13 March 2016

Why are US companies not investing?

US companies are sitting on piles of cash. And the Fed has held interest rates close to zero almost since the start of the Great Recession. And yet companies seem very reluctant to invest. The reason is not far to seek as I mentioned in a previous post Loan Growth During and After Recessions

If consumption were absolutely flat companies would invest just enough to replace worn out fixed capital. It is only when consumption is growing that companies invest more than this. And when, as during and after a recession, consumption has fallen companies would not even seek to replace depreciated capital. This was what Paul Samuelson wrote about in his famous accelerator paper of 1939. Investment in Period t is a function of consumption in Period t-1.

The graph below shows YoY change in Private Nonresidential Fixed Investment v/s YoY change in Personal Consumption Expenditure. There can be little doubt that it agrees with Samuelson's equation.

And why are consumers not consuming? I have explained in great detail in my book Macroeconomics Redefined

Category: Economics

Philip George
Understanding Keynes to go beyond him

Buy my new ebook
Contact Me
October 2022
September 2022
March 2022
January 2022
October 2021
August 2021
July 2021
August 2019
October 2018
April 2018
December 2016
October 2016
August 2016
July 2016
April 2016
March 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
June 2015
May 2015
February 2015
November 2014
October 2014
August 2014
May 2014
April 2014
December 2013
October 2013
July 2013
May 2013
January 2013
November 2012
October 2012
August 2012
July 2012
June 2012
May 2012
March 2012
February 2012
January 2012
December 2011
November 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
August 2010
October 2009
May 2009
June 2008
March 2008
February 2008
January 2008
December 2007
August 2007
June 2007
May 2007