Bubbles seem to be bursting everywhere. Cryptocurrency is the most obvious example, but as I noted in my latest column, the decline in crypto prices has been more or less matched by the decline in high-flying tech stocks: You would have lost roughly the same amount of money buying Meta stock last year as you would have lost buying Bitcoin.

This broad-based decline in speculative assets might in part reflect a general disillusionment with tech bros. Derek Thompson at The Atlantic argues that the tech industry is suffering a midlife crisis, with yesterday's whiz kids trying to reclaim their magic with ever worse investments – think of Mark Zuckerberg's dreary metaverse and Elon Musk's demolition of Twitter – and investors may be picking up on the strong whiff of desperation.

But the decline also reflects macroeconomic forces, specifically a sharp rise in interest rates, which makes speculative investments in general less attractive. Here's the interest rate on 10-year indexed bonds – bonds that are protected against inflation – since the 2000s:

Is cheap money over?
Credit... FRED

After a long period in which money was almost free (at least if you were the government), we're back up to rates close to those that prevailed before the 2008 financial crisis.

But is the era of cheap money over? Or is this a temporary effect of Covid-19 and the policy response to the pandemic, so that one could expect rates to eventually revert to their lows of the 2010s?

I've written about this topic before, and made the case that low rates will return. I still believe that, even though rates have risen since I made that argument. What I want to do here is make the case in a slightly different way.

My starting point is the observation that the fiscal response to Covid-19 was truly extraordinary. Budget deficits normally rise when the economy slumps, both because revenues fall and because some programs, notably unemployment benefits, cost more when the economy is weak. During the pandemic slump, however, the effects of these "automatic stabilizers" were dwarfed by the effects of special federal programs designed to cushion the financial hardships of lockdowns. Here's a chart from a recent Congressional Budget Office report:

The big spend is behind us.
Credit... Congressional Budget Office

I happen to believe that this massive deficit spending was the right thing to do. Maybe it should have been smaller, but far better to have helped people than not. But even those of us who are fairly positive on Bidenomics generally acknowledge that you would expect such a surge in spending to raise interest rates.

Why? One way to look at it is to say that when the economy is at or close to full employment – which it is – government borrowing is competing with the private sector for funds; this is the so-called loanable funds view of interest rates. Another way to look at it is to say that large-scale fiscal stimulus tends, other things equal, to cause an overheated economy, so that the Federal Reserve has to raise interest rates to control inflation.

Which is the right view? No need to choose: The loanable funds story and the overheating economy story are actually two different ways of saying the same thing.

But the Covid-19 surge in deficits is now behind us. Those C.B.O. estimates do say that deficits will remain somewhat high by historical standards, but nowhere near the levels they hit in 2020-21. We're still probably feeling the effects of pandemic spending: Households saved much of the aid they received, and consumer demand has stayed strong as they spend down those savings. But eventually, the boost to the economy from pandemic aid will fade away.

And once that happens, we'll probably be back where we were before the pandemic, with weak private investment demand holding interest rates down.

Why will investment demand be weak? Last time I wrote about this I stressed demography – the drastic slowdown in growth of the working-age population – plus what looks like disappointing rates of technological progress. That's still my story, but let me now put it a different way.

One well-known concept in macroeconomics is the accelerator effect. This says that investment spending generally reflects not the level of G.D.P. but the expected change in G.D.P. The logic is that investment spending is only high when businesses want to increase their capacity, which happens only when demand is growing.

This tells us that investment spending will only remain high if we expect rapid economic growth. And what we know now doesn't support that expectation.

The Congressional Budget Office regularly publishes estimates and projections of potential G.D.P. – what the economy could produce at full employment. In general, business investment will tend to be high if potential G.D.P. is expected to rise rapidly over the medium to long term. So here's a chart of the C.B.O.'s estimates of potential G.D.P. growth at points over the last decades, starting in 1990 and ending right now:

Growth's glory days are gone.
Credit... Congressional Budget Office

The budget office believes – and I agree – that the future isn't what it used to be. In the 1990s it made sense to expect growth at more than 3 percent a year over the next 10 years; these days, expected growth is only about half that.

Why the slowdown? Demography indeed plays a role: Baby boomers have been aging out of the work force while, thanks to low fertility and, more recently, declining immigration, they aren't being replaced.

Another important factor is that aforementioned midlife crisis in technology. In the 1990s and early 2000s, productivity received a major boost as American businesses finally figured out what to do with computers and networks, but (funny pandemic numbers aside) the economic payoff to technology has seemed much smaller since the mid-2000s. It's a cliché, but one borne out by the data: When was the last time you were excited by the latest iPhone?

What all this suggests to me is that the era of cheap money is not, in fact, over. A few years from now, we'll probably be back to a situation in which too much saving is chasing too few investment opportunities, and interest rates will be revisiting their old lows.

Paul Krugman has been an Opinion columnist since 2000 and is also a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman