsensitive treasury securities. However, Gordon, Lwellen, and Metrick (2012)
estimate that the percentage of safe assets represented by the sum of U.S. government
debt and safe private financial debt has remained constant at close to one third since
the early 1950s. It could be that formerly safe assets supplied by governments andcorporates in other G7 economies, like those of Europe, have lost their information
insensitivity. But this lost of information insensitivity is a recent phenomenon to
the extent that it has occurred, while the decline in real rates has been secular. In
addition, recent years have seen a rise in the price of (decline in yields on) riskier
assets, something which is unlikely to be aﬀected by this so-called safe-asset shortage.
It seems hard to argue that fluctuations in business cycles, inflation, the supply ofsafe assets and financial bubbles can explain a secular decline in real interest rates thathas been ongoing for the better part of 35 years (although trends in financial regulation
are plausibly a better candidate for explaining these secular trends). Hamilton et al.
dismiss the secular stagnation hypothesis on these grounds and predict that the realinterest rate will rise to conventional levels once recovery is given more room to run.
In the spirit of Zhou Enlai I am more inclined toward the view that it’s too early to tell.
*****
What then might lie behind these longer-term changes, assuming that they’re real?
(Pun intended.) That the downward trend in real interest rates is relatively long lived
suggests that more than just the financial crisis is at work. That the trend is evident
across the advanced economies suggests looking at global rather than country-specificfactors.12 Since the real interest rate can be thought of as equilibrating desired levels ofsaving and investment, factors influencing saving and investment globally, or at leastin countries constituting a significant share of the global economy, should be the focus
of attention.
Precedence here goes to the hypothesis of a global savings glut, since the point
was flagged earlier on by Bernanke (2005) and Greenspan (2010). The idea is lent................................
11. At the same time, their preferred estimates of the U.S. real interest rate, based on the nominal (central bankdiscount) rate minus a measure of expected inflation based on inflation persistence over the most recent 30
years, behaves quite similarly to the real rate as estimated on the basis of the Ramsey model and the calibration
above.
12. The earlier literature on trends and fluctuations in real interest rates, dating from the earlier 1990s, while
not yet aware of the secular downward trend similarly highlighted the role of global factors (see Barro andSala-i-Martin [1990], Barro [1992], G10 [1995] and Smith [1996]).

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The Mayekawa Lecture: Wall of Worries: Reflections on the Secular Stagnation Debate

plausibility by the rapid growth of high-saving emerging markets. It is supported by
the existence of a discernible, albeit slight, upward trend in global saving as a share of
global GDP from 23–24 per cent in the 1990s to 25 per cent in 2002–07.13
But if this was the only, or even the main, thing going on, investment should haverisen across countries, all of which would have been aﬀected similarly by the fall inreal interest rates.14 In fact, investment rates fell in the advanced countries, from some
24 per cent of GDP in the 1980s to 22 per cent in the 1990s and then 20 per cent in
the 2000s. Evidently, something else important was occurring at the same time in theadvanced-country world.
Some observers point to growing income and wealth inequality as contributing to
the savings glut, on the grounds that the rich save while the poor don’t, or at least thatthe rich have higher savings rates (Mian and Sufi [2014]). Theories of underconsumption rooted in inequality go back at least to Hobson (1910) if not Malthus (1836),
and there is some modern evidence lending them credence. Lawrence (1991) usedmicro-data from the U.S. Panel Study of Income Dynamics to estimate Euler equations
suggesting that rates of time preference are 3 to 5 percentage points higher for households with low permanent incomes than for those with higher ones. Dynan, Skinner,and Zeldes (2004) similarly found higher marginal propensities to save among richer
households. More recently, Haushofer, Schunk, and Fehr (2013) found in an experimental setting that relatively poor subjects with unfavourable wealth endowments exhibit higher discount rates (higher rates of time preference) than the rich.15 Why thisshould be the case is not entirely clear. Some economists suggest that attitudes towardsaving are culturally conditioned and, as F. Scott Fitzgerald put it, the rich “are diﬀerent
from you and me.”But for distribution to explain the decline in real interest rates since 1980 it isnecessary to focus not on the level of inequality but the change. This brings us tothe observation that the working class has been experiencing lower rates of growth ofreal earnings and permanent income than the wealthy. This is true across a range ofadvanced economies but first and foremost the U.S. and UK, as emphasized by theliterature inspired by Piketty (2014). If there has been a shift in income toward thewealthy, and if the wealthy spend less as a share of income, then there could be adearth of spending overall, translating into lower real interest rates.
Cutting against this is the fact that there has been no trend toward higher householdsaving since the decline in real interest rates became evident in the early 1980s. Meanwhile, savings rates outside the ranks of top earners in fact declined as households withstagnant incomes borrowed even more heavily in the eﬀort to maintain their customaryrates of income growth.16 It could be that deleveraging by such households, their hav................................
13. For purposes of this comparison I leave out the 1990–91, 2000–01 and 2008–09 periods when investment
was depressed by recession and financial crisis. Note that the elasticity of the global real interest rate withrespect to global savings would have to be quite high for this relatively limited rise in the latter to explain thesubstantial observed fall in the former. That said, the structural estimates of Barro and Sala-i-Martin (1990)
do not rule out responses of this magnitude.
14. A point usefully emphasized by Fatas (2013).
15. On the other hand, looking across countries Schmid-Hebbel and Serven (2000) find no evidence of a significant link between measures of income inequality and aggregate savings rates.
16. Kumhof, Ranciere, and Winant (2015) develop a model linking the growing income and wealth shares of the33

