Both Tyler Cowen and Mark Thoma point to a discussion by Larry Summers.
I want to argue that the traditional oppositional pairing of supply side secular stagnation and demand side secular stagnation is more of a confusion, than a truth.
His current approach involves thinking about interactions between aggregate supply and aggregate demand. I hope the next stage in his thinking, and that of other macroeconomists, is to ditch AS-AD altogether. Don’t think of the economy as a GDP factory!
Instead, think in terms of a specialized economy. It is affected by secular trends, such as labor force participation increasing for women and decreasing for men from 1970-2000. It is affected by adjustment problems, such as the oil shock of the 1970s or the house-price and mortgage debt crash of 2008.
AS-AD is a toy model but it does serve to illustrate some very useful lessons about how conventional wisdom fails during demand recessions. Just consider all the false predictions of galloping inflation.
Agree with Lord, but also see Arnold’s point that the term “Aggregate” seems to have acquired some mystical power.
Perhaps we should call the “Emergent Demand” and “Emergent Supply”?