CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs CEPR Blog Investment Is Not the Problem

Investment Is Not the Problem

Print
Written by Dean Baker   
Wednesday, 30 March 2011 14:51

Paul Krugman tears apart a new post from John Taylor in which he attributes high unemployment to the falloff of investment, noting the sharp decline of investment as a share of GDP. Taylor's remedy for this problem is to spur investment by cutting business taxes. 

Krugman shows that the bulk of the falloff was due to a falloff in residential investment. In other words, housing construction plummeted following the collapse of the housing bubble. Actually, Taylor's case is even even weaker than the picture Krugman shows. There was also a bubble in non-residential real estate. The falloff in non-residential construction is due to the fact that there was enormous over-construction in most categories of non-residential construction. Tax breaks are not going to persuade builders to put up another office building or mall in a glutted market.

Investment in equipment and software is down by less than 0.8 percentage points as a share of GDP from its pre-bubble peak. That is not bad given the falloff in demand. I have also included a line that subtracts vehicle leasing from investment. The issue here is that a leased vehicle will count as investment by the car leasing company, whereas a purchased vehicle will count as consumption by the consumer. There was a big surge in car leasing in the 90s which explained about 0.3 percentage points of the increase in the investment share of GDP over the course of the decade. (The calculation here just subtracts the current lease expenditures. In principle we would want to pick up the value of cars purchased for leasing. The expenditures on leased cars likely lag the purchases by a year or so. They will also not be exactly the same, but they should give the right general size of this effect.)

Click to Enlarge
investment_in_the_downturn_6349_image001
Source: Bureau of Economic Analysis.

Comments (1)Add Comment
Where to buy london jewelry?
written by FationJewelry, April 01, 2011 9:30
replica links of london jewelry
Online shopping mall cheap links of london jewellery on sale. Links of london charms, links of london bracelets, links of london earrings, links of london rings, links of london necklaces and pendant jewellery for sale. You can also choose love fashion jewellery

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613
budget economy education employment Haiti health care housing inequality jobs labor labor market minimum wage OccupyWallSt poverty recession retirement Social Security taxes unemployment unions wages Wall Street women workers working class

+ All tags