Menzie Chinn gives Us a good Post on the proposed ‘Crowding Out’ of Investment; if you don’t believe, check out the Math in the link. I am not in complete agreement with Menzie Chinn about the apparent lack of crowding out of investment, but I would never attempt to argue with him using the Math. I will, of course, change the Rules of the Game. I obviously will start by statement I question not Government debt, Government Spending, Taxes, or Interest rates as propellent of the Crowding Out effect. Where would I start? At the real source of Change over the past three decades, which consist of the Pay Packages of Management. Management leadership considers the Pay Packages to be the most important element of the matrix, so much so that they are willing to refuse Tax Impact by funds transference overseas, deny Dividends to Stockholders, get a federal Judge to imply that they could hide Pay Packages from Stockholders, and borrow additional debt against the Business or Corporation in order to fulfill those Pay Packages. Those Pay Packages were the real alteration of the business model over the past 30 years, and it is time that economists examine the impact of those Pay Packages on the economy; with close attention to the crowding out effects on Investment.
The worst impact of Pay Packages on Investment may come in the direct area of Nonresidential Construction–the latest seen here. There has grown a tendency in Corporate and Business circles of refusal of Investment potential where the Returns will arrive only after long development, constraining the Income flow in the Short-Run, though enhancing it in the Long-Run. Investments of too lengthy a development ratio get dismissed, often though the real technological advantage lies with the long-term development. This skews the Labor markets, the Investment curves, and the Corporate balance sheets. The Long-Term trend here introduces a degradation of Production function, and Investment recession in the Short-Run. The famed capability of CEOs may actually be a Poison Pill for which Stockholders, Labor, and Consumers will all pay in their own time, and in their own way.
I have often thought that Gentle Ben lived in a fairytale of his own making. Such Posts as this confirm my suspicions. I question not only his ideological policy, but also his defense of his own actions. So far, I have yet to hear Fed official, Bank officer, Treasury official, or Government leadership utter a ‘mea culpa’, even though the U.S. Government has swallowed about a Trillion dollars of bullshit. An economy which is struggling to get into the Teens of Trillions of GDP, let alone out of them to the upside, cannot require a Trillion dollars of Stimulus just to stay even. This means that about 8% of the total economy must be Stimulus, just to stop Contraction. What makes it even worse is the fact Business and Corporation have functionally been told that they do not have to pay Taxes, when We are drowning in Government debt at every level. Business and Economics may not like me, but there has to be a rational Thought somewhere. lgl