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In the last decade, most advanced economies have grown more slowly than before. In Japan, a slowdown began in the 1990s. Slower growth has frequently been seen as a legacy of financial crises, especially that of 2007–2009. Indeed, shocks generated by that crisis in particular include a far reaching financial disintermediation that depressed demand in short term. However, it coincided with a deterioration of several supply-side factors. The first was related to demography, that is, the stagnation or decline of working-age population and population aging. So far, the United States has been less affected than Japan, Europe, or China, but a slower increase in the U.S. labor force is visible. Increasing immigration and a higher retirement age can neutralize partly negative demographic trends, but both meet political resistance.

Lower productivity growth as compared with the 1990s and early 2000s is the second factor. Perhaps this phenomenon is also partly related to demography (is an aging society equally as innovative as a younger one?), or perhaps it is just a matter of the technology cycle.

Is actual technological progress under-measured? There is no empirical evidence in favor of such a hypothesis. Can one expect a new wave of technological revolution, this time related to robotisation, artificial intelligence, big data, or any other great innovation? Maybe, but we do not know when exactly it will happen. History suggests that for rapid productivity growth, innovation itself is not enough. It must be broadly applied, as happened with electricity and the combustion engine in the first half of twentieth century and, more recently, with computers. It is also worth noting that the recent wave of trade protectionism, foreign investment screening, and security-motivated restrictions on technology transfer will harm both technological progress (which requires global cooperation), and its fast and broad application.

Can monetary policy help accelerate economic growth in such circumstances? Not at all. Advanced economies do not suffer from insufficient demand. The International Monetary Fund estimates of output gap show that the eurozone is growing at potential and the United States above potential. Additional monetary (or fiscal) stimulus is unable to push up economic growth on a sustainable basis because these economies are supply-side constrained. Therefore, the recent monetary easing decisions of the U.S. Federal Reserve and the European Central Bank cannot bring the expected growth effects. On the contrary, they may do more harm than good if they contribute to further financial disintermediation and new financial bubbles.

Similarly, attempts to deliver on declared inflation targets (usually 2 percent) are pointless because there is no evidence that such an inflation rate is better for economic growth and employment than a slightly lower one such as 1.5 percent. In fact, the latter is closer to the literal meaning of price stability, which is the overarching mission of most central banks. Hence, central banks should revise down their operational inflation targets rather than push inflation up.