This report introduces key discussions behind the recent shift in the United States’ economic policy direction and identifies implications for Korea’s economic management.
The supply-side theory, which explains the long-term growth stagnation in the U.S., assumes that potential output is determined solely by technological and demographic factors, focusing on the decline in the growth of potential output. On the other hand, Lawrence Summers proposed the secular stagnation theory, suggesting that the stagnation in the U.S. economy since the 2000s is rooted in structural deficiencies in aggregate demand. Based on a new discussion on economic growth, there is an ongoing shift in policy consensus towards supporting the government’s aggressive fiscal policy and the business adjustment function of fiscal policy from a focus on monetary policy. While it remains uncertain whether this new policy paradigm will be successful, the shift in the U.S. economic paradigm carries significant implications as a key signal for policy transitions in advanced capitalist countries, including the Republic of Korea.
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