ing been impressed by the dangers of excessive indebtedness as a result of the crisis,
is now contributing to the dearth of spending. But again it is important to recall thatthe observed decline in real interest rates long precedes the financial crisis and also, forthat matter, the consumption and borrowing boom of the early 2000s.
Past BOJ-IMES conferences have focused on possible links between demography
and real interest rates.17 Invoking population aging in the advanced economies andnow emerging markets to explain the fall in real interest rates takes some doing, tobe sure. Standard life cycle models lead in the other direction. Insofar as elderly
retirees have lower savings rates than active labor-force participants, populations withhigher old-age dependency ratios should have lower savings rates. One can point to
the possibility that the elderly, owing to bequest motives and uncertain lifetimes, arereluctant to reduce their savings rates, much less to actively dissave, and there is some
support for the proposition (Weil [1994]). Or one can hypothesize that that population
aging has an even larger negative impact on investment (Goodhart and Erfuth [2014]),perhaps because rates of capital/labor substitution are extremely low. But there is little
systematic empirical evidence for the hypothesis. Higgins’s (1998) careful study ofcountry-level panel data suggests that savings rates decline faster than investment rates
at the national level as the population ages (beyond 70 years, in particular).
Any conclusion based on such mixed evidence is bound to be controversial. My
conclusion for what it is worth is that factors operating on the saving side of the savinginvestment balance—the so-called global savings glut, changes in demographics, andthe level or rate of change of income inequality—do not by themselves provide a compelling explanation for the observed decline in real interest rates.
*****
If not due to an increase in savings supply, then the decline in real interest rates mustreflect a decline in investment demand. The observed decline has been centered in theadvanced countries, as noted above, although there was also a reduction in investment
rates in East Asia ex China and Japan after the Asian financial crisis, as noted by Rajan(2006). Although investment rates in China have not yet shown much tendency tofall, they have at least stopped rising and will now decline as growth slows and thecountry continues the process of economic rebalancing.18 And while a trend that has
been underway since the early 1980s almost certainly has a secular component, there
is no doubt that the even more pronounced weakness of investment relative to saving
in recent years (reflected in a further decline in real interest rates) also has a cyclicalcomponent attributable to disruptions to the financial system, policy uncertainty andother after-eﬀects of the financial crisis.19
This secular decline in investment relative to saving could reflect the declining..........................................................................................................................................
top 5 per cent to their greater willingness to lend, to the greater willingness of low income individuals toborrow given prevailing interest rates, and to subsequent crises and default, but I regard their evidence for themodel, such as it is, as only suggestive.
17. See Shirakawa (2012).
18. That investment is the principal component of GDP to decline during growth slowdowns is a key finding ofEichengreen, Park, and Shin (2012).
19. As emphasized by Hamilton et al. (2015) and noted above.

