Real government-bond yields have been falling for more than a decade, hinting that too much saving has too few places to go. Whether that proves the theory of secular stagnation right is an open question—some think the economy is only suffering a cyclical hangover from the financial crisis. But the usual tactic of reviving growth through lower interest rates is unquestionably much harder to pull off. What might?
Some advocate increasing deficit-financed public infrastructure investment; others raising the retirement age which, according to some models, should encourage households to spend more and save less. Still others suggest more vigorous monetary stimulus in order to raise inflation, which would make more negative real interest rates possible. Enacting a wealth tax to separate the rich from their unspent savings is another possible response, as is penalising companies who don’t spend their spare cash on wages or investment. Coming up with a world-changing technological innovation that creates a rush of new investment would be pretty helpful, too.
