Stagnation-The Central Problem ∗

The title implies the hypothesis that the forces promoting nation dominate the phenomenon which is usually labelled stagfla? tion. These secular forces, it is argued, depress the marginal effi? ciency of capital (MEC) below the level which would exist in their ab sense. The resulting depressed investment level, in turn, retards growth of productivity thereby reinforcing (or causing) inflationary pressures. This argument first requires that the presence of a stagnation-like phenomenon in the contemporary world be established. In Figure 1, the data indicate that over the last three decades actual manufacturing sales have tended to approach potential sales less closely (and possibly, less frequently) during periods of peace. Generally, potential sales have continued to expand. Therefore the U.S. economy has not stag? nated in a formal sense. Rather, it seems that the U.S. economy is in the phase which Higgins defined as secular increasing under-employ ment. [Higgins, p. 166] This phase is characterized by successively weaker cyclical booms which result both in a growing difference be? tween potential and actual output and in a slowing of the growth of potential output. (These phenomena are tentatively apparent in Figure 1 and in column 2 of Table 1.) If the process continues long enough, potential output will eventually cease to grow, at which point the economy will be formally stagnant. Having marshaled some evidence that the U.S. economy may be in the process of stagnating, it is not immediately obvious that a lack of investment is the cause. Comparison of annual, gross, manufac? turing plant and equipment (P & E) investment with the manufac? turing capital stock (Table 1, column 3), for example, suggests that since the mid 1960's investment has relatively diminished.1 But com? parison of the contemporary period with the 1948-57 period suggests

Argument (complex analysis) · Boom · Capital (architecture) · Economic stagnation · Economics · Economy · Investment (military) · Keynesian economics · Macroeconomics · Monetary policy · Neoclassical economics · Phenomenon · Political science · Politics · Potential output · Productivity · Recession · Economic Theory and Policy · Engineering · History · Law

• Industrial Research and Technological Innovation

  S J Prais, Edward D Mansfield et al.•The Economic Journal•1968

  Add to list