Is "secular stagnation" a state of the world or a state of our minds? I ask for two different - indeed, contradictory - reasons.
The first is inspired by papers (pdf) by Ulrike Malmenider and Stefan Nagel and by Henrik Cronqvist and colleagues. They both show that our attitudes to the economy - as measured by how we invest our money - are shaped by experiences in our impressionable years. People who experience recessions in their formative years tend to be more risk-averse than those who enjoyed better times. They invest less in equities and less in growth stocks than more favoured generations.
And here's the thing. A lot of the talk of stagnation comes from those of us aged between around 45-60. We were scarred by the collapse of the Golden Age of capitalism in 1973 and/or by the recessions of the early 80s. These experiences disposed many of us to be "glass half-empty" kind of people - or, as our younger colleagues say, miserable old gits. It might be, therefore, that we are pessimistic not just because of the facts, but because of the legacy of our early experiences.
This is not the only way in which early-life experiences shape economic attitudes. It has been argued that one reason why inflation stayed low during the full employment years of the 50s and 60s was that workers' memories of the mass unemployment of the 30s depressed wage militancy. As those workers retired, to be replaced by those who had known only good times, the fear of unemployment receded and wage militancy rose.
I could push this hypothesis further. It's 45-60 year-olds who dominate corporate boardrooms and hence investment decisions. It might therefore be that capital spending is low because it is decided by people scarred into pessimism.
This, though, might be a stretch; bosses are, in part, selected for overconfidence and this selection effect mitigates the cohort effect.
There is, though, a second mechanism here. Why is investment so low? Standard explanations focus upon the dearth of (monetizable) investment opportunities due in part to slower technical change (pdf). But there might be something else at work. A few years ago William Nordhaus wrote:
Only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers.
It might be that bosses have wised up to this - not so much because they've read Nordhaus but because they've learned from experience. If so, the problem isn't so much that technical progress has slowed, but that it never really paid in the first place and bosses have now learnt this and so cut investment. If so, stagnation is the result of rational learning.
My point here is a trivial one. Talk about stagnation - whether you're arguing for it or not - is talk not just about the world, but about our beliefs. And we should think about how these are shaped.