EVEN before the financial crisis, there was a lurking suspicion that bubbles were the only way listless rich economies could keep growth up and unemployment down. "Recession-plagued nation demands new bubble to invest in," joked the Onion, a satirical newspaper, in 2008. In a speech last month Larry Summers, an economist at Harvard University, gave the idea new credibility when he suggested that the rich world might be suffering from "secular stagnation." He joins a growing rank of economists worrying that advanced economies will keep inflating bubbles in a doomed attempt to resurrect growth. Secular stagnation is not a new idea. It was first popularised by Alvin Hansen, an economist and disciple of John Maynard Keynes, in the stagnant 1930s. Hansen thought a slowing of both population growth and technological progress would reduce opportunities for investment. Savings would then pile up unused, he reasoned, and growth would slump unless governments borrowed and spent to prop up demand. Following the economic boom of the 1950s, interest in the hypothesis dwindled. The theory is now popular again. Interest rates have been trending downward for more than a decade (see chart 1), hinting that too much saving has too few places to go. Even as asset bubbles inflated before the financial crisis, growth in the rich world's economies was hardly breakneck, hinting at a lack of productive investment opportunities. This combination could be evidence of the secular stagnation Hansen warned of. Structural defects Look closely, however, and the argument is not all that convincing. In explaining how a country might fall prey to secular stagnation, Hansen focused on the investment side of the equation. Structural economic changes, like an ageing population or a slowdown in innovation, could permanently curb expectations of growth. Bearish firms might then sit on cash rather than splash out on job-generating equipment or factories. In some parts of the rich world the ageing of the population may be bearing down on growth, but the rest of the story does not fit current conditions. In the midst of the information-technology revolution, a dearth of innovation does not seem a plausible source of stagnation. Housing aside, private investment in America has recovered reasonably well from the crisis, and tech-industry investments are positively booming. Markets do not appear to be sceptical of the potential returns from technology. Yet optimism in Silicon Valley has not proved sufficient to free the economy from the doldrums. Some reckon other structural changes in the economy are deterring firms from undertaking more capital spending. Andrew Smithers of Smithers & Co, a consultant, argues that compensation for managers creates incentives to boost share prices in the short run. He suggests that this encourages managers to plough cash into share buy-backs, which raise stock prices, rather than into productive investments that might do more to boost growth. Might a surge in saving rather than moribund investment be the prime cause of secular stagnation? Again, the timing is tricky. Before the financial crisis, excessive thrift in emerging economies may have played a role. In 2005 Ben Bernanke identified a "global saving glut" as the reason for low interest rates. Many emerging economies, particularly China, had rising current-account surpluses. They sent their surplus savings to the rich world, by building up large foreign-exchange reserves, mostly in the form of rich-world bonds. This drove up asset prices and fuelled housing bubbles. A new working paper from the National Bureau of Economic Research reckons that foreign capital flows to America drove down interest rates and accounted for as much as a third of the increase in house prices in the 2000s. But this explanation for economic stagnation in the rich world is difficult to square with today's data. Global growth in foreign-exchange reserves slowed dramatically in 2013. Yet rich economies are still struggling while asset prices continue to soar. Another theory holds that high savings reflect a cramping of consumption due to rising inequality of incomes. The share of income earned by the top 1% began climbing in the early 1980s and now stands close to the record set in 1928. Rich households save more than poorer ones. A paper published this year by Barry Cynamon of the St Louis Fed and Steven Fazzari of Washington University in St Louis estimates that prolific saving by the top 5% has been suppressing demand since the mid-1980s. That squeeze was mostly offset by increased borrowing by the bottom 95%, they find. America and Britain, unlike Germany and Japan, saw rapid growth in private debt in the 2000s (see chart 2). But when the crisis forced households to deleverage, the underlying inequality-driven stagnation may have reasserted itself. Over to Occam Yet deleveraging alone may be enough to explain the sluggish growth of recent years. In 2009 Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University published a study of big post-war banking crises and concluded that they are typically followed by weak recoveries, whether or not they were preceded by a surge in income inequality. Just as important, central banks have been at sea since reducing their benchmark policy rates to near zero in 2008-09, to battle recession. Many economists - including Mr Summers - reckon this "zero lower bound" has kept central banks from slashing interest rates enough to get investment going and economies back on track. America has been in similar straits before, in the 1930s, when Hansen was devising his theories. Secular stagnation may someday prove a problem. The rich world's current headaches, however, look more like a nasty hangover. Sources "Full recovery or stagnation," Alvin Hansen, W.W. Norton, 1938 "The effects of the saving and banking glut on the U.S. economy," Alejandro Justiniano, Giorgio Primiceri, and Andrea Tambalotti, NBER Working Paper 19635, November 2013 "Inequality and household finance during the Consumer Age," Barry Cynamon and Steven Fazzari, INET Research Note 23, February 2013 "The aftermath of financial crises," Carmen Reinhart and Kenneth Rogoff, NBER Working Paper 14656, January 2009 Economist.com/blogs/freeexchange