Many politicians and economists talk about the decline of corporate investment spending into long term capital projects. This article from Verdad Capital describes why this story may be more complicated than it appears.
Excerpt from the article below:
“First, as our economy has grown more prosperous and efficient, the cost of capital goods has declined. Economists estimate that the cost of machinery and equipment has fallen about 40% in developing economies, led by a 90% drop in the cost of computing equipment.”
“Second, the decline in fixed investment reflects a shift in the economy from manufacturing to technology and pharmaceuticals. Since 1980, healthcare and technology have gone from 18% of US equity market cap to 34% while energy, materials, and industrials have fallen from 50% to 19%. Healthcare and tech firms spent a combined 60% of all R&D expenditure in 2018, while industrials, auto, chemicals, and energy added up to 31%. And while fixed asset investment has declined, R&D expenditures have sharply increased. The share of revenues corporate America invests in R&D has increased significantly from 1.3% of sales in 1980 to 2.7% of sales in 2015.”
“So most of the decline in investment isn’t a story of rapacious capitalists destroying our economy, but rather a more productive and technologically sophisticated business world that doesn’t require as much spending on machinery and equipment.”
To read the entire Article click the link below: