Scott Grannis writes in his excellent Calafia Beach Pundit Business investment remains flat, 6/27/12.


It’s not hard to understand why business investment has been flat. U.S. corporate tax rates are the highest of any developed country. Regulatory burdens have been increasing relentlessly. Obamacare threatens to push healthcare costs even higher, while adding to regulatory burdens, but until tomorrow we won’t know if it is actually going to happen—that adds up to lots of uncertainty if nothing else. With the federal government spending 23% of national income, while collecting only 15.3% of national income in taxes, corporations and individuals are justified in fearing a significant increase in future tax burdens.

Another way to look at it: in the four quarters ended last March, total after-tax profits of U.S. corporations were about $1.5 trillion, while the federal budget deficit was $1.25 trillion. The federal government effectively borrowed and spent 83% of all the profits earned by U.S. companies. Corporations worked hard to generate profits using scarce resources in the face of increasing difficulty, but the government effectively took most of those profits and redistributed them. The profits weren’t invested, they were handed out in the form of unemployment benefits, food stamps, welfare, grants to green companies that failed, and grants to state and local governments so that they could avoid cutting back on their bloated spending, among other non-productive endeavors. Government “spending” of this sort doesn’t create jobs, it simply wastes scarce resources and ends up weakening the economy.

HKO comments:

A few weeks ago I was on the river in Muscle Shoals and Florence, Alabama and went through the locks and the Wilson Dam built during the FDR days and the TVA.  At least when FDR tried to spend our way out of a depression he actually spent the money on projects that had lasting value.  The benefits of deficit spending in a recession is arguable: there are other factors that may impact its success.  But it does make a difference what the money is spent on.  FDR made huge infrastructure improvements that we all still use today. Obama has largely squandered it on non productive ends.

The lock going through the Wilson Dam in Muscle Shoals and Florence Alabama.