John Howard Brown: Comment on "What Market Failures Underlie Our Fears of 'Secular Stagnation'?":
Although this is argued with your usual eloquence, there is one short-coming that I see. The problem is not a market failure per se. Instead, the problem is one of political economy. The experience of the last thirty years has been increasing financialization of the the United States economy. The removal of regulatory constraint has permitted the financial industry to extract increasing amounts of rent from the real economy. This is one potential source of secular stagnation and is covered above. However, I don't believe that it is the most important source.
Instead, the accumulating rents are deforming the political process. Both parties are largely dependent on the finance industries for their funding. This is manifest both in the ridiculously weak new regulation following the 2008 crisis and in secular stagnation. As Krugman pointed out on his blog last week, along stronger demand would be desirable, weak demand strips workers of bargaining power. Thus it is not in the interests of the plutocrats to see a stronger economy. Income redistribution is the central plank of any attempt to avoid secular stagnation and the demise of democratic self-government.