Secular StagnationIn this view, traditional demand stimulus is at best defensive in nature. It may limit further collapse, but it won’t much revitalize risk-taking.
Weak demand is not a cause in and of itself. It is a symptom of a shortage of equity willing and able to bear risk.You may recall that the iPhone made its debut in 2007, and it sold very well during the tough economic times that followed. Had there been more innovations of import, a simultaneous growth of production and market demand could have been self-validating and pulled the economy out of recession more quickly. This framework makes Conard a revisionist on the U.S. trade deficit. The traditional story is that Americans buy goods from, say, East Asia, and the sellers respond by investing those dollars back in the U.S., a win-win situation. Conard believes that analysis would hold only if people who accumulate cash from foreign transactions invest their funds into risky, innovative enterprises. So how can we stop savings from being deployed in too risk-averse a manner? To provide my own personal list, let’s target the bureaucratization of society, excess regulation, the high cost of moving talented labor into cities with building restrictions and thus expensive rents, overly cautious financial intermediaries (most capital isn’t venture capital), policy instability and a general fear of the future all may choke off entrepreneurship.