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The Mayekawa Lecture: Wall of Worries: Reflections on the Secular Stagnation Debate

relative prices of investment goods, as a result of which the same investment projects
can be pursued by committing a smaller share of GDP.20 In his work on the prices ofcapital goods, Gordon (1990) has shown that this change in relative prices is not limited
to information-technology products; it is more general. But it is most pronounced in
the IT subsector. As Lawrence Summers has described the implications:“[T]he leading technological companies of this age. . . find themselves swimmingin cash and facing the challenge of what to do with a very large cash hoard. Ponder the fact that WhatsApp has a greater market value than Sony with next to nocapital investment required to achieve it. Ponder the fact that it used to require tensof millions of dollars to start a significant new venture. Significant new ventures
today are seeded with hundreds of thousands of dollars in the information technology era. All of this means reduced demand for investment with consequencesfor. . . .equilibrium levels of interest rates.”21
But it is far from clear that what is true of high-profile IT companies like Google,
Apple and WhatsApp employing frontier IT technologies is true of companies employing new technologies generally. Consider high-tech batteries: the cost of Tesla’s“Gigafactory” for producing batteries for electric cars and other purposes, for example,
will run not in the hundreds of thousands or tens of millions of dollars but upwards of$5 billion.
In addition, any additional projects that may be rendered attractive by this lower
cost of capital must not be enough to oﬀset this decline in the investment share if
lower investment-good prices are to mean lower real interest rates. Some international
evidence implies the opposite: Hsieh and Klenow (2007) show that countries with thelowest relative price of investment goods in practice have the highest investment rates.22*****
The alternative is to hypothesize that investment has grown less attractive irrespective of price. This was one of the original conjectures of Hansen (1938), who coined thephrase “secular stagnation.”23 In its current form, due to Gordon (2012), the argument
is that innovation is translating into slower total factor productivity growth than in thepast, and slower TFP growth in turn means fewer attractive investment opportunities.
To be clear, the argument is not that innovation has slowed (an idea that is hardto square with impressionistic evidence) but that rather it has become less profitable.
Gordon’s variant associates periods of high commercial applicability and profitability
with three specific clusters (or “waves”) of innovation: steam and rail in the 19th century; electricity, the internal combustion engine and (more prosaically) indoor plumb................................
20. As I note in Eichengreen (2015), for this change to deliver the necessary eﬀect (a decline in the share ofinvestment in GDP) the number of new additional investment projects undertaken as a result must be limited;in particular, the elasticity of substitution between capital and labor must be less than one.
21. Quoted in Weisenthal (2014).
22. What is true in the cross section may not also be true of changes over time, but this is the best evidence wehave.
23. Proven false by subsequent—and, indeed, as we will see, contemporaneous—experience.

