Secular stagnation and post-scarcity

While there will be fevered debate over the possible causes of secular stagnation one thesis I would like to advance is that of over-supply. Summers suggests that in order to soak up idle resources in developed economies policymakers have had to make a habit of pumping up asset bubbles. Yet he notes they have apparently done so without stoking rampant inflation.

A possible answer to this puzzle is that inflation has remained constrained because of increases in the productive capacity of developed economies that have far exceeded growth in aggregate demand. Over the boom period inflation is kept low as supply is always ready to respond to (or over-meet) any increase in demand. No matter how large the bubble grows inflation fails to respond even with unemployment below a level that would have been assumed to start exerting upwards pressure on prices.

This is not a problem as long as the bubble persists. Unfortunately that same over-supply can also hold back recovery.