Choose your poison

“The essence of secular stagnation: sick recoveries which die in their infancy and depressions which feed on themselves and leave a hard and seemingly immovable core of unemployment.” It is in these terms that the father of secular stagnation, Alvin Hansen, described to the American Economic Association the economic climate of 1938…which could just as well be the same climate that is currently prevailing in Europe.

While it was the Second World War which was to come to the aid of Hansen and thus eradicate the interminable Great Depression, it is technological progress that seems today – going against all expectations – to be exhausting investments aimed for the economy. So, how can we not get dragged into this internet revolution which seems to benefit only a chosen few and which has manifested itself (for example) through a company with 55 employees – Whatsapp – ceding to Facebook’s offer of 19 billion dollars in 2014 in order to gain market capitalisation superior to that of Sony?

Nowadays, a computer and a small office are enough to set up an empire when the large businesses of the time have been employing thousands of workers, building factories and occupying enormous office blocks. In short, the investments that are necessary to ensure the prosperity of the companies of 2016 are incommensurable with the often gargantuan operating costs of yesteryear for companies that were obliged to spend a large portion of their riches and treasury on production tools.

In reality, as the innovations of recent years have mainly focused on very specific sectors – communication and information technologies –, our current productivity is progressing, logically, only in these areas. While our work and lifestyles were revolutionised between roughly 1870 and 1970, very few new inventions have since then contributed to the propulsion of our economic growth. The internet revolution hasn’t produced the same results for growth that the inventions of electricity, running water and the combustion engine did. This is what explains our insipid Western growth, especially as the effects of the internet boom are beginning to be diluted.

With such a heavy tendency that few seem to be able to identify and understand, are negative interest rates likely to push companies to invest instead of being penalised and taxed on their bank deposits? Is it right to force them to employ workers under the threat of penalties to their treasury? Put another way, can we re-establish full employment thanks to negative rates? Let us be very careful here because this environment of negative rates can lead economic agents, who feel cornered and under pressure, to make bad investments and to inflate fresh speculative bubbles.

The diagnosis, alas, is sombre, but undeniable. Secular stagnation and its negative rates confine us to impossible choices. Nearly inexistent growth or financial destabilisation: choose your poison!