IN OUR cover leader this week, my colleague makes the following point:
Nor are firms investing less. The same system that is accused of myopia has just financed the $500 billion shale-energy revolution, a boom in experimental biotech companies and the electric-car ambitions of Elon Musk, a maverick entrepreneur. Relative to assets, sales and GDP, American firms’ investment has held steady. The mix has shifted from plant and machines to things like software and research and development (R&D), but that is to be expected as equipment costs fall.
This may strike some readers as surprising. Here is the chart behind it. Gross private non-residential investment, though volatile, has fluctuated around 13% of GDP since the 1970s. Today, it is almost exactly at its long-run average. There has been a shift in the composition of investment, towards intellectual property. But, relative to GDP, investment as a whole has held steady. The IMF made a similar point in its April World Economic Outlook, noting that America’s investment slowdown has been no more severe than expected, given the depth of the…Continue reading