Structural Stagnation Dilemma - Essay Example

Structural Stagnation Dilemma In the year 2007 December, the economy of the US fell into a prolonged phase of slow growth and stagnation. It was neither a recession nor a depression. As a normal downturn in the business activities, the national output fell and consequently unemployment continued to increase. However, this was unlike a typical downturn in that even when the government decided to run the famous expansionary demand-side macro policy, the economy showed no signs of recovering. If the recession had been the cause of the downturn in economic activities, arguably, the macro demands policies could have pulled the total output together to its normal and original trend.

Economist deliberated on the new issue which carried much weight to the US economy and several hypotheses were put across. The economist named this strange phenomenon as the structural stagnation dilemma. The argument was that the problem that had recently hit the US economy were not just normal economic issue, but structural problems caused by globalization. Regardless of whether one approves the structural stagnation dilemma presented by various author, it is quite useful in generating ideas this problem.

It illustrates how economic reasoning blends distinct economic concepts and ideas from both macroeconomics and microeconomics into a reasonable explanation for contemporary events. Secondly, the economic reasoning is supported by empirical testing of the ideas hence giving more reliable information.According to this argument, structural stagnation has both the short-term and the long-run causes. The short-run economic causes are intricately linked to consequences of the financial crisis. The long-run manifest itself in issues such as globalization, trade deficits, and exchange rates.

These two are perfectly related in that one of the core problems of this financial problem was that the government was trying to avoid handling problems brought about by globalization. The structural stagnation can be explained from a number of economic fronts. For instance, US have experienced a couple of recessions before; however, the recovery has always been slower with each passing recession. The growth has also been slow and gradual. Intuitively, this pointed out to some possibility of other causes rather than just recession.

Faced with this kind of problem with each passing year, the economist began to grapple that something must have been wrong with the economy. This was the hallmark of the structural stagnation theory which predicted a recovery characterized by slow growth and high unemployment.After the Second World War, the economies of many countries took a prolonged period to recovery. The slow recovery was described as secular stagnation dilemma. The secular stagnation theory postulated that the economically advanced countries would stop growing as the opportunity of growth would be eliminated.

Causes of Structural StagnationTechnology has to blame for this problem. The increased use of technology and international trade has led to the integration of local and international markets. According to the world supply of tradable goods, the goods and services must match the prices otherwise one would not get customers. The cost of carrying out business in China, India or another part of the world may be lower than in US. Consequently, the costs of goods and services would be lower that the counterparts from US.

The firms in US would be forced to sell at a lower price hence causing the economic downturn. The lower prices in the world goods and services allow the US citizens to consume more and more and limit the output from the local industries. Since the core problem of structural stagnation is globalization, government can deal with this through a number of measures such as restricting imports, a rise in foreign goods and labor. These efforts would make the costs of international good more costly.Works CitedColander, David.

Macroeconomics. New York: John Wiley & Sons, 2012.