Secular Stagnation And Income Inequality
Bob argues that nothing will, unless the government does it. This is a modern version of the "secular stagnation" view popular in the 1940s (and visible in Keynes himself), which argued that there would be a persistent shortfall of private demand, and that we'd basically need a permanent WPA to support the economy. This view turned out to be wrong for the postwar decades . . .
As I argued in my piece, Drum points out that Krugman is ignoring the different situation we now face in terms of income inequality:
I think the big thing I'd add to that is growth in median incomes. One way or another, there's really no way for the economy to grow strongly and consistently unless middle-class consumers spend more, and they can't spend more unless they make more. This was masked for a few years by the dotcom bubble, followed by the housing bubble, all propped on top of a continuing increase in consumer debt. None of those things are sustainable, though. The only sustainable source of consistent growth is rising median wages. The rich just don't spend enough all by themselves.
The flip side of this, of course, is that rich people are going to have to accept the fact that they don't get all the money anymore. Their incomes will still grow, but no faster than anyone else's.
. . . This isn't just a matter of social justice. It's a matter of facing reality. If we want a strong economy, we can only get it over the long term if we figure out a way for the benefits of economic growth to flow to everyone, not just the rich. This is, by far, Barack Obama's biggest economic challenge. Until median wages start rising steadily and consistently, we haven't gotten ourselves back on track.
This discussion is missing in our national discourse. I especially wish Krugman would discuss it.
Speaking for me only
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