Soaring Profits Do Not Equal Investment

It is taken for granted in conservative circles at that lower taxes on the rich will lead to greater investment in the economy, and therefore jobs—but the data tell a very different story. This analysis comes from Gerald Friedman of Dollars & Sense:

Net Investments and Profits

“The share of national income going to investment (net of depreciation of existing plant and machinery) has been declining since the beginning of the “neoliberal” era, around 1980. Since the start of the Great Recession, net investment as a share of GDP has plummeted to its lowest level since the 1930s. This sharp drop in investment comes despite sharply rising profits.”

Monetary Policy Isn’t Working: The Federal Reserve has helped to shorten past recessions by driving down interest rates to lower the cost of borrowing and so spur investment. During the current crisis, the Fed has conducted an aggressive monetary policy, raising the money supply to lower interest rates. But it has had little effect on investment. While lower interest rates have had only a weak effect on investment in the past, monetary policy has had no discernible effect in the last few years, as investment rates are dramatically lower than would have been expected given the level of interest rates. Substantial excess capacity, weak expectations of future sales, and corporate strategies to shift production outside the United States all may be contributing to the lack of investment demand.

[Read More at Dollars & Sense]

2 Comments on "Soaring Profits Do Not Equal Investment"

  1. Liam_McGonagle | Dec 20, 2013 at 2:38 pm |

    “You make it any harder for me to accumulate another billion $ and I won’t have any incentive to make another $1.”

    To which I say: “Great. Don’t need you. I’m sure there’re plenty others who’d be happy with a chance to earn the $1.”

  2. InfvoCuernos | Dec 20, 2013 at 3:52 pm |

    Huh? How about that, rich bastards hording wealth. Every time I hear some protestation against taxing the fuck out of the filthy rich, I think about all those reagan conservatives and their trickle-down theory and how they waved the flag while outsourcing this country into bankruptcy.

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