I have been reading a lot about secular stagnation recently, but I confess I didn't really understand the concept until I read Paul Krugman's column in the Times Friday morning. Now I think it's clear:
You may or may not have heard that there’s a big debate among economists about whether we face “secular stagnation.” What’s that? Well, one way to describe it is as a situation in which the amount people want to save exceeds the volume of investments worth making.
When that’s true, you have one of two outcomes. If investors are being cautious and prudent, we are collectively, in effect, trying to spend less than our income, and since my spending is your income and your spending is my income, the result is a persistent slump.
Alternatively, flailing investors — frustrated by low returns and desperate for yield — can delude themselves, pouring money into ill-conceived projects, be they subprime lending or capital flows to emerging markets. This can boost the economy for a while, but eventually investors face reality, the money dries up and pain follows.
I'd like to offer a translation of sorts. As I understand it, secular stagnation refers to a situation in which A very limited number of people have more money than they know what to do with, so they either do nothing with it, in which case the economy suffers, or they gamble with it, secure in the knowledge that they'll be bailed out, but ultimately wrecking the economies of one or more countries. Meanwhile, there are lots of people who have far too little money, and would , if they had some of that excess, invest it in things like food, clothing, and manufactured goods that would improve economies everywhere. The obvious solution would appear to be that the governments of the world, particularly ours, should adopt policies that would relieve these poor rich folk of the excess money they can't figure out how to spend and direct it toward people who don't have to think twice about what they need to spend money on.
It strikes me that the state of affairs Krugman describes is somewhat akin to that which prevailed in the Dark Ages and Medieval times. At least toward the end of that period the folks with the excess took to buying art, rather than derivatives, so we at least have something to show for it, but the “stagnation” was certainly real for the 99.9% back then. An argument can be made, I think, that in order for this state of affairs to continue, we must also endure a prolonged period of intellectual stagnation, since any engagement with the realities of the system is contrary to the interests of those holding the excess. That was doable in the Middle Ages, when the only people that suffered were witches and heretics, but given issues like climate change, it' s not at all clear that we can survive a prolonged period of enforced ignorance.
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