The question about secular stagnation that always has bugged me

I have never understood how savings is supposed to remain above investment for extended periods of time.  In a recent Op-Ed, Krugman summed up the secular stagnation view nicely, but you will find similar claims all over:

To maintain full employment, a market economy must persuade businesses to invest all the money households want to save.

If the demand to investment is so low, why don’t the prices of investment goods fall, thereby increasing the marginal return to new investment?  (I do get why the zero lower bound may limit the ability of interest rates to fall).  That would then equilibrate planned savings and planned investment once again and eliminate the savings overhand.  Of course price stickiness may prevent this from happening in the short run, but secular stagnation is a longer run theory.

This point resembles Hayek’s response to Foster and Catchings way back when.  Has it been answered?


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