Businesses Scale Back Investment in America

Many economists and pundits take it on faith that weak business investment is a bad thing. It’s well known that over the course of the business cycle, investment varies more than other parts of the economy, such as consumption. So if investment is low, it may mean the economy is still suffering the lingering effects of recession. But if investment declines over the long term, it could imply at least two bad trends -- either businesses don’t see many good opportunities, or society is becoming more short-termist in its thinking. For these reasons, most economists see falling business investment as a problem to be solved.

On one level, the evidence is pretty clear: Net of depreciation, privately held American businesses are only investing about 2 percent of the country’s gross domestic product in the U.S. itself: