With very low real interest rates and with low inﬂation, this also means very low nominal interest rates, so one would expect increasing risk-seeking by investors. As such, one would expect greater reliance on Ponzi
ﬁnance and increased ﬁnancial instability.
Pointer from Tyler Cowen.
Larry thinks that if the government spends more money, it will work on improving JFK airport. If government does not spend more, then the private sector will take crazy risks.
I mean, if you think that government spends money wisely and the private sector does not, you do not need a whole theory of secular stagnation. To me, it looks like an opinion masquerading as a theory.
Maybe I am being too grumpy. The actual grumpy economist™, John Cochrane, has this to say.
The natural rate is per Laubach and Williams, about -0.5%. But we still have 2% inflation, so the actual real interest rate is -1.5%, well above -0.5%. With 2% inflation, we need something like a 4-5% negative “natural rate” to cause a serious zero bound problem. While Summers’ discussion points to low interest rates, it is awfully hard to get any sensible economic model that has a sharply negative long run real rate.
And he adds this:
From my point of view, the focus on and evident emptiness of the “demand” solution — its reliance on magic — just emphasizes where the real hard problems are.