Business Investment Shouldn’t Be a Four Letter Word
Business investment has continued to lag during this recovery except for 2018 because the tax bill incentivized spending in that year.
This morning a guest on CNBC said spending by companies on plant, equipment, software, etc. was just around the corner. I’ve heard this for five years. However, as long as short-term stock prices determine executive pay, companies will continue to use company cash to push up their stock price instead of investing.
The great economist, John Maynard Keynes, urged governments to increase their spending whenever business investment wasn’t enough for everyone who wanted a job to have one. During this past recession – the federal government increased its expenditure on infrastructure, but they didn’t sustain the spending.
Without more business investment, people who want jobs won’t find them, and incomes won’t grow. Without income growth, people can only increase their spending if their house or stocks go up or when they take on more debt. Consumption fueled by asset appreciation and debt is how we got into the financial mess, and we are doing it again.
These are the opinions of financial advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only, and should not be construed or acted upon as individualized investment advice.