There are two stories here. One, in sheer magnitude, software (the blue line) is still only 15 percent of private investment and not significantly higher than points in the past two decades when interest rates were a lot higher. On the other hand, residential investment as a share of private investment, hasn’t changed much in structure since the mid-’60s and is still very sensitive to changes in the interest rate.

The point here is that while WhatsApp didn’t need any real investment, a lot of the economy does, and as sexy as Silicon Valley is, main street America is not irrelevant. There’s another point here, and I’d file it under, as Scott Sumner might say, “never reason from a price change.” The Silicon Valley story tells us that the returns on very small investments can be huge and, under competitive markets, this would imply that the marginal return on capital is falling rapidly after a certain level. However, that isn’t consistent with the broad increase in capital’s share of income we’ve noticed over the past decade or so. In a simple (but empirically powerful) Cobb-Douglas production function, the exponent on capital is its share of total income, and the higher the exponent, the larger the marginal product at any given point (other things equal).

Of course, other things are never equal, and that’s Sumner’s point.

Summers is right, that to the extent software is significant, there are important implications for the equilibrium interest rate. As the elasticity falls (that is, as the demand curve becomes more vertical) changes in the supply of loanable funds will be felt entirely through interest rate adjustment. So an increase in supply has a lot more potential to keep the economy under a low interest rate environment than before.

Ultimately, this is all pretty speculative. Calculating the importance of interest rates, as an empirical phenomenon, is notoriously difficult (studies disagree, for example, on whether higher interest rates even increase savings)—and observing shifts in the shape of the determining curves is harder still. While interest rates are low for a number of reasons, technology per se may not be one.

The practical point here is that since long-term interest rates are what drive the kind of investment Summers says is dwindling, it’s ever more incumbent that the Fed doesn’t let the term premium on long bonds rise too much. That is, keep quantitative easing hard.

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Lower interest rates and interest-rate elasticity of demand pose a real threat to the current model of monetary policymaking. These are good arguments for a slightly higher inflation target.

But maybe the most important problem with secular stagnation is the cyclical recovery, which to some extent are mutually exclusive. While the economy is still really tough for those at the bottom, there are signs of life with increasing quits, inflation, and pressure in the market in general. There’s a lot more we can and should be doing, but these should perhaps be considered for redistributive and supply-side – rather than purely demand-side – reasons.

Of course, until we do get consistently sufficient inflation, demand is still lacking. The question is whether that seems impossible, and I think it would be difficult to answer in the affirmative. Unfortunately, my post has none of the optimism with which Larry Summers and Ian Bremmer challenged Paul Krugman in the Munk Debate. The Depression was the last time we were in such a bad position. As horrific as that was, it was no secular stagnation.