Samuelson's last macroeconomic model: Secular stagnation and endogenous cyclical growth

Abstract

On the occasion of the centennial of his mentor Alvin Hansen, Paul Samuelson published in 1988 a modified version of his seminal 1939 multiplier-accelerator model to address aspects of Hansen's secular stagnation hypothesis. The “Keynes-Hansen-Samuelson” model (or KHS, as he called it) was built to analyse the effects of population growth on the economy's trajectory. Several changes were then made. Instead of difference equations and a tight accelerator, as in his 1939 model, Samuelson deployed differential equations and a flexible accelerator to produce a nonlinear limit cycle. Despite Samuelson's strong claims for the analytical contributions of his 1988 paper, it has – in contrast with the 1939 model – received only scant attention by macroeconomists and historians of economics alike. Samuelson's 1988 paper was his last published macroeconomic model, based on his long-established tradition of non-optimising macro-dynamics. Our paper provides a close reading of that article and some analytical results that shed new light on the formal aspects of Samuelson's 1988 model. We also discuss how it historically links up with business cycle models advanced by John Hicks, Nicholas Kaldor, Roy Harrod and Richard Goodwin and examine how far Samuelson's use of the term secular stagnation differs from Larry Summers's recent reconstruction of it.