About 10 years ago, the big topics that had economists all atwitter included the “secular stagnation” hypothesis put forward by Lawrence Summers and the rising-inequality hypothesis put forward by Thomas Piketty. Put the two theories together, and you have forecasts for a slow-growth, high-inequality future. The Review of Political Economy (38:3) has put together an eight-paper symposium on the topic: “What Have We Learned from Summers and Piketty Ten Years On?” There’s lots of thought-provoking stuff here, but I found myself especially drawn to an article by Steven Pressman, “Secular Stagnation After Piketty and Keynes” (pp. 961-979).
Pressman points out that the themes of secular stagnation and wealth inequality have been linked for a long time. The basic idea is that the wealthy have a lot of money that is being saved, rather than spent, and this lack of spending makes the economy grow more slowly. Phrased this way, there is an obvious two-birds-with-one-stone policy choice to fix both problems: tax the wealthy, and thus reduce inequality, and spend the money, thus pushing up aggregate demand and jolting the economy out of secular stagnation. As Pressman points out, advice along these lines goes back at least to the Francois Quesnay and the French physiocrats in the 18th century:
As far as I know, the first presentation of secular stagnation appears in static versions of the Tableau Économique (see Pressman 1994a). Quesnay was interested in economic reproduction and explained why the French economy languished while the British economy was growing rapidly and living standards were improving there substantially. Quesnay wanted to reverse the long-term stagnation of the French economy and to have France become more like Britain. His solution was for France to adopt a number of Physiocratic policy prescriptions and to end feudal restrictions on agricultural production. Some of his more noteworthy proposals were that taxes should fall on the class that consists (mainly) of wealthy landowners or proprietors (Pressman 1994b), encouraging consumption of goods produced by the productive agricultural sector, and discouraging savings and waste (Pressman 1994a).
Another linkage between the two ideas, going back in time, was that if a secular slowdown in growth was more-or-less inevitable–two centuries ago, a common idea was that rising output was going to run into diminishing marginal returns fairly soon–then the options were either mass starvation (Thomas Malthus) or widespread redistribution of income (John Stuart Mill).
The Great Depression brought the idea of long-term secular stagnation back to prominence; indeed, the term was coined in 1934 by Alvin Hansen. Paul Samuelson developed the idea of a “balanced budget multiplier” in 1948: tax the rich, who save a lot, have the government direct the money to the middle class and the poor who will spend more, and the result would be stronger economic growth without a need for budget deficits.
In short, there’s a long-standing current in economic and policy thought, manifesting itself in different ways at different times, that redistribution from those with high wealth or income to those with lower wealth or income would speed up the economy. A decade ago, Summers and Piketty were playing a role in resuscitating this long-standing theme. In this spirit, Pressman suggests that the modern policy along these lines would include higher marginal tax rates for those with the highest incomes and higher corporate tax rates. He’s not a fan of an annual wealth tax, pointing out that such taxes have been extraordinarily hard to implement in the past, but notes that an estate tax could function better as a form of a wealth tax.
Personally, I wouldn’t have a problem with moving the estate tax back to, say, the rates and rules tha applied in early 2000s. I’m less certain about higher marginal tax rates, but in 2026, the highest marginal tax rate kicks in at $768,700 for a married couple filing jointly. I’d be willing to try out a higher income tax bracket set well above that level. But I also think that the linkage from tax-the-rich, to more spending, to a permanently improved rate of economic growth makes the economic challenge facing us much too neat.
For example, the economy of China has for a half-century has famously high savings rates, more than double US levels. It has also had rising inequality. But the combination has been consistent with rapid economic growth. It used to be a standard recommendation that the US needed a higher rate of national savings, either from higher personal saving or lower government borrowing. Was that advice completely without merit?
As Pressman duly notes, the causes of a productivity slowdown in modern times are many and often self-reinforcing: slower population growth and an aging population, lower investment, the possibility that “most of the good ideas have already been discovered,” high US government debt, the shift to a service economy and intangible investment (areas where productivity growth may be slower), and others. I would add to this list other factor like the poor performance of the US education system for many children, problems of the US labor market in matching potential workers with jobs, underinvestment in building the nation’s reserach and development capacity, and other factors. Collecting higher taxes from those with high incomes and high wealth levels isn’t going to address those most of those issues in any direct way.
I’d also add that a widespread current concern seems to be that the US economy is about to enter a period of disruptively rapid economic growth, driven by new AI techologies. I think those worries about overly rapid AI-driven growth in the short- and medium-term are overstated. But if it happens, it would invert the earlier arguments that wealth inequality is associated with too-slow growth. Instead of redistribution to speed up the economy, we would be talking about redistribution in response to surging and unequal economic growth. I am congenitally wary about advice that remains the same, even when the situation shifts dramatically: for example, is it plausible that redistribution the answer to both slow growth and fast growth? Perhaps some level of redistribution is just a good thing for its own sake, rather than the answer to every question.
