Ezra Klein posted this chart today showing the steady accumulation of corporate cash and reserves over the past 15 years. I’d like to nominate it for chart of the decade or something. “Why corporations are holding so much more cash is an interesting mystery,” says Ezra, but I think it’s the key mystery of the past couple of decades. Total liquid assets held by nonfinancial corporations have increased from 7.7 percent of GDP to 11.3 percent of GDP.
Why? Why are corporations increasingly unable to find anything interesting to do with their cash in the real world? Why are they implicitly so pessimistic about opportunities for future growth? Is this the financial smoking gun for Tyler Cowen’s “great stagnation” thesis?
I’m not sure. But for 15 years the people with money to bet have been betting that they’ll get better returns investing in financial instruments than they will by investing in expansion of existing products and the invention of new ones. Until we figure out why, we’re going to be stuck with a combination of sluggish growth and financial bubbles as far as the eye can see.