What would Keynes do? How he’d address today’s American economy

“Secular stagnation” is the term that the American economist Alvin Hansen coined to describe a situation of permanent underperformance by an anemic economy in a 1938 paper, “Economic Progress and Declining Population Growth.” According to Hansen, before the Great Depression began with the stock market crash of 1929, U.S. economic growth had been driven by a combination of productivity, frontier settlement and population growth.  “[F]or our purpose we may say that the constituent elements of economic progress are (a) inventions, (b) the discovery and development of new territory and new resources, and (c) the growth of population. Each of these in turn, severally and in combination, has opened investment outlets and caused a rapid growth of capital formation.”

But the frontier had long since closed, population growth was slowing, and technological productivity growth by itself might not be able to deliver anything like previous growth rates.  According to Hansen:  “We are thus rapidly entering a world in which we must fall back upon a more rapid advance of technology than in the past if we are to find private investment opportunities adequate to maintain full employment.”
Hansen emphasized the role of technological innovation in spurring investment-driven economic growth:
 The problem of our generation is, above all, the problem of inadequate private investment outlets. What we need is not a slowing down in the progress of science and technology, but rather an acceleration of that rate. Of first-rate importance is the development of new industries. There is certainly no basis for the assumption that these are a thing of the past. But there is equally no basis for the assumption that we can take for granted the rapid emergence of new industries as rich in investment opportunities as the railroad, or more recently the automobile, together with all the related developments, including the construction of public roads, to which it gave rise.