Mark Thoma brings forth the great Question: Is the reduced Investment the result of lack of Demand, or lack of Supply? Here is a list of my own which may help the Student understand:
a) Consumers want Product, but can find no Suppliers;
b) Suppliers have Product, but can find no Consumer Demand;
c) Neither Consumer or Supplier wants Product;
d) Both Consumer and Supplier want Product.
It is a wonder how little is actually devoted in economic writings to study of those issues; a major factor being placing your reputation on the line on very fickle, and rapidly changing forces. There are certain observations, though, which can save both reputation and understanding.
1) The Concept of unlimited Want has always been oversold in economic study. There are several restrictions on both Consumer and Supplier of Product; some of which deal with the constraint of Income level, but not all. Every Consumer must handle the Junk once purchased, and there is no real overflow outlet other than to simply give it away. I remember the Snowmobile which had been driven 3 hours in 12 years of possession; Storage Costs, if accounted, would suggest One-Third of the Cost of the initial vehicle.
2) Suppliers of Product will not invest in Production unless they can find a real potential Consumption demand out there. Remember that Start-Up Costs with Mortgage and Employee Salaries equal an average 12 years before real Return at normal Profit ranges occurs.
3) Consumers and Suppliers are both constrained by Competition; Consumers cannot decide which consists of the best Choice as to model, and Suppliers fear the expansionary capabilities of competitive Producers. Neither can make an exact determination of the capacities they fear, or the value of success if they do make the right choice.
4) Government screws up all Plans of both Consumer and Supplier, while actual taxation makes up little more than a Production Cost which everyone must pay. Government policy interrupts natural economic forces, while Government regulation obstructs normal Production behavior to far greater degree, than it does obvious criminal behavior.
5) Financial institutions and instruments are designed to finance Production. Government absorbs the capacity of financial institutions to supply Production capital–raising the Cost of actual Finance–while regulation never reach predetermination levels of economic decision-making, and only cripples post-determination levels of Choice.
It may be clear that Government presents more danger than benefit to economic performance. It is equally clear that there must be some regulation of economic performance, as the descent into criminal behavior is too easy for everyone. It would actually help if the Court system was actually more liberal in interpretation than it is! I could wish that Courts would first determine by Jury decision if an activity was a criminal violation–just an Up or Down Vote–then have the Judge determine under what covering enactment the Violator should be prosecuted. The outcome would mean less need of legislation, and less time in prosecution. The term Let the Buyer Beware could be far cheaper under such conditions that the institution of Government observance. lgl