The U.S. Investment Boom of the 1990s

J. Bradford DeLong

June 2001

  • Real (that is, inflation- and price change-adjusted investment in America boomed in the 1990s to an extraordinary degree.
  • Clinton administration policies in the early years of the decade were intended to produce a "high investment recovery."
  • But the height of investment seen in the 1990s far exceeds their wildest dreams.
  • About half of the boom in investment in the 1990s was driven by falling capital goods prices, especially those of data processing and data communications equipment: silicon chips and glass fiber cables.
  • About a third of the boom in investment in the 1990s was driven by the elimination of the federal government's deficit--the signature initiative of the Clinton administration.
  • The remaining component was driven by an accelerated inflow of capital into the United States.
  • The hope was that high investment would produce rapid productivity growth as the average worker had more and better machines at his or her disposal.
  • So far this hope seems very well-founded: productivity growth has been much more rapid than expected since 1995.

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