September 06, 2002
High-Tech Investment

High-Tech Investment If you read your business pages, you might well think that business purchases of computers are way down. Guess what? They're not. This year it looks like America's businesses are going to buy 13% more in the way of quality-adjusted computers and peripherals than in any previous year. In 2001--the only year in which real investment in computers and peripherals fell--quality-adjusted purchases fell by only 3%. Spending on computers and peripherals has indeed fallen. But that's because computers have become cheaper--a lot cheaper--not because American business is installing less computer power this year than in the past. Things look less bright if you aggregate up all high-tech investment--not just real investment in computers, but also software and "other": real investment in this broader category this year will be 4 percent below its year-2000 peak--but still higher than in any year other than 2000. Why the different pattern? The falloff in telecom investment. We are no longer spending a fortune digging holes and stuffing large quantities of fiber optic cables down them....

Posted by DeLong at 05:34 PM

July 03, 2002
The Upward Shift in Gross Investment in America

Before the 1990s there was some evidence for a long, slowly-moving upward trend in the volume of investment relative to GDP. Many Republican politicians (and a few analysts) thought that the Reagan tax cuts of the early 1980s had generated an investment breakthrough: they looked at the rise in investment from 1982 to its 1984 peak, projected this rise forward, and forecast rapid economic growth as it was "morning in America." But whatever supply-side incentives did in the mid- and late-1980s to boost demand for investment funds, the large federal deficits (and the swing in the balance of payments back toward zero) did more to drain the pool of savings and reduce the supply of potential investment funds. Anomalously, the later 1984-1989 stage of the 1980s expansion saw not rising but falling investment relative to GDP. The 1990s, by contrast, saw a stunning explosion of investment in America. A fall in private savings was greatly outweighed by a combination of the Clinton administration's successful commitment to deficit reduction, the return of foreigners' willingness--nay, eagerness--to invest in America, and stunning declines in the relative prices of high-tech investment goods that gave firms undertaking investment projects much more bang for the buck....

Posted by DeLong at 01:12 PM