Secular Stagnation and Wealth Inequality: Antecedents and Lessons

In a symposium titled "What Have We Learned from Summers and Piketty Ten Years On," published in the Review of Political Economy, various authors explore the theories of "secular stagnation" and rising inequality. Steven Pressman's article, "Secular Stagnation After Piketty and Keynes," argues that these theories have been linked for a long time, suggesting that high levels of wealth being saved rather than spent can lead to slower economic growth.

Pressman points out that the idea of taxing the wealthy to reduce inequality and boost aggregate demand goes back to 18th century French economists like Francois Quesnay, known as the Physiocrats. Quesnay's solution for France's stagnation was to adopt policies that discouraged savings and waste, and encouraged consumption of goods produced by the productive agricultural sector.

The connection between secular stagnation and inequality can be traced back to the Great Depression, when the term "secular stagnation" was coined in 1934 by Alvin Hansen. Paul Samuelson developed the concept of the "balanced budget multiplier" in 1948, suggesting that tax cuts for the wealthy could be used to stimulate economic growth through increased spending by the middle and lower classes.

Modern policy proposals, such as higher marginal tax rates and estate taxes, aim to address both issues. However, Pressman doubts the effectiveness of these measures, suggesting that factors like slower population growth, aging populations, high government debt, and a service-based economy contribute to productivity slowdowns. He also notes that concerns about rapid economic growth driven by AI technology may invert the earlier arguments regarding wealth inequality and slow growth.