A fascinating little article in the New York Times, called "Everything Boom, or Maybe the Everything Bubble," makes the observation that with so much money chasing after too few assets, the assets are expensive even though the returns are low. What's an investor to do?
One obvious explanation for the quandary is that money isn't worth as much as it used to be. There's a huge unheralded process of inflation going on. Most things are valued less (because of a decline in demand or because an asset that used to be a good investment isn't any more), but since money is also worth less, it looks like nothing is happening.
On the other hand, the minority of sought-after assets are holding their value but the declining value of money means more is needed to buy it, and so prices rise.
A good way to think about this hidden inflation is to think about something - a thing or a service that you could get at a high quality a couple of decades ago, but today you notice that the quality has declined significantly. I have some great old kitchen utensils, spoons and a spatula built to last forever, and I salvage old steel screws and bolts because they don't strip and bend like the ones at the hardware store. But of course the quality hasn't really declined. I could replace those steel spoons for $100 or so, and I'm sure there are places to get quality hardware rather than the Chinese scrap. But if you had to spend a buck fifty on a wood screw that you're used to paying 15 cents for, you couldn't help but notice the inflation.
And then you realize that the furniture couldn't hold a screw even if you wanted it to, since the stuff you can afford is mostly particle board held together with staples and glue.
For investors, however, there is a second half to this story: the end of economic growth. Investment is the practice of taking one's wealth and buying something that will produce more wealth - regardless of whether the currencies are stable or inflating. The printing presses of the Central Bankers have been running day and night, in the vain hope that the beneficiaries (bankers and financiers mostly) will invest it in wealth-making activities - factories, buildings, new technologies. But vast trillions of these quick-spun dollars and euros and renminbi sit, flitting from hand to hand in the markets, eroding in value because investors don't see anything that is going to pay off in real wealth.
Now the peak energy people won't have any difficulty diagnosing this. Our economic growth has been primarily based on access to more and more cheap energy, almost exclusively in the form of fossil fuels - coal, gas and oil. Now that the cheap fuels have been used up, we have to pursue, dirtier, less concentrated, harder to extract sources - economic growth begins to slow down. The economy will eventually go into contraction if it hasn't already.
I suspect there's more to it than thermodynamic destinies. These things are always over-determined.
21st century capitalism is exhausted. Marx was perfectly aware that capitalism, left to its own devices will tend toward monopolism and eventually stagnation and self-strangulation. It's taken longer than he thought, but the sclerotic state of our capitalism is probably terminal - as any entrepreneurial upstart is taken up and ingested.
And if the only solutions are to do something different than what we've been doing, who achieves the levers of power these days? Are the kinds of people who rise to the top of our broken politics and our bureaucratized corporations really the kinds who are likely to solve the problems, which business-as-usual is bringing down on our heads?
So whatever the underlying cause, pity the poor investor who just wants to put those dollars or euros or renminbi "to work", but sees nothing but bad risks and varying degrees of wealth erosion. Lo and behold, it turns out he's getting poorer. Just like the rest of us.
Krugman has a timely rejoinder to my little sally, Addicted to Inflation. In it he argues that hidden inflation is a phantasm of the political right that proves their inability to see things as they really are. Krugman is an economist and I'm not, so take what I say with a grain of salt. But in my opinion the thing that neither he nor the conservatives he lambasts are willing to contemplate or enter into their calculations is the possibility that the party is ending.
The conservatives were wrong about the printing presses causing the currencies to crash, because though vast sums of money were printed, they mostly sit in cyber vaults un-spent by the banks and billionaires. Krugman is wrong because, like all mainstream economists, he doesn't seriously consider the geologic, thermodynamic and biospheric limits on the economy. The normal tools of economic craft don't work when we run up against those limits in the way that we are today.