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.


  1. Michael,

    The graph certainly begs to be extended another 30-40 years back. I mean, really, did you pick the height of building the highway system and implementation of the Great Society, possibly the highest government investment point in our history. as the starting point on purpose? Or was that 2% indicative of a long term average/ And is the 1/2 percent decline in government investment really the key point in this graph? Or the problem to focus on solving?

  2. This statement is demonstrably false, “government net investment is only 1% of net national product, a 40-year low,” as your own graph shows it hitting 1% in 1993, just 18 years ago. Not sure why you think we need the govt “investing” in more Solyndras, oh wait, that’s more “jobs” for Obama’s political cronies, I see. Your graph shows sudden and precipitous drops in business investment during the 1991 and 2001 recessions also, which rebounded back each time. If this time is particularly steep, perhaps it’s because businesses don’t see a growth story out of this recession, particularly considering people like and you and Obama want the govt to steal and shit away even more money, which these businesses know they’re going to be forced to pay for one day. Why invest in more jobs and capacity when you know the govt is going to come knocking on your door to confiscate your wares one of these days anyway, to pay for all the deficit spending and Solyndras? Might as well just keep the cash lying around and hand that over directly to the Obama goons when the day comes.

  3. Marty-

    The reason for the break at 1969 is that the BEA also breaks the data from 1929-69 and 69-present.

    Government investment is not going down. Government Gross Domestic Investment is up.
    1999- 3.07%
    2000 -3.06%
    2001- 3.13%
    2002- 3.23%
    2003- 3.19%
    2004- 3.14%
    2005- 3.11%
    2006- 3.18%
    2007- 3.25%
    2008- 3.48%
    2009- 3.63%
    2010- 3.48%

    Mandel describes NET investment. Net Investment = Gross Investment – Consumption of Fixed Capital.

    The reason government investment appears to be decreasing is that the consumption of fixed capital is increasing more than the gross investment. Your government believes that it’s depreciation of assets is much faster than it used to 5 years ago or 10 years ago.

  4. This data should contribute to your poor productivity argument.

    If you take this net investment and calculate a net investment per
    employee series you see than the growth rate of the net capital stock
    per employe has been slowing sharply in recent years.

  5. Spencer.
    Output per hour of all manufacturing persons has recovered (*nearly) without historical NET business investment levels.

  6. I think it would help if you broke down investment into its components. It looks to me like the real drop off is in real estate investment.


  7. I put together charts of gross, net, and consumption since 1930, broken out by different segments of the economy. Here:

  8. What counts as “investment” ?

  9. Whatever happened to the $800BN stimulus? It’s left no trace whatsoever!!


  10. Why do we give capital gains tax breaks to Americans who invest overseas?

    The original purpose of the lower capital gains rate was to create jobs in the US.

    Those Americans who invest outside of the US can pay the ordinary tax rate when they realize their investment gains.

  11. Las Opciones Financieras son actualmente la mejor inversión. Suculentos ingresos. En 3 simples pasos, puedes comenzar a ganar dinero


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