35

ing from the late 19th through the mid-20th centuries; and now information technology,
including computers, cell phones and the web since the 1960s. That these technologies
come in clusters suggests that they are interrelated and have an important network dimension. The core argument is that the contribution to TFP growth of the third cluster
is less than that of its two predecessors.
It may help, in order to get purchase on this hypothesis, to divide it into its threecomponent parts.
• First, the dynamic eﬃciency advantages of the third wave of innovations, as
captured by TFP growth, are likely to be less than those of its predecessors.
• Second, the time profile of those eﬃciency eﬀects will be shaped by the recession and financial crisis through which the advanced countries have just passed.
• Third, the time profile of those eﬃciency advantages will be further shaped—
specifically, their materialization may be further delayed—by the networkbased nature of this third wave of innovations.
Consider these sub-hypotheses in turn, starting with the first. Whether smart machines, the Internet of Things, and materials like graphene have the potential to raise
TFP growth as dramatically as the great inventions of the past is necessarily a matterof speculation. I will therefore pass over it quickly, although my study of the relevant
economic history biases me against the conclusion that “all the (commercially) great
inventions have been made.”
A less speculative and more tractable question is whether the advanced economies
lack the capacity to eﬀectively commercialize and apply these technologies in ways
capable of boosting TFP.24 This is a hard case to make. Commercialization requires
finance. But venture capital and other forms of early-stage finance (crowdsourcing)have become if anything easier to obtain, not harder, though it can be argued that theyremain easier to obtain in some places like the United States than others. Commercialization requires patience from those providing finance. Here the fact that many venture
capital firms are private partnerships and that companies attempting to commercialize
projects with long time horizons are closely held (think Google) helps to accommodate
the need.
Commercialization requires entrepreneurship. But again there would seem to be
no shortage of relevant skills in the advanced countries, which source entrepreneurs
globally.25
Commercialization also requires coordination between basic and applied research.
Here the close connections between universities, where government-funded basic research takes place, and business, where applications are developed, paint a broadly
positive picture by the standards of the past.
Then there is the question of how eﬀorts at translating new technology into increases in total factor productivity are aﬀected by financial crises and deep recessions................................
24. Relatedly, Pagano and Sbracia (2014) conclude that previous studies predicting secular stagnation were wrong
not because they failed to anticipate new technologies but because they underestimated the potential of technologies that already existed.
25. In principle in the case of the advanced countries, in practice mainly in the case of the United States.

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The Mayekawa Lecture: Wall of Worries: Reflections on the Secular Stagnation Debate

like those recently experienced in the advanced economies. On the one hand thereis the Reinhart and Rogoﬀ (2014) view that recoveries from deep recessions marked
by financial crises are characterized by slow growth of output, employment and productivity (where the current “productivity-less” recovery in the UK is often thought toepitomize the phenomenon). Because the financial system is impaired, banks hesitate
to lend. Because firms are deleveraging, they are reluctant to invest. Because households are seeking to work down debts, they are reluctant to spend, and the demand
for goods and services is weak. All this makes for weak investment in TFP-boosting
activities including those related to the commercialization of new technologies.
On the other hand there is the view, associated with Hall (1991) and Caballero andHammour (1994), that recessions are good times for productivity-enhancing reorganization. In recessions, a firm’s resources are not fully utilized in current production;some can instead be redeployed for figuring out how to enhance the eﬃciency of future
production. And what is true for the individual firm or sector is true by analogy forthe economy as a whole. We should therefore see productivity growth accelerate in thewake of deep recessions marked by financial crises.
Support for the recessions-as-reorganizations view is lent by the 1930s, when totalfactor productivity grew quickly in both the United States and United Kingdom.26 TFP
in manufacturing in the United States in 1935 was fully 30 per cent above its 1929
level, while the comparable change in UK manufacturing was 25 per cent (Figure 2).27
1929–41 saw the fastest growth of TFP in the United States of any period of comparable
length in the 20th century.
U.S. railroads in the 1930s are a striking case in point, as shown by Field (2012).
Experiencing a sharp reduction in current demand for their services but finding it hardto dispose of a large fixed capital stock, the railroads fundamentally reorganized how
they scheduled their rolling stock and employees, integrated maintenance and managed
overhead. This history is more obviously consistent with the relatively optimistic Hall–
Caballero–Hammour interpretation than the pessimistic Reinhart–Rogoﬀ view.
While U.S. TFP grew especially quickly, UK TFP grew somewhat more slowly (seeFigure 3). This diﬀerential performance was not limited to manufacturing, although thedata are best for that sector.28 In particular, TFP growth was faster in the U.S. than the
UK despite the fact that America’s financial system was more deeply impaired by thecrisis of the 1930s. Where the U.S. suﬀered literally thousands of bank failures in the
1930s and was forced in early 1933 to declare a full-fledged bank holiday, nothing
remotely similar happened in the UK.29 This suggests that damage to the financial
system may be overrated as an impediment to post-crisis TFP growth, especially when
TFP growth relies not on new investment but on reorganizing and rationalizing earlier................................
26. The 1930s were also a period of unusually rapid TFP growth in Japan, led by the manufacturing sector, not by
the standards of the post-World War II period, to be sure, but by the standards of the 1920s and earlier years(Ohkawa [1966]). Analyzing the Japanese case is however beyond the scope of this paper.
27. Note that this comparison is roughly (business cycle) peak to peak, so it doesn’t reflect the recovery of TFP
from any Depression-induced decline.
28. There is also the fact that the U.S. far outperformed the UK in terms of TFP growth during and after WorldWar II, as described in Broadberry and Crafts (2003).
29. As described and analysed by Grossman (1994).

