We won’t know till the end of this cycle how much mal-investment has occurred under the great monetary inflation which started in 2010. We may already suspect, though, that much of this will be in “big tech” and related fields. Any final reckoning should also include wider political and socio-economic damage not included in a narrow economic calculus. 

Scott Galloway describes skilfully and colourfully the power of the big tech narrative in his just published and highly readable book “The Four: the hidden DNA of Amazon, Apple, Facebook and Google”. The general critic would take issue with his repeated use of a four-letter expletive. The monetary critic can point to a bigger problem with the book – a lack of any analysis linking the amazing spread of the big tech narrative to the prevailing monetary disorder.

If central banks had not created a famine of interest income, the big four would surely not have enthralled investor audiences to anything like the actual extent. Hunger for yield means that investors become willing to take on bad bets (actuarial value highly negative but some possibility of a big pay-off) rather than suffer certain loss on monetary assets. This is an example of “loss aversion” as diagnosed in the pioneering work on mental flaws of investors by Daniel Kahneman and now prominent in behavioural finance theory.

A hypothesis not yet explored in that literature, but which seems to fit the spread of asset price inflation in present and previous episodes, is that investors do not like to admit to themselves that they are taking on bad bets. They turn bad into good by awarding irrationally high probability of truth to speculative stories which accompany the wagers. The positive feedback loops from initial capital gains add to their complacency with the metamorphosis.

Consistent with that hypothesis Galloway identifies the success of the Big Four in being able to attract cheap capital by articulating a bold vision that is easy to understand.