My chart of the year: The investment drought continues

I’m sorry, every time I hear about the need to boost consumer spending I have to stop myself from pounding the table. As we round into 2012, the real weakness in the economy lies on the investment side, not the consumption side. Take a look at the following graph of net domestic investment as a share of net domestic product (‘net’ means depreciation is subtracted). I consider this graph, which expands on one I gave to the Atlantic, to be my ‘chart of the year’.

This chart, which runs through the third quarter of 2011, displays several disturbing patterns:

  • Despite rebounding from its recession valley, net business investment as a share of net domestic product is still far below historical levels.
  • Household and institutional net investment as a share of net domestic product  is at a 40-year low.
  • And perhaps most disturbing, government net investment is only 1% of  net domestic product, a 40-year low.

Let me repeat that: Government net investment as a share of net domestic product is at a 40-year low. I had to check this last one a couple of times to make sure it was really true.  This is a true failure of national economic policy. Government is punking out, just at the time when a public investment surge is needed to make up for the private investment drought.  As a country, we should be investing more, not less.

Update: The original post said ‘net national product’ where I meant to say ‘net domestic product’.  Sorry.

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