Economists are wrestling with explanations for why global economies are experiencing slower growth than in previous decades. In his column this morning, the New York Times‘s Neil Irwin offers some possibilities. He includes the following chart:
Lawrence Summers, whom Irwin cites, believes that we’ve entered a prolonged period of “secular stagnation,” or persistent low growth. Why? Again, potential answers abound.
As it happens, the low-growth phenomenon coincides with increasing income inequality. This leads to my own theory: there’s not enough money in more people’s hands to buy goods and services.
Wealth, as we know, accrues to Haves, leaving less and less for the Rest of Us. Where can the rich spend their money? We’ve seen them buy real estate, bidding up housing prices far beyond the reach of many. But most of the dollars have gone into financial instruments, especially derivatives. We’re talking about paper money, supported by a nearly infinite stream of account-receivables.
Mr. Summers, in an interview, frames it as an inversion of “Say’s Law,” the notion that supply creates its own demand: that economywide, people doing the work to create goods and services results in their having the income to then buy those goods and services.
In this case, rather, as he has often put it: “Lack of demand creates lack of supply.”
His proposed solution is that the government sharply expand investment in infrastructure, which might provide a jolt of higher demand, which in turn could help the picture on supply — helping workers who build roads and bridges become reattached to the work force, for example. As it happens, increasing infrastructure spending is among the few economic policies advocated by both Hillary Clinton and Mr. Trump.
We shall see.