The very slow rebound in investment isn’t obvious to explain.
Read the whole thing. He walks through such explanations as uncertainty, difficulty obtaining financing, low aggregate demand (what Keynesians used to call the Accelerator Effect), and investment that has become less capital-intensive. On the latter, he writes,
it’s often a form of investment that involves reorganizing their firm around new information and communications technology–whether in terms of design, business operation, or far-flung global production networks. As a result, this form of investment doesn’t involve enough demand to push the economy to full employment.
All of these explanations are from a conventional AS-AD perspective. From a PSST perspective, I would look for bottlenecks, particularly in the service sector, where growth is most likely to occur. In the Setting National Economic Priorities Project, the following are considered possible bottlenecks:
–labor-market distortions, including high implicit marginal tax rates embedded in means-tested benefit programs
–the research/FDA approval/patent regime in medicine, given the state of the art in genetics and biochemistry
–the FCC spectrum regime, given the state of the art in spectrum utilization possibilities
–regulation of medical practice
–regulation/accreditation barriers to education innovation
The WSJ adds another layer to the mystery.
corporations used almost $600 billion in cash to buy back their own shares in 2013 and the uptrend continues into 2014. While that’s a positive trend for household wealth, it raises questions about companies’ commitment to move ahead with capital spending projects.
Remember the Tobin’s q theory of investment? It says that when stock prices are high relative to the value of existing capital, firms will invest more. Instead, we are seeing firms buy back stock to try to raise q.
This deserves more thought and analysis.