Carney hopes that you'll ignore the economic doomsayers this Christmas. Here's why

Mark Carney has hit out at those claiming that humanity has reached its limits - the proponents of "secular stagnation".

They would have you believe that we'll be stuck with lower increases in living standards than the ones we've witnessed in the Great Moderation, the post-war boom, or the second industrial revolution of 1870-1913.

Speaking to an audience in New York, Carney presented the case against stagnation as the "new normal", and gave two explanations for the low growth advanced economies currently experience.

Bank of England governor Carney says that such ideas aren't uncommon in economics - a subject with "a long history of pessimism". Secular stagnation theorists, like Alvin Hansen and Robert Gordon, aren't the first to predict that the good times are over.

Carney believes that like the ideas of the original doomsayer, Thomas Malthus, that of secular stagnation will also be proven wrong.

Liquidity Traps

In the run up to the crisis growth was comprised largely of consumption - rather than investment. That approach wasn't sustainable. Now low interest rates are being used by central banks to firm up demand.

Carney has warned that such low, or even negative, rates "can risk generating unbalanced, unsustainable demand." Yet in the UK the equilibrium real interest rate is negative, according to the Bank.

Despite very low interest rates, resources are not fully employed. 850,000 more people are out of work than in the years before the crisis and GDP is around 20% below an extrapolation of its pre-crisis trend.

However, Carney says that despite this there is "early evidence" that the liquidity trap will be escaped over time.

Supply Pessimism

The idea of stagnation has recently gained traction in the economics blogosphere, as well as on Twitter. Carney struck out at those who think we've pushed innovation to its limits, referring to those who send tweets in 140 characters or less:

It seems unlikely that communicating in 140 characters – useful discipline though that is – represents the apex of human progress.

Carney highlighted recent evidence from a Federal Reserve board paper. It argues that potential supply growth will respond to demand as the US economy recovers.

Where unemployment has fallen less sharply in the UK, productivity has taken the hit. But apparently the fundamentals remain promising. Carney suggests that "it is hard to think of any reason why there should have been a persistent deterioration in the rate of potential growth in Britain."

Wrong before, wrong now

Such lack of economic optimism has been "proven misplaced in the past and scepticism is warranted now", says the governor, reminding his audience that the US economy is 13 times larger than when Hansen first formulated the secular stagnation hypothesis.

Leaving his audience on an optimistic tone, Carney said that "the most important drivers of long term prosperity will be measures taken by others to increase the growth of supply, particularly those that reinforce an open, global economy."