37

Figure 2 Output, Employment, and Productivity in US & UK Manufacturing, 1935

Source: De Jong and Woltjer (2011).

Figure 3 TFP Growth，United States

Source: Field (2006).

investment.30................................
30. As in the case of the railways in the 1930s. Field (2012) shows that new investment had been more important

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The Mayekawa Lecture: Wall of Worries: Reflections on the Secular Stagnation Debate

For firms to proceed with reorganization and rationalization in the 1930s, notwithstanding its costs, they had to be confident that the Depression would not recur. With
departure from the gold standard and the transition to “cheap money” in Britain andwith depreciation of the dollar and advent of the New Deal in the United States, they
become convinced that there had been a change in the policy regime. They became
convinced, in other words, that the future would be diﬀerent, macroeconomically, fromthe (recent) past. Aghion and St. Paul (1998) warn that recessions creating expectationsof future recessions may blunt rather than sharpen incentives for productivity-growthenhancing activities. Thus, for TFP growth to accelerate or even to be maintained after
a crisis, it is important to convincingly demonstrate that the future will be diﬀerent
from the past, as the British and American governments did in the 1930s.
Finally, it may be that waiting for returns to innovation in the form of TFP growthrequires patience, and that we simply have not been suﬃciently patient to date.31 In
particular, there can be a lag between innovation and TFP growth when new products
and processes have network characteristics, requiring rearrangement of a wide range ofdistinct activities before eﬃciency eﬀects begin to materialize. The 1930s, the decadeof most rapid U.S. productivity growth (and ironically Hansen’s decade), illustrates thepoint. The key innovations exploited in this period, electricity and the internal combustion engine, in fact dated from the late 19th century.32 Thomas Edison’s breakthroughs
aﬀecting the generation and distribution of electric power took place in his Menlo Park,
New Jersey laboratory already in the 1870s and 1880s, and Niagara Falls was harnessedto generate large amounts of electric power for use in New York and elsewhere on the
Eastern Seaboard already in the 1890s.
But only in the 1920s and 1930s did urban and rural electrification, respectively,
become prevalent. There had to be agreement on standards for distribution (alternating
current) and coordination between equipment suppliers and central power-generating
stations. The distribution network had to be built out with government help. Again
there was a role of government, this time in the form of, inter alia, the TennesseeValley Authority.
End-users then had to adapt. In the household sector this was done through the purchase, often on installment contracts, of new electric-powered, productivity-enhancing
appliances. Within manufacturing, the factory floor had to be reorganized to capitalizeon the availability of the new power source.33 Factories had previously utilized steam
power distributed through a network of overhead drive shafts and brackets. Electrification allowed removal of this steam-related apparatus, making it possible to install overhead cranes to move subassemblies. Electricity also allowed workers to use portable
power tools and move freely along the line. This increased their productivity relative
to their predecessors who, much like the steam-powered machinery with which they..........................................................................................................................................
for TFP growth in the boom years of the 1920s, while rationalization of existing investment was more important in the depressed 1930s. Abiad, Dell-Ariccia, and Li (2011) show that so-called creditless recoveries are
not rare and that they tend to be led by sectors not heavily dependent on external finance for new investment.
31. An early influential statement of the point is David (1990).
32. A third network technology relevant in this period, railways, had a rather diﬀerent productivity history, reflecting the fact that the network had already been built out earlier, in the 19th century (see above).
33. An important source of detail on this process is Devine (1983).

