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 national 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 national product is still far below historical levels.
- Household and institutional net investment as a share of net national product is at a 40-year low.
- And perhaps most disturbing, government net investment is only 1% of net national product, a 40-year low.
Let me repeat that: Government net investment as a share of net national 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.