What’s ‘Investment’ Made Of?

You’ve probably heard it said from time to time that we can boost long-term growth by encouraging more investment and less consumption. But what does the investment category of national spending really consist of? Mostly it’s housing, according to Karl Smith:

Smith says this casts doubt on the whole investment = productivity story, because investment is “overwhelmingly housing, then shopping.”

I’d say it’s a reminder that you need to treat government statistical categories with a grain of salt. The “residential investment” category should probably be thought of as a form of consumption. But that means it’s important to ask, when faced with a tax policy concept that’s allegedly pro-growth due to its investment properties, whether it’s not just really a proposal to shift consumption out of some sectors and into housing.