If secular stagnation is defined as and implicates "a systematic tendency for aggregate demand to fall short of the economy's potential output" (Mason, The Slack Wire). We can encourage spending by:
1. Even lower/negative interest rates and/or embracing bubbles (increasing consumption and investment)
2. by consistent government investment (increased, stable investment)
3. by socializing investment (stabilizing investment)
4. by redistributing excess savings of the rich to the heavy consuming poor or by redistributing the excess savings into productive investments.
I don't think any of these options are particularly easy to accept or even think about, but the one most discussed by Krugman and Summers is the idea of negative interest rates and the functionality of bubbles.
I'm hesitant to jump on board with the bubbles are useful train. It is easy to see how an economy benefits from bubbles during their climb to the top, but the bursting of the bubble might cause more damage than good. If the people who are investing in these bubbles are rich and are just looking for a place to put their money, it may not be harmful if the bubble pops and they don't get their return back. However, the most recent housing bubble showed us just how devastating bubbles can be; the disruption of financial intermediation almost brought down the financial system. Perhaps this was a special case of a bubble causing more damage than it normally should, however, I think we should consider the costs and benefits.
Negative interest rates may not sit well ideological with people trained to save now for more later. And if we are seriously considering using bubbles as tools and punishing people for saving money/not investing why don't we examine other, perhaps more reasonable options?
Keynes and Robinson have some ideas.
"I conceive, therefore, that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will cooperate with private initiative.
-(Keynes, The General Theory of Employment, Interest, and Money)
What he's arguing for here is for a change in the way investment in the economy is carried out.
Letting managers run businesses not for their shareholders, but for the sake of running a good business. If the people running a business are invested in it and are not constrained by shareholders, perhaps investment would not be so volatile and profit would not always be the driving motive to invest.
Robinson appears to be calling for something a little more radical. My macro professor's favorite essay gives us a glimpse of what she was outlining:
"There are a number of spheres of activity in which operation through public corporations, on a non-profit basis, can be justified on its own merits, quite apart from the employment problem. If these were taken out of the hands of private enterprise, long vistas of useful investment would be opened up. A national medical service, such as Sir William Beveridge foreshadows, would require a large volume of investment, not only in the bricks and mortar of health centres and sanatoria but in training medical and nursing staff on a scheme of State bursaries. House-building is conceded, at least in part, by the industrialists to be a proper sphere for public investment, and this opens up a huge field. Public operation of transport opens another, fuel and power a third."
-(Joan Robinson, Letter to the Times, 1943)
So instead of government investment being crammed into spheres that can quickly become unproductive (i.e. building roads), Robinson argues productive investments should be undertaken by the government (i.e. healthcare, transport, and fuel). An opponent of this view might observe private investments would be crowded out. But then Robinson reminds us why we are thinking about government investment in the first place,
"Even if there were no objection on general grounds to subsidizing private investments, it would be an extremely weak defence against the onset of a slump. For the characteristic of a slump is the disappearance of prospective profits, and no practicable reduction in the cost of borrowing can induce firms to embark upon capital expansion when the prospects of profit are nil"
-(Joan Robinson, Letter to the Times, 1943)
Private investments are made when there is a prospect of profit, without it, why would an investor invest? The government however, is not constrained by the profit seeking motive. If they would pay people to dig holes or pave roads to nowhere, why not invest in healthcare or utilities instead?
The last option, redistributing the excess savings from rich to the poor, would be a good economic idea if you believe the poor have a larger propensity to consume. This is sort of a Kaleckian solution. However, thus far, redistributive policies have not been very effective, at least recently. Income inequality is at its greatest heights since the Great Depression. Documentaries like We Are Not Broke reveal the effort and the extent enterprises go to not pay taxes. Minimum wage increases and unions are treated like the plague by most of the private sector.
In a world of low interest rates it seems people would want to spend and not save. However, five years of extremely low interest rates have not provided the impetus of consumption nor investment to get the economy back to full employment. As Keynes suggests in Economic Possibilities for Our Grandchildren, perhaps consumption has stagnated because people have enough stuff. Or more practically, people are too leveraged already. This situation is easy to imagine as a student with massive loans to pay off. If people are not consuming, there must be money available to invest, so why has there not been an investment boom. I think there are two responses to this:
1. Investment depends on the rate of profit and as more savings accumulates to be used for investment, the profit rate falls, as investment opportunities yield less and less returns. Thus the argument from both Keynes and Robinson to alter the nature of investment. Without investment, incomes fall, pushing savings down to the level where it equals investment.
2. The Washington Consensus forced open a world where capital can fly freely. If investment opportunities dry up at home, there are other opportunities abroad the savings can go.
However, this brings us to a few odd things about secular stagnation. In reality, capital flows from rich countries to poor countries, indicating countries like the US have trade deficits. A trade deficit means we are importing more than we export, so it appears we are in fact consuming, just not domestically. Could capital controls shift consumer demand for imports to domestic goods and help us out of the stagnation? Keynes argued for the benefits of capital controls in National Self-Sufficiency.
In The General Theory of Employment, Interest, and Money, Keynes describes the "euthanasia of the rentier", in Economic Possibilities for Our Grandchildren, he discusses working 15 hour weeks. Keynes' version of secular stagnation doesn't quite add up to the reality in which we live in today. People continue reap extravagant interest payments and we certainly don't work 15 hour weeks.
Even if Keynes' vision didn't completely come to be, his and Robinson's ideas of overcoming investment's fickle nature call for serious consideration. If secular stagnation is the future, we need to examine each tool critically and carefully.
As an aside- If we are in fact in a world where aggregate demand consistently falls short of potential output, austerity seems completely ridiculous If we are living in "topsy turvy" economy as Abba Lerner might call it, where any spending is good spending, let's not cut food stamps.
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