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1 Theory 1: We’re running out of innovations. In a new book, economist Robert Gordon argues that this slowdown in new inventions is the root cause of the last decade’s economic malaise. He views the IT-driven boom between 1995 and 2005 as a one-time event that’s unlikely to be repeated. Now, he suggests, people are going to have to get used to slow growth of incomes, worker productivity, and the economy as a whole. Two data points seem to support Gordon’s point of view: the rate of startup formationis at record lows, and so is overall corporate investment.
2 Theory 2: There’s too little spending. Larry Summers, an economist who served as secretary of the Treasury during President Obama’s first two years in office, has championed a theory of "secular stagnation," in which peoples’ desire to save money outstrips opportunities to invest it. This leads to a vicious cycle in which slow spending growth makes companies pessimistic about future growth, causing them to cut investment spending even further.
3. Theory 3: Bad corporate governance is causing companies to under-invest.
4. Theory 4: The economy is weighed down with debt. economist Kenneth Rogoff has argued that the effects of these high debt levels lingered for years after the crisis. Households and businesses realized that they had excessive levels of debt. The result, Rogoff argues, has been a prolonged period of depressed demand as households and businesses focus on paying down their debts instead of buying new goods and services.
5. Theory 5: Excessive regulation is holding back growth. A recent paper by economist James Bessen finds evidence that regulations have created barriers to entry that boost the profits of incumbents in certain industries while reducing the dynamism of the economy as a whole.
6. Theory 6: There’s too much housing regulation in big cities
7. Theory 7: The economy is becoming dominated by big, incumbent companies. Two well-known advocates for the view that industry concentration is holding back economic progress are Phillip Longman and James Schmitz. But I found their arguments hard to evaluate because they seemed highly backward-looking.