We are living in an age of deep pessimism about humanity's economic prospects. The global financial crisis has receded, but the hoped-for robust and lasting economic recovery has failed to arrive. Northwestern University Professor Robert Gordon's pessimistic best-seller, "The Rise and Fall of American Growth," argues that the innovations being generated in the 21st century will not drive economic growth as much as the great inventions of the past. Larry Summers, one of the world's most influential economic thinkers, warns us that we are living in an age of "secular stagnation" in which global economic growth is permanently stuck in slow gear.
But Summers did not invent the idea of "secular stagnation." Instead, another Harvard economist, Alvin Hansen, first introduced this term in a speech delivered in 1938. In this speech, Hansen observed that American economic growth had long relied on a vast physical frontier of new territory, high rates of population growth, and fundamental innovations in technology. By the 1930s, the physical frontier was long gone, America's population was growing more slowly and aging more quickly, and the rate of technological progress seemed subdued. Like the modern thinkers who echo his thoughts and even reuse his terminology, Hansen saw limited grounds for hope and much reason to be pessimistic.