How Businesses' Bad Investments Drag Us All Down

Excessive investment always creates problems for someone.

In my previous post, I noted that bad investments create losses that always find a way of showing up somewhere in the economy. Most of the time, the harm caused by these wasteful endeavors is outweighed by the positive impact of worthwhile projects. That's why the standard of living can rise even when many individual businesses are failing. Sometimes, however, bad investments produce losses greater than the gains that come from successful ones. The question for policymakers is how to distribute these losses. (It's also important to figure out which distributions produce the best long-term growth outcomes.)

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