Today Porter takes on Mr. Market. As has been the case with the rest of the pundit class, he avoids asking the basic question, "where have all the dollars gone?" But he does deal with the obvious question of overall stock prices.
What I contend is that if the American economy behaved in the way that most economists say market economies should, stocks would in all likelihood be cheaper.
Why?
The Standard & Poor's 500-stock index increased 8 percent per year from 1970 to 2015, on average.
...
What makes this particularly puzzling for scholars reared on the classical models of competitive economies is that all this happened despite a persistent decline in real interest rates.
The money quote, buried in the middle
The ratio of the capital stock — the value of factories, machines and such — to the nation's economic output has actually declined a little since the 1970s.
So where have all those dollars gone? Well, to Treasuries and other fiduciaries. Capitalists were, are, and always will be risk averse. Little to no rise in physical investment in a decade of low rates, yet all that idle moolah keeps buying Treasuries, and knocking down the opportunity cost of real investment. And they still won't bite. The obvious reason is that, intuitively, they understand that only massive capital (e.g. Fab 8) can eke out a teeny increment in progress. So they toss in the towel and buy Treasuries. In due time Orange Julius Caesar will demand that Treasury cease the auction and sell at named interest rate. Chaos follows.
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