January 25, 2012
Larry Summers told Post readers that lack of confidence by businesses and consumers are major factors holding back the recovery. There is little evidence for this position.
Investment in equipment and software is almost back to its pre-recession share of GDP. The savings rate is still much lower than its post-war average, meaning that consumption is unusually high relative to income. This is especially striking since the huge baby boom cohort is at the edge of retirement and most have very little savings. This would be an argument for expecting a higher than normal saving rate rather than the opposite.
In short, there is no evidence in the data that lack of confidence is a major factor impeding recovery. The more obvious problem is that we simply lack a source of demand to replace the demand that had been generated by the housing bubble.
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