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Home Publications Blogs Beat the Press The NYT's Hallucinations of a Business Investment-Led Recovery

The NYT's Hallucinations of a Business Investment-Led Recovery

Sunday, 23 January 2011 18:54

The New York Times was touting the prospect of renewed spending by business leading the recovery. There are two major problems with this story. First, investment in equipment and software has already been growing rapidly. Over the last four quarters it has grown at almost a 20 percent annual rate. People who have access to the Commerce Department's data on GDP (a group that apparently excludes employees of the NYT) are aware of this fact.

The other important fact known to people with access to this data is equipment and software spending is actually a relatively small share of GDP. (There was huge overbuilding of non-residential structures, so it is not plausible to imagine a big pick-up in this sector any time soon.) Equipment and software spending were equal to 7.1 percent of GDP in the third quarter of 2010. This means that even if the growth rate doubles to 40 percent, it would only add 1.4 percentage points to GDP growth. This would have less impact than reducing imports by 10 percent.

In short, while a more rapid pace of investment spending can be helpful, it is unlikely to be sufficient to restore the economy to healthy growth path. That will almost certainly require a reduction in the trade deficit, which in turn depends on a decline in the value of the dollar. The latter is apparently a low or non-existent priority for the Obama administration.

Comments (8)Add Comment
Competition - Not Exchange Rate Manipulation - Will Cure Trade Deficit, Low-rated comment [Show]
Indian newspapers are also pushing such stories to paint a rosy picture
written by Lalets News India, January 23, 2011 10:27
Indian newspapers are also publishing such stories to paint a rosy picture of the economy that is becoming a pain for the common man. With interest rates going through the roof and inflation rate of over 10% for the past several months, the majority of India's population is being hurt by the vagaries of an overburdened economy but all the Indian newspapers seem to do is to push the readers in spending more and more. Can't really make out what tomorrow will bring!
More Free Market Fundamentalist Pablum
written by Bozat, January 23, 2011 11:00
The share of national income
going to wages and salaries
is at its lowest level on record,
with data going back to 1929,

and union membership
(and thus the share of wages and salaries going to union labor)
is also at all time lows,

yet izzatzo pins
our trade imbalance
on sticky union wages?


Next we'll find out
that the Great Financial Crisis
was all a mirage
- because, after all, it isn't possible according to their model(s) -
and that if we had just
let free markets operate
without damned government/union
socialist intervention,
the invisible hand of the market gods
would have made everything all better.

Markets fail
and fail to self-correct.
The neoclassical paradigm
exists only in conservative utopias.
(Located most likely in Austria, no doubt.)

Whom the gods seek to destroy,
they first make mad.

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The NYT article isn't a NYT article - it's an Associated Press blurb
written by anonymous, January 24, 2011 9:09
The New York Times was touting

With all due respect, the article wasn't written by NYT staff. And most likely automatically aggragated. I suppose in the current state of economic affairs for publishers, NYT "fact checkers" and copyeditors are among those on the unemployment lines.

The number of typos I've read in the last few days, across several websites, is just atrocious.
written by Ron, January 24, 2011 9:21
Software and equipment investment primary purpose is reduction in labor. The MSM loves technology but has little understanding of its purpose in today's world which has little to do with creating jobs or new industries rather cutting payroll.
written by skeptonomist, January 24, 2011 9:23
There is certainly room for increased investment in the US which could improve the balance of payments, for example in alternate-energy technology, but the private sector is not going to do it by itself. All countries subsidize various industries for various reasons, and China is generally thought to be subsidizing energy technology:


Should the US be buying wind turbines, etc. from China? Government investment in alternate energy is something which would not decrease consumer demand, unlike indiscriminate subsidies such as tax breaks or monetary-policy action which can apply to producing consumer goods.
written by skeptonomist, January 24, 2011 9:30
The weird and indecipherable captcha didn't foil gucci handbags. What actually happens if there is no captcha?

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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.