"John Boehner Pushes Mythical “Crowding Out” Of Private Business Investment As Cause of Recession"
Writing yesterday about John Boehner speech on the debt ceiling I primarily focused on his negotiating posture, but Ruth Marcus is correct to say that his broader theory of the economy also needs scrutiny:
Reporters naturally tend to ignore this boilerplate. Journalistically, that makes sense. Boehner’s economic comments were nothing particularly new. Indeed, they reflect what has become the mainstream thinking of the Republican Party. But that’s exactly the point. We become so inured to hearing this thinking that we neglect to point out how wrong it is.
In particular, she notes Boehner’s odd contention that “The massive borrowing and spending by the Treasury Department crowded out private investment by American businesses of all sizes.”
As it happens, James Rowley and Mike Dorning have a good piece out on this for Bloomberg in which they don’t that he “built his case on several assertions that are contradicted by market indicators and government reports”.
“Look at interest rates. Look at capital spending,” said Nariman Behravesh, chief economist of IHS Inc., a research firm based in Englewood, Colorado. “It’s very hard to come to a conclusion that there’s any kind of crowding out.”
The cost of borrowing is low by historical standards. Yields on 10-year Treasury notes were 3.21 percent and yields on 2-year Treasury notes were 0.59 percent at 5 p.m. in New York yesterday, according to Bloomberg Data. Average spreads on investment-grade corporate bonds have narrowed from 1.64 a year ago to 1.39 on May 9, according to Barclays Capital.
The TED spread, the difference between what banks and the U.S. government pay to borrow for three months, fell 2.2 basis points since May 9, the biggest drop since April 5. A narrowing spread means banks are more willing to lend. The 23.87-point spread is just below the two-year average.
Also just look at investment. This chart separates out residential from non-residential investment:
Did Barack Obama cause a decline in the housing market that launched several years before his inauguration? Is Boehner going to give him credit for reversing the decline in non-residential investment that commenced before he took office?