Question

According to the structural stagnation hypothesis, why has globalization led to slow-growth for the U.S. economy?

Answer 1

According to the structural stagnation hypothesis, the economy of U.S. has slowed down due to the globalization. In December 2007 the country's economy fell into a prolonged stagnation and slow growth period due to the structural concerns caused by globalization. The globalization can lead to structural stagnation when the exchange rate does not adjust quickly enough to equalize balances in trade. The structural stagnation has short-run as well as long-run causes. The short-run cause is intricately tied to the financial crisis after-math while long-run cause is intricately tied to globalization, trade deficit, and the exchange rates. Both are connected because one of the reasons of the financial crisis was that government was avoiding dealing with the issues raised by globalization. The failure of monetary and fiscal policies to generate growth in economy leads the demand side to be too expansionary. However the structural issues created by globalization are often hidden by expansionary macro policy, leading to a financial bubble and an additional set of structural issues.