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Home Publications Blogs Beat the Press Morning Edition Gets the Story on Investment 100 Percent Wrong

Morning Edition Gets the Story on Investment 100 Percent Wrong

Friday, 03 September 2010 05:20
A report on the unemployment situation told listeners that the real problem in the economy is not a lack of demand, but rather inadequate investment. Actually investment in equipment and software has been growing at almost a 20 percent annual rate over the last three quarters. While it might be desirable to see investment grow even more rapidly, demand is a major determinant of investment growth. If the economy grew more rapidly as a result of a spur to consumption, it would almost certainly lead to more rapid growth in investment.
Comments (7)Add Comment
You're not 100 right
written by scott, September 03, 2010 6:14
Capital gains have become perverted. Stock options should be taxed as income not capital gains. Financial shenanigans should not be taxed as capital gains. We should have a return to the Kennedy/Ike tax rates on incomes exceeding $5mil/yr at a rate of 66%+ This would drive wealth development into capital expenditures rather than luxury, two Americas bifurcation. If an executive won't work for just $5/mil they can go find another gig that pays better, or hire assistants. These outsized incomes also foster political corruption.

The fact that there is little to no manufacturing in this country is proof of the need for capital investment. Higher tax rates, on the CFP level, would drive this. Entrepreneurs would not be effected, as they'd reinvest to avoid these pernicious tax rates.

What's really pathetic, is that you won't embrace controversial ideas like this, nor to you account for political realities with your ideas. Hypocrisy, and cowardice on display.
written by AndyfromTucson, September 03, 2010 7:26
It drives me nuts when people act like investment is this mysterious force in the economy independent of demand. Why do businesses invest? To make more money. Are they going to want to invest a lot when demand is weak and they have more capacity than they need?
NPR is right on one level
written by Bill Turner, September 03, 2010 7:50
There should be investment in infrastructure: efficient transportation systems, energy independence projects (read alternative forms of energy and energy conservation projects), education (especially in engineering disciplines, you cannot build without engineers), etc. Such investment would likely come in large enough dollars from the federal government. This would be called stimulus. And, yes, we need more stimulus. A lot more. Unfortunately, those with a particular agenda have been able to convince a large portion of the population that this is not so, and that it is better to live the "supply side" dream that the NPR segment seems to be promoting. To restate what Andy says, supply follows demand.
Dean Baker is the wrong target for your wrath
written by SP, September 03, 2010 7:56
Dean Baker has proposed scrapping the patent/copyright system with a competitive method based on 'artistic freedom vouchers' to encourage creative work. He wrote favorably of globalized free trade in health care. I don't always agree with him, but he is certainly not at all afraid to embrace 'controversial ideas.'
I heard the NPR story, which featured commentary from the Peterson Foundation, and immediately went to Beat the Press because I know Baker's strength is skewering unsound, self-serving, reactionary ideas masquerading as bold new innovations. The Peterson representative was not suggesting using high marginal tax rates on the wealthy to incentivize investment in manufacturing, by the way. Baker wasn't responding to your idea but to the much more conventional supply-side ideas in the story, so I don't understand the hostility to him.
As for 'political reality,' the role of an independent researcher is to challenge it, not to accommodate it.
Saying 100% wrong is too strong
written by scott, September 03, 2010 8:37
He is no better by drawing false dichotomies. I appreciate new ideas and come here to learn, but too often he suffers from succumbing to false dichotomies and his own insulated perspective--which all of Washington and "think" tanks suffer
Spur Consumption
written by Paul, September 03, 2010 9:28
Even the most neophyte, dilettante "economists" understand that consumption represents 70% of demand in our economy, yet with the exception of the now-expired Home Buyers Tax Credit and the short-lived Cash-4-Clunkers, we have had no direct stimulus to spur consumption? Do Dems have a death wish?
written by gray, September 03, 2010 2:20
Regarding demand, the lack thereof is not a problem but a reality. The problem was the artificially boosted demand of recent years -- while stimulus to help slow the fall back to sustainable demand may be reasonable, stimulus to go back to where we is not.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.