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

Dean Baker quite rightly takes Robert Samuelson to task for his op-ed on the causes of secular stagnation…. But Dean’s explanation also misses the the 800-pound gorilla…. 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…. Theoretically and arithmetically, it’s huge. Why is it not even part of the conversation?

Well, let me say that it ought to be part of the conversation, but that the pattern of asset prices is not what I would expect to see if it were a high propensity to save on the part of the rich coupled with high inequality that were driving our current (and likely future) destructive encounter with the zero nominal lower bound on short-term safe interest rates. I would expect greater inequality coupled with a higher propensity to save on the part of the rich to drive all asset yields down. Yet what we have seen has been a steep, prolonged fall in Treasury bond yields while stock-market equity yields have plateaued at about 5%/year:

Screenshot 12 2 13 2 00 PM

That is what makes me (tentatively) side with Ricardo Caballero, and say that the asset market derangement is better conceptualized as inadequate risk tolerance and safe asset supply, rather than either a global savings glut or a global investment shortfall…

But I would be willing to be persuaded…