Memo To Wall Street: Wealth Is Not A Gift Of The State And It Is Not The Product Of Gambling

With futures up by 1% early this AM and the DOW over 30,000 for no apparent reason, Reuters had no trouble identifying the go-to cause:

U.S. stock index futures rose on Tuesday as progress toward a massive government spending bill and COVID-19 relief measures kept spirits high, while investors awaited new economic cues from the Federal Reserve’s final meeting of the year.

Once upon a time, of course, prosperity was properly understood as a function of capitalism at work, and that a robust rate of new investment was a leading driver of better things ahead. But that we have not had for a good while, and most especially not during the last five years.

Even with the one-time pull-forward of CapEx during 2018 owing to the Trump-GOP tax bill’s accelerated depreciation provisions, the growth rate of real fixed business investment during the last five years has been a feeble 1.75% per annum. And that is the figure for gross investment, meaning that when you allow for annual consumption of capital in current production (i.e. depreciation and amortization) there has been scarcely any net investment growth at all.

Real Private Business Investment, 2015-2020, Year-Over-Year Change:

For want of doubt, consider the long-term picture including all forms of domestic investment. That is, business fixed investment (per above) plus inventory investment and residential housing construction. Taken together, these elements are the essential stuff of sustainable economic growth, and no amount of government fiscal stimulus or money printing can replace these forms of private investment on a long-haul basis.



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