Where Have All The Investment Opportunities Gone?

Kevin Drum offers an interesting perspective on the “savings glut”:

I'm putting my money into American real estate! (cc photo by chi king)

But why weren’t there enough good, traditional places to invest that money? And by “traditional” I mean people who want to build factories or expand call centers or start up biotech ventures. That is, businesses that provide goods and services to meet demand from consumers and corporations. The supply side of the economy may have been going great guns, but the demand side wasn’t keeping up. This is why some people think it’s better to talk about this phenomenon as an “investment drought.”

Kevin offers an explanation for this that relates to the maldistribution of income in the United States. But isn’t the real issue here that the good investment opportunities were all in China?

That’s what was screwy about the global economy of the 2000s. For each and every one of those years, everyone believed that the short- and medium-term growth prospects in China were better than the prospects in the United States. And yet on net investment funds were flowing from China to the United States. Similarly, Americans had much more consumer goods than Chinese people, yet it was Americans borrowing money to finance present consumption. Borrowing it from China! That’s why Bernanke called it a savings glut.

But in a larger sense, this reflects the failing of the international financial architecture. The IMF wasn’t just created as a stimulus program for the makers of giant puppets—the architects of the postwar economic order thought the globe would be wracked by periodic crises without something to play its role. Nevertheless after the way the IMF handled things in the 1990s, Asian countries resolved to never again rely on the IMF and to instead start stockpiling dollars. But this effort to develop a workaround created a ton of problems. Bypassing the organization turns out to be a poor substitute for actually addressing the problems with it.