Eric Hanneken's Library tagged "Robert Higgs" spending →  View Popular

Gross private domestic investment peaked in 2006. Between the first quarter of that year and the second quarter of 2009, it fell by almost 34 percent. During the following two quarters, it rose by only 10 percent, so that late last year it was still (when measured at an annual rate) running about 29 percent below its level early in 2006. Such a huge shortfall in investment spending portends an extended period of slow economic growth in the next few years, and perhaps in an even longer run. Worn-out equipment, obsolete software, ill-maintained structures, and depleted inventories are not the stuff of which rapid, sustained economic growth is made.

If real investment spending has taken a huge hit, however, federal government spending has raced ahead in high gear.

No serious student of the Depression denies that a partial recovery took place between 1933 and 1937. Yet, just because Washington had unleashed a torrent of spending doesn't mean that the government's spending caused the expansion.

After an economic bust, bad investments must be liquidated, so salvageable assets can be reallocated to their most valuable uses. If the government props up failed endeavors through bailouts and other programs, necessary readjustments of the economy's capital structure are slowed or halted, and the toxic mistakes of the past become locked in place, obstructing recovery and hindering the creation of future wealth. The New Deal recovery efforts had exactly these effects, as do current government policies.