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Did Barack Obama Cause The Collapse in Private Investment

By Matthew Yglesias  

"Did Barack Obama Cause The Collapse in Private Investment"

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One thing’s for sure, the depths of the current recession can be seen in the low level of private investment. And this chart from Chris Edwards certain shows that despite the stimulus-driven return of GDP growth, private investment remains depressed. We won’t have a real recovery until it comes back:

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That said, his interpretation of this data is ridiculous:

Business investment continues to be in a deep recession. Companies are simply not building factories or buying new machines and equipment.

Why not? I suspect that many firms are scared to death of higher taxes, inflation, health care mandates, increased labor regulation, and other profit-killers coming down the road from Washington. That is speculation, but I haven’t heard a better explanation of the death of private investment in America.

Note that though the steepest cliff-diving happened in 2008 Q4 and 2009 Q1, the decline actually began way back in 2006, so it’s hard to say how fear of Barack Obama could have caused it. As for a better explanation, how about the problems in the financial system that were accumulating during this period and then reached a true crisis point in the fall of 2008? Surely we haven’t forgotten about that already, have we? And since the collapse, we’ve been facing a problem of low aggregate demand and deflationary expectations, both of which discourage investment, combined with massive overcapacity in real estate. The idea that anticipating inflation would cause an investment drought is both illogical and flies in the face of the fact that markets are not anticipating inflation.

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I would note that not only did the current decline in private investment start fully in the Bush years, but that there was a similar declining private investment phase during 2001. Does Edwards see that as caused by Bush embracing high taxes and health care mandates? Isn’t it more plausible that that was the dot-com bubble bursting just as this is the real estate bubble bursting?

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