Elephant in the Room: Upward Redistribution, Concentrated Income and Wealth, and Secular Stagnation

Update: Brad DeLong has replied, and I have replied to him.

Dean Baker quite rightly takes Robert Samuelson to task for his op-ed on the causes of secular stagnation.


The problem might not be a dearth of investments so much as a surplus of risk aversion. For that, candidates abound: the traumatic impact of the Great Recession on confidence; a backlash against globalization, reduced cross-border investments by multinational firms; uncertain government policies; aging societies burdened by diminishing innovation and costly welfare states.

Dean’s right that this doesn’t even touch on perhaps the most likely explanations. But Dean’s explanation also misses the the 800-pound gorilla:

Actually the most obvious cause for most of the shortfall in demand is the trade deficit.

Brad Delong, likewise, reels off four possible explanations today while ignoring what seems to me to be the most obvious one.

How about a three-decade upward redistribution of income, and massive increases in wealth and income concentration?

Add declining marginal propensity to spend out of wealth/income, and you get a so-called “savings glut” (aka “not spending”) and secular stagnation.

The arithmetic of this is straightforward and inexorable. Extreme inequality and upward redistribution kills growth.

Of course this effect doesn’t exist in a vacuum. (Only a Republican would point to this and say, “Look! It’s obvious.”) But theoretically and arithmetically, it’s huge.

Why is it not even part of the conversation?

Cross-posted at Asymptosis.

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