But labor isn't alone in not being necessary to satiate additional demand; note the trillions of dollars in capital struggling to find "acceptable" returns. Investors are even willing to invest in negative return bonds in parts of the first world to protect cash holdings of portfolios.
http://money.cnn.com/2016/04/14/news/tax-us-companies-offsho...
"Top 50 U.S. companies hold $1.4 trillion in cash offshore"
Assume these companies brought that cash back to the US. What would they do with it? Where is there to grow?
If companies repatriated their cash, the main thing they would do with it is pay a hefty tax bill to Uncle Sam. This would be a good thing to do when the central banks do increase interest rates.
One-sided accounting fallacy. For every lender receiving an interest rate, there is someone borrowing at the same rate. Why do you assume that the person lending is more deserving, when it is the risk-takers with need of capital (ie borrowers) who are the inventors and entrepreneurs? This place goes nuts for Elon Musk's projects; well it would be a different world if capital was more expensive for him to access.
It's more a feature of wealth and income inequality than central bank policy.
Central bank policy accelerated this trend but the "savings glut" (1% wealth) has only been going up since the 70s.
[1] http://larrysummers.com/category/secular-stagnation/ [2] https://hbr.org/2014/09/profits-without-prosperity
There is not much investment in the economy because there is not much demand. There is not much demand because of income and wealth inequality.
After all, what's the point of producing goods and services for people who can't afford them?
>http://larrysummers.com/category/secular-stagnation/
Any economics projections made by Larry Summers ought to be taken with a metric ton of salt. After all, his track record at gambling with Harvard's money is just abysmal:
http://www.alternet.org/economy/larry-summers-federal-reserv...
Decreasing wealth inequality is an end, not a means to an end. If you want a stable economy, focus on prices: inflation and deflation. If you want a functioning society, focus on income and employment. If you want both, then you get the Federal Reserve. Sometimes the two goals stand in each other's way. (Stagflation). When that happens, it's now obvious that central banks prioritize the economy over society.
There's no direct causal relationship between profits and investment. There aren't any companies that think "you know what? we've got enough profits for now, why do we need more?".
There are plenty of companies who see tapped out markets that aren't growing and decide not to invest.
Indirectly I guess the accumulation of wealth at the top via profits is party responsible for no money at the bottom to buy products and services.
>Decreasing wealth inequality is an end, not a means to an end. If you want a stable economy, focus on prices: inflation and deflation.
That's exactly what the fed has had its laser-like focus on for the last ~20 years. Stable the economy was not. Prioritizing inflation while inflation is under 15% is simply prioritizing the needs of those who don't work for a living over those who do.
>If you want a functioning society, focus on income and employment. If you want both, then you get the Federal Reserve.
The fed only really cared about inflation in the last 20 years in spite of its mandate.
But this is a race to the bottom (or the top?). How do we stimulate so much demand to keep up with this? Then there is Piketty -- the return on capital outpaces economic growth, and therefore wealth inequality gets worse with time. He proposes we should instate a global wealth tax. This is more along the lines of what you are saying. But his solution doesn't necessarily solve the demand problem. It just solves the wealth problem directly. We don't know, with a global wealth tax, what the impact on demand really will be. Maybe it would lead to a massive deleveraging of consumer and student debt. Demand isn't ultimately the problem... the economy is functioning pretty well. We can make the things that need to be made in the quantities they need at reasonable prices. The problem is the wealth distribution in itself.
As for the Fed only caring about inflation in the last 20 years: https://en.wikipedia.org/wiki/Paul_Volcker
That causation is backwards. Raising interest rates makes money tighter. But tight money causes low interest rates.
Central banks use open market operations. When they want interest rates to go down, they print money and buy debt on the open market until the rates reach their target. This new money is the cause... the new interest rates are the effect. The new money (aka "monetary base" or M0) is then multiplied 10x by private banks, due to fractional reserve banking. That M1 money is another effect. The controlled interest rate helps the private banks loan that money out.
And once the reserve requirement is maxed out, the only thing that can permit more private money creation is central bank money creation
Why not have a shot of deflation?
We also have the highest population levels ever, the most assets ever, and the most wealth ever.
Debt to GDP has fallen, drastically:
But this is neither true, nor does it need to be. Economics is all about marginal curves. And I think what we are finding is that demand does increase, but that we can adapt to increased demand for most goods and services without increased demand on labor. So, inflation is not a threat, because wages don't go up. But it means ever-increasing return on capital... which is precisely what we've been seeing for decades.