Collapsing Investment and the Great Recession

Friday, 26 July 2013 09:10
By Gerald Friedman, Dollars & Sense | News Analysis

Investment in real inputs - structures and machinery used to boost future output and productivity - is one of the ways that an economy grows over time. In a capitalist economy, such investments are also crucial for macroeconomic stability and full employment because they provide an “injection” of demand to balance the “leakage” caused by personal and institutional savings. The Great Recession that began in 2007 was marked by a collapse of investment unprecedented since the Great Depression, as well as a dramatic drop in overall production and a sharp jump in unemployment. Since 2009, overall output has been growing again, but we have seen a much slower recovery of investment than after other recessions since 1947. The worst economic crisis since the 1930s, the Great Recession came after a long period of declining investment, and a break in the linkage between corporate profits and new investment.