November 22, 2011
The NYT had a piece that implied surprise that firms are cutting back production and investment plans at the same time that they are using billions of dollars to buy back shares of stock. It is difficult to understand the cause of the surprise. Demand and growth are very weak. In such circumstances, it would be expected that firms would cut back investment. Firms invest to make money, they don’t invest to help the economy.
The only surprising item in this piece is the claim that:
“But spending on capital investments like new plants and infrastructure has stagnated more broadly in corporate America, confounding efforts by the Obama administration to spur economic growth.”
Investment in the economy is actually quite high (investment in equipment in software is nearly back to its pre-recession share of GDP) given the huge amounts of excess capacity in many sectors. If the Obama administration was banking on even more investment than we are seeing then its economic advisers have an extremely poor understanding of economics.
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