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The Federal Reserve has injected trillions of dollars of liquidity into markets by purchasing corporate and government bonds in three rounds of quantitative easing. The Fed's efforts can hardly be regarded as an unqualified success in ensuring a robust economic recovery.

True, the U.S. economy has grown by 12 percent since the 2007-2009 "Great Recession," with unemployment falling below 6 percent. Whether or not quantitative easing is to thank for this growth, however, the present recovery is anemic compared to the 35 percent growth achieved over a comparable period following the 1960-1961 recession, and to the 28 percent growth registered after the stagflation of the 1970s.

In Japan, too, aggressive quantitative easing has failed to unambiguously boost the economy and fight deflation.

Keynesian dogmatists have their own theory to explain these meager results - a theory tailored to their infatuation with government spending - and its name has made its way back into the lexicon of conventional wisdom: secular stagnation. The term was coined in the 1930s by Keynesian economist Alvin Hansen. Harvard economist Lawrence Summers resurrected the term, and Nobel laureate Paul Krugman has pushed it further into the mainstream.

According to the secular stagnation narrative, the economy has entered a phase of protracted low growth, and the only way to overcome this is through massive public investment. Never mind if this pushes already soaring public deficits and sovereign debt to new heights.

A useful look back

Before heeding the call of Keynesian demand-management, a look at the stagflation of the 1970s can teach us a great deal about its policy failures and successes.

At that time, fiscal profligacy had not reached today's astronomic proportions, but the demand-boosting so dear to Keynesians was ensured by countless waves of wage hikes throughout the industrialized world. Along with increases in commodity prices, these were the main source of inflation at the time.

Federal Reserve chairman Paul Volcker then entered then the scene, bringing with him a monetary policy whose purpose was not to inundate the economy with liquidity (as is the case today), but to curb monetary emissions to stifle inflation. Contrary to expectations, that policy produced the worst recession of the post-War period.

Fortunately, a policy revolution was in the making - one involving so-called supply-side measures aimed at removing the constraints that were inhibiting firms that wanted to invest and hire. Tax rates were significantly reduced. Labor legislation was revised to allow firms to reduce the labor force when shrinking sales made it necessary or profitable.

The supply-side revolution was a politically painful exercise. It encountered strong opposition from powerful vested interests, in particular trade unions. It took the courage of Margaret Thatcher, and subsequently of Ronald Reagan, to stand firm in the face of multiple, long-lasting strikes. Ultimately, thanks to the determination of Thatcher and Reagan - and of their acolytes in other countries - the world economy entered a period of unprecedented growth and modernization.

Today, the problem is not stagflation, but rather the fragility and fragmentation of the economic recovery. Still, in a manner reminiscent of the stagflation years, monetary policy, now expressed through quantitative easing, has failed to yield the hoped-for results.