On stagnation

Jim Stanford offers a reminder that it isn't only south of the border that the private sector is pocketing stimulus money rather than making any investments that would actually encourage recovery:

Despite a few signs of life (mostly in the oil and gas industry), overall business investment spending has not bounced back at all. Business capital investment is just 6 per cent higher than it was in the trough of the recession a year ago. Yes, profits shrank during the downturn, but they’re recovering. And businesses aren’t even reinvesting what they get, let alone taking on new debt. Cash flow (profits plus depreciation) continues to outstrip new capital investment by almost 2-to-1.

The odd result of this private-sector passivity is that non-financial firms have actually saved close to $100-billion since the recession began. That about offsets the new debt taken on by our governments over the same period. In other words, governments (and the taxpayers who fund them) are taking on debt to try to restart a sick economy. But for every dollar they put in, private firms take out a dollar – in the form of idle, uninvested cash flow, used to pay down their own debt or, worse yet, to speculate in the paper markets.

Business should be leading economic recovery, borrowing money (from households and banks) to fund new investments and jobs. That’s how capitalism is supposed to work. In today’s lean-and-mean world, however, business is free-riding on the spending efforts of others. Despite tax cuts and other business-friendly policies, the private sector isn’t taking on the risks, and taking on the debt, necessary to fuel broader recovery.