While debate about the relevance of the secular stagnation idea to current economic conditions continues to rage, there is now almost universal acceptance of a crucial part of the argument. It is agreed that the “neutral” interest rate, which neither boosts nor constrains growth, has declined substantially and is likely to be lower in the future than in the past throughout the industrial world because of a growing relative abundance of savings relative to investment.

The idea that real interest rates — that is, adjusted for inflation — will be lower than they have been historically is reflected in the pronouncements of policymakers such as Federal Reserve chair Janet Yellen, the medium-term forecasts of official agencies such as the Congressional Budget Office and the International Monetary Fund and the pricing of government bonds whose payments are tied to inflation.

This is important progress and has contributed to more prudent monetary policies than otherwise would have been made and the avoidance of a deflationary psychology taking hold particularly in Europe and Japan. Policymakers, despite having adjusted their views, still overestimate the extent to which neutral real interest rates will rise.