Via Tim, I see this (pdf) from the New Political Economy Network:
For one thing, it’s dangerous for people who are relaxed about the deficit to make crowding out-style arguments. And for another, it’s not obvious that the chase of “unproductive short-term profit” has retarded capital spending.
One crude test here is to compare capital spending in the UK to that in Germany, the poster-boy for serious, long-term non-financial capitalism. If finance capitalism crowds out real investment, you’d expect capital spending to be lower in the UK than Germany.
But it hasn’t been. My chart, using OECD data, shows the share of non-dwellings investment in GDP. In the 00s - when finance was at its most exuberant - investment in real assets was actually higher in the UK than Germany.
This shouldn’t be too surprising. One reason why Germany has long had a large current account surplus is precisely that it can’t find domestic investment opportunities: the current account balance, remember, is the gap between savings and investment.
If a big financial sector crowds out real investment, this doesn’t leap out of the data.
My chart shows two other things. First, investment shares in both countries seem correlated, which suggests capital spending is determined by global factors.
Second, there’s a downward trend in investment. Partly, this is because the data are in current prices, and the relative prices of investment goods have fallen (though this merely raises the question of why the price-elasticity of investment is less than unity). But it might also draw attention to the possibility that there is, as Ben Bernanke famously said, a “dearth of investment opportunities" in the western world.
Quite why this should be - and whether it is a permanent or temporary feature - is an issue for another day. But it suggests that low investment is not a local aspect of a particular type of capitalism, but rather a problem for many western capitalisms.
The economy suffers from a dearth of capital investment, as vast financial flows chase unproductive short-term profit. Our economy is anaemic because it lacks capitalIf that word “as” is trying to make a causal connection, this passage is misguided.
For one thing, it’s dangerous for people who are relaxed about the deficit to make crowding out-style arguments. And for another, it’s not obvious that the chase of “unproductive short-term profit” has retarded capital spending.
One crude test here is to compare capital spending in the UK to that in Germany, the poster-boy for serious, long-term non-financial capitalism. If finance capitalism crowds out real investment, you’d expect capital spending to be lower in the UK than Germany.
But it hasn’t been. My chart, using OECD data, shows the share of non-dwellings investment in GDP. In the 00s - when finance was at its most exuberant - investment in real assets was actually higher in the UK than Germany.
This shouldn’t be too surprising. One reason why Germany has long had a large current account surplus is precisely that it can’t find domestic investment opportunities: the current account balance, remember, is the gap between savings and investment.
If a big financial sector crowds out real investment, this doesn’t leap out of the data.
My chart shows two other things. First, investment shares in both countries seem correlated, which suggests capital spending is determined by global factors.
Second, there’s a downward trend in investment. Partly, this is because the data are in current prices, and the relative prices of investment goods have fallen (though this merely raises the question of why the price-elasticity of investment is less than unity). But it might also draw attention to the possibility that there is, as Ben Bernanke famously said, a “dearth of investment opportunities" in the western world.
Quite why this should be - and whether it is a permanent or temporary feature - is an issue for another day. But it suggests that low investment is not a local aspect of a particular type of capitalism, but rather a problem for many western capitalisms.
it's not even necessarily a problem - if could just be indicative of a shift to a less capital intensive economy.
(I think it is a problem, mainly because I think outsourcing all the capital intensive stuff to China is going to come back and bite us one day).
Posted by: Luis Enrique | September 23, 2010 at 11:02 AM
Those OECD figures do highlight how (disastrously in my opinion) our housing investment is (esp compared with Germany's), not that this is the point NPN are making.
Posted by: Matthew | September 23, 2010 at 02:02 PM
I've heard it argued (e.g. David Harvey in The Enigma of Capital) that one reason for the "vast financial flows chas[ing] unproductive short-term profit" (rather than being used for "virtuous" investment) is precisely that there is a "dearth of investment opportunities", at least in western economies - so financial speculation becomes a means of absorbing surplus capital which would otherwise slosh around with nothing to do*. Emerging markets are another means.
(*You'll appreciate that I'm not an economist!)
Posted by: John H | September 23, 2010 at 03:49 PM
I think we have to be careful when we say Germany is not financialised. The balance sheets of the Landesbanks suggest otherwise, for example.
Posted by: Spun | September 24, 2010 at 10:47 AM