Business Investment Is Growing; Government Investment Is Shrinking

Above, you find the most up-to-date version of the worst-understood trend in the modern economy. Nonresidential investment—basically business’s purchases of physical structures, equipment, and software—has been humming along since the formal end of the recession. But even though the government’s spending on transfer payments remains substantial (because the population is aging, because a lot of people are unemployed, and because health care is expensive), the scope of government purchases is steadily shrinking.

And, of course, this stuff has implications for the private sector. One thing we’ve seen is that even some of the businessmen Mitt Romney has used for his “you didn’t build that” attacks have made substantial sums of money off government contracts. And there’s nothing wrong with that! Providing goods and services to the government is a perfectly legitimate line of business. A functioning government needs a lot of steel and concrete and computers and office chairs and all the rest. But it’s perverse for government purchases of stuff to be terminally declining at a time when there are unemployed workers and below-capacity firms everywhere you look, especially given the fact that government borrowing costs have never been so cheap.