One must applaud Larry Summers for his cagey satire in a Washington Post op-ed today. He lets on—subtly—that the recent resurrection of “secular stagnation” is all an elaborate spoof.
Secular stagnation is an odd theory that predicts a perpetually weak economy due to low desire to invest. It contradicts both neoclassical and Keynesian growth theories. The first time it was entertained, in 1938, it was immediately followed by several decades of the strongest economic growth in history. The second time, in 1982, it again presaged a boom. History is repeating itself now as farce, or perhaps Summers hopes that the phrase is a charm that will set off a third great economic expansion.
The tipoff that he is writing satire comes in his policy proposal for addressing the investment decline caused by secular stagnation:
Regulation that requires more rapid replacement of coal-fired power plants would increase investment and push growth as well as help the environment.
Summers echoes the immortal satire of Frédéric Bastiat, who teased the French parliament in 1845 with a request for greater regulation of a natural resource even cheaper than coal:
We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds—in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country.…
If you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?
Only a politician could think that restrictions on the use of natural resources increase both well-being and economic activity. In reality, a requirement to replace coal power plants would have a similar effect as an increase in the rate of depreciation or as industrial destruction by Luddites. The result might be more gross investment but, since depreciation and destruction are netted out, lower net investment. In order to increase the productive capacity of the economy, net investment must increase. As the old econ chestnut goes, “no one eats depreciation.”