USA TODAY: …Corporate reticence, at a time of outsize profits, puzzles economists and policymakers. In a sign of the gap’s persistence, PPI estimates that businesses invested $508 billion less in 2012 alone than they would have if spending had kept growing at its 1997-2007 pace. Investment saw little growth in the first half of this year, according to the Commerce Department, even after Congress and President Obama avoided the fiscal cliff.
By one arcane measure that the Federal Reserve tracks, U.S businesses are investing less than during any recovery since at least 1952 — even though they’re so awash in cash, they needn’t borrow to invest at a more normal clip, Barclays economist Dean Maki said.
The problem is still getting worse, according to some studies. Global corporate investment is likely to drop 1.5% this year and is set to fall as much as 5% next, Standard & Poor’s economist Garth Williams said. In the U.S., investment will drop 1% this year and 3% next, he added… (more)
EDITOR: Businesses don’t invest because they are making money. Businesses invest because they are experiencing increased demand from which investment will enable them to make even more money. The problem is the lack of demand. And the lack of demand is the result of wide scale unemployment, underemployment, and shrinking wages in real terms.
As virtually every noted economist and we have said for five years, we needed fiscal stimulus. Instead, the Federal Reserve has had to resort to immense monetary stimulus which has served to push up stock market prices and drive down interest rates but has not done that much to end the recession.
Had the federal government spent an additional trillion dollars in 2010 and 2011, the country would have been back to prosperity by now, balancing the budget and likely again paying down the national debt, as occurred during the final Clinton years.