39

worked, were figuratively bolted to the shop floor. In this way electrification facilitatedthe adoption of scientific management practices designed to optimize the eﬃciency oflabor input, notably through the time and motion studies pioneered by the management
consultant Frederick Winslow Taylor.34
A similar story can be told about the internal combustion engine, the other notablenetwork technology of the period. Key innovations occurred already in the 1870s and1880s (Karl Benz’s patent for a reliable two-stroke engine in 1879, for example, andGottlieb Daimler’s patent for a supercharger in 1885). But there had to be standardization of design to make large-scale production economical (Henry Ford’s focus on
not simply one set of designs but, literally, one model, the Model T, took this to an
extreme) and to facilitate maintenance and after-sales service through the developmentof vocational schools, apprenticeship programs and on-the-job training conferring astandard set of skills.
In addition, it was necessary to build out the highway network before the full eﬃciency advantages of the new form of locomotion could be reaped. Roads and driving
practices had to be standardized. The location of homes and jobs had to be adapted
to the existence of this new form of transportation, culminating with the advent of
suburbanization in the 1920s and, especially, the 1930s—again with government support, this time from the Federal Housing Authority. Ambitious entrepreneurs like theFlorida land mogul George Merrick sought to coordinate new suburban developments
like Coral Gables with construction of the Dixie Highway linking Florida to the Upper
Midwest.
More generally, America’s head start in the development of the multi-divisional“Chandlerian” corporation facilitated the coordinated reorganization of production anddistribution so as to capitalize on the availability of trucking.35 Broadberry (2006)
documents the rapid rise in TFP in transportation, distribution and communications
services in the U.S. in this period.36 That rise was evident, relative both to the preceding era (reflecting the existence of this long gestation period) and to other countries(reflecting favourable initial conditions, namely America’s aforementioned head startin the development of the large corporation and multidivisional form, something thatpreceded the internal combustion engine).37
Thus, it is at least conceivable that what we are experiencing at the moment is notsecular stagnation but a fit of impatience. It is not unprecedented for three decadesof incremental innovation, standardization and adaptation to have to pass before theeﬃciency advantages of radical new network technologies begin to show up in TFP................................
34. The full potential of the assembly line, symbolized by Henry Ford’s massive River Rouge Complex constructed starting in 1917, could finally be realized in the 1920s and 1930s (Nelson and Wright [1992]). And
it was in industries like motor vehicles that diﬀerential in productivity growth between the United States andother countries was most pronounced.
35. After Alfred Chandler (1990). Not that the trucking services were necessarily provided in house; in practice they were typically subcontracted to small, non-hierarchically organized firms (Field [2012]). Trucking
records one of the highest rates of TFP growth between 1929 and 1941 according to the calculations of Field(2006).
36. Significant advances in eﬃciency in the consumer-product and services industries were similarly evident inthis period in tobacco, food products, plastic products, and chemicals, according to Bernstein (1987).
37. The rise of the large multidivisional form having been associated instead with the railways, the first true
multidivisional corporations, according to Chandler.

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The Mayekawa Lecture: Wall of Worries: Reflections on the Secular Stagnation Debate

statistics. Thus, that the IT revolution, as captured by TFP growth, took a decadelong pause between 2005 and 2015 may be less a portent of secular stagnation than aharbinger of better times to come.38................................
38. The fact that productivity growth accelerated between 1995 and 2005 before then decelerating again requires
more analysis, which I leave to elsewhere. One interpretation is that the first wave of IT-related microtechnologies that came along in the 1970s and 1980s and found expression, after a delay of some years, inthe acceleration of productivity growth in 1995–2005 was fundamentally diﬀerent (it constituted a “diﬀerent generation” of new technologies) than the second wave that developed subsequently and has yet to findexpression in a renewed acceleration in productivity growth.

41

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