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Private Investment vs. Government Spending in the Recession

Sunday September 26th, 2010   •   Posted by David Theroux at 5:58am PDT   •  

Independent Institute Senior Fellow Robert Higgs examines the serious problem of “regime uncertainty” being created by the feasting of federal spending programs starving (crowding out) the private investment needed for recovery from the recession:

“Private saving and investment are the heart and soul of the dynamic market process. Together they provide and allocate the resources used to augment the economy’s productive capacity, generate sustained long-run economic growth, and thereby make possible a rising level of living. Economic crises interrupt this process by discouraging investors and causing them to consume their resources or to employ them in relatively safe, low-yielding ways. Absent entrepreneurs willing to take the great risks that characterize investments in great technological and organizational innovations, the growth process fades into economic stagnation or even decline.

“The present recession starkly displays this characteristic crisis-related abatement of the economy’s investment process. Indeed, the decline of private investment during recent years has been much greater than most observers realize. Consider the following data, taken or derived from the most recently revised National Economic Accounts prepared by the Commerce Department’s Bureau of Economic Analysis (Tables 1.1.5, 1.1.6, and 5.2.6).

. . . .

For the full article, please click here.

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September 2010