So the “experts” tell us the recession is over, and has been over for more than a year. Now don’t you feel better?
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.
Last year only 3.5 percent of all private investment spending went toward building up the capital stock. Thus, net private investment did not simply fall during the recession; it virtually disappeared.
Unless this drastic decline is reversed soon, the future will be bleak for the U.S. economy. Without substantial net private investment, brisk economic growth is unthinkable beyond the very short run.
While this private-sector disaster was occurring, however, the government sector of the economy was booming. The ratio of all federal government spending – purchases of goods and services plus transfer payments – to GDP increased from 20.6 percent in the fourth (October to December) quarter of 2007 to 25.4 percent in the most recent (April to June) quarter of 2010.
With private investment dried up and government consuming more of the scarce resources needed for economic growth, the future does not look very bright. Higgs’ analysis is well worth your time – read the whole thing.