Kudlow’s Lament: Is capital on strike in the U.S.? (written by Marc Wiersum of the Market Realist)

Investment in the United States
The below graph reflects the capital strike in fixed domestic investment in the United States. The “strike” of U.S. capital is the notion raised by CNBC commentator Larry Kudlow that despite record profits at U.S. companies, profits and capital aren’t recycling back into the U.S. economy as investment. As displayed below, U.S. corporate profits (the red line) were approximately 45% of total investment in the United States during the Reagan era in the 1980s. However, corporate profits now represent 85% of total investment in the United States—or nearly twice the historical levels. The most disturbing part of this trend is that despite the dramatic recovery in corporate profits post–2008 crisis, there hasn’t been an offsetting growth in investment in the United States.
What is fixed investment and why is it important?
“Fixed investment” refers to fixed capital investment, including the replacement of depreciated fixed capital. Fixed investment doesn’t include financial assets such as bonds. Fixed investment, from an accounting perspective, includes physical assets held one year or more. Fixed investment is important because the level of fixed investment indicates potential longer-term economic growth and future productivity gains. The more fixed capital available per worker, the more each worker can produce. When fixed capital growth rates decline, productivity and economic growth rates are more likely to slow in the future. Fixed investments include items such as machinery, land, buildings, installations, vehicles, and technology. In the 1980s, fixed investment stood at approximately 20% of U.S. dross domestic product, or GDP, though it’s now closer to 15% of U.S. GDP.

To continue . . . 

Thatcher, Freedom, and Free Markets

Many profound and detailed admiration pieces will be written about the late Margaret Thatcher, and they’ll be much deeper than this one. 

But I want to get on record with my own esteem for Mrs. Thatcher, whose character, philosophy, and achievements made her one of Britain’s greatest prime ministers.

Way back in the early 1990s, at a National Review conference on the eastern shore of Maryland, had the great honor to serve on an economics panel that Mrs. Thatcher moderated. (Craig Roberts was also on that panel, although I can’t remember the name of the third panelist.) The topic was free markets and freedom, areas in which Margaret Thatcher made huge contributions, so I had a lot to live up to. And how did it go? Well, following the discussion, I got to sit next to Mrs. Thatcher during the luncheon. And she told me, “You know, Kudlow, you did rather well in that talk.” Naturally, I was thrilled. 

Margaret Thatcher fought socialism in England and unyieldingly promoted the free-market views of Nobelists Milton Friedman and Friedrich Hayek. She stopped the destructive British labor unions dead in their tracks. With every bone in her body she attempted to limit government by lowering spending and taxation. She opted for big-bang financial deregulation. And she put London back on the map as a world banking center.

“Freedom” was always her watchword.

She also adored Ronald Reagan. And the two of them formed an extraordinary partnership for freedom and free markets. Working together they helped bring down the Soviet communist system. And it was a peaceful bring-down at that.

Thatcher saw Gorbachev first, and she reported to Reagan, “We can do business with him.” Reagan did, although he refused to back down on SDI. And as the American economy roared in response to Reagan’s own free-market supply-side policies, the Soviets were out-produced and eventually folded.

Mrs. Thatcher famously said, “The trouble with socialists is that they always run out of other people’s money.” That dictum really stands the test of time, doesn’t it? Running out of other people’s money? Today?

The age of big government has once again, at least temporarily, reared its ugly head. It’s a great battle for all the economies around the world. That’s one of many reasons why we will miss Margaret Thatcher. She did not go wobbly.