I’m sorry, every time I hear about the need to boost consumer spending I have to stop myself from pounding the table. As we round into 2012, the real weakness in the economy lies on the investment side, not the consumption side. Take a look at the following graph of net domestic investment as a share of net national product (‘net’ means depreciation is subtracted). I consider this graph, which expands on oneI gave to the Atlantic, to be my ‘chart of the year’.
This chart, which runs through the third quarter of 2011, displays several disturbing patterns:
- Despite rebounding from its recession valley, net business investment as a share of net national product is still far below historical levels.
- Household and institutional net investment as a share of net national product is at a 40-year low.
- And perhaps most disturbing, government net investment is only 1% of net national product, a 40-year low.
Let me repeat that: Government net investment as a share of net national product is at a 40-year low. I had to check this last one a couple of times to make sure it was really true. This is a true failure of national economic policy. Government is punking out, just at the time when a public investment surge is needed to make up for the private investment drought. As a country, we should be investing more, not less.
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