This morning, the Wall Street Journal ran a story entitled "Investment Falls Off a Cliff: U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty." The story argued that:

Nationwide, business investment in equipment and software -- a measure of economic vitality in the corporate sector -- stalled in the third quarter for the first time since early 2009.

As soon as the results of the election are known, President Obama or President Romney will be beset with a list of difficult decisions: What to do about the fiscal cliff, whether to cut the federal deficit, how to implement healthcare reform or how to get rid of it, whether or how to create jobs.

But the biggest decision facing the next president - and Americans in general - goes far beyond the 'fiscal cliff', or any of the machinations which fascinate Washingtonians. Should the United States follow its current path of long-term stagnation, or should we choose a road that likely leads to rapid but disruptive growth?

This choice will have huge and resonating consequences. In a slow-growth economy, government leaders must focus on apportioning pain and austerity. The rich and the poor within each country or region struggle over scarce resources, with predictable consequences. We are seeing the

The moral of the story: Why we need to spend more money on economic statistics, not less.

For the past couple of years, the BEA and Census Bureau have been reporting an apparently odd fact: Domestic computer manufacturing was not only alive but growing. To be specific, until last Friday the official numbers were showing that domestic computer makers shipped almost $50 billion worth of computers from U.S. factories in 2011, the highest level since 2001. Final sales of domestic computers, adjusted for price changes, were supposedly up 94% since 2007.

Now, these numbers always seemed a bit suspicious to me. I mean, every computer that I ever picked recently was made overseas. So the idea that domestic computer manufacturing was thriving seemed off.

Now the statistical agencies have finally come to the same conclusion. Based on the results from the 2010 Annual Survey of Manufactures, the Census Bureau on

I’m sorry, every time I hear about the need to boost consumer spending I have to stop myself from pounding the table. As we round into 2012, the real weakness in the economy lies on the investment side, not the consumption side. Take a look at the following graph of net domestic investment as a share of net national product (‘net’ means depreciation is subtracted). I consider this graph, which expands on one I gave to the Atlantic, to be my ‘chart of the year’.

This chart, which runs through the third quarter of 2011, displays several disturbing patterns:

• Despite rebounding from its recession valley, net business investment as a share of net national product is still far below historical levels.
• Household and institutional net investment as a share of net national product is

In a recent post, I said that the U.S. should be a production economy, not a consumption economy. Matt Yglesias notes that “I have really no idea what that’s supposed to mean, since presumably the idea is to produce goods and services that people want to consume.”

Let me explain: I believe that the U.S. has come to a fork in the road. The direction we’ve been going leads to the the consumption economy, putting more resources into consumption and distribution rather than production. It hasn’t been working for us.

The U.S. needs to change course to a production economy: put more emphasis on investment in physical, human, and knowledge capital, and less on consumption as the yardstick of success. We need to take up our fair share of the global productive burden.

To see one indicator of the consumption economy take a look at this

Until this morning, the official data showed that U.S. productivity growth accelerated during the financial crisis. Non-farm business productivity growth supposedly went from a 1.2% annual rate in 2005-07 to a 2.3% annual rate in 2007-09. Many commentators suggested that this productivity gain, in the face of great disruptions, showed the flexibility of the U.S. economy.

But the latest revision of the national income accounts, released this morning, makes the whole productivity acceleration vanish. Non-farm business productivity growth in the 2007-09 period has now been cut almost in half, down to only 1.4% per year.

This revision has political and policy consequences. Back in March, I analyzed the apparent productivity surge and argued that it was statistically suspect. I pointed out that:

First, the measured rapid productivity growth allowed the Obama administration to treat the jobs crisis as purely one of a demand shortfall rather than worrying about structural

On July 17 the online edition of the WSJ published a widely-cited story entitled "Wireless Jobs Evaporate Even As Industry Expands." The main point of the story (my emphasis)::

In May, on the heels of a record year for industry revenue, employment at U.S. wireless carriers hit a 12-year low of 166,600, according to U.S. Labor Department figures released earlier this month. That’s about 20,000 fewer jobs than when the recession ended in June 2009 and 2,000 fewer than a year ago. While the industry’s revenue has grown 28% since 2006, when wireless employment peaked at 207,000 workers, its mostly nonunion work force has shrunk about 20%.”

In addition, the Journal digs further into the official data and claims that:

The number of customer-service workers at wireless carriers dropped to 33,580 last year from 55,930 in 2007, according to the Labor Department

Seems like a pretty straightforward story,

Germany has been held up as a model for the United States by David Leonhardt and others. Reihan Salam correctly observes that German offshoring to Eastern Europe has been an essential part of Germany’s apparent success. He also points out that:

The fall of communism was, as Marin suggests, a positive exogenous shock that proved a tremendous boon the German economy. A 20% increase in productivity is nothing to sneeze at, and I don’t think that David Leonhardt gave the role of offshoring its due in explaining the virtues of the German model.

Of course, the Houseman-Mandel thesis also tell us that German productivity gains, like U.S. productivity gains, might offer less than meets the eye.

Reihan raises a very interesting point which I hadn’t considered. Remember that our recent paper, “Not all productivity gains are the same. Here’s why”, we divided measured productivity growth into

To me, the big news in the first quarter GDP data is that the business investment drought has worsened. I compare the actual level of real business investment with the long-term trend level (assuming that the ten-year growth rate as of 2007IV had continued). Here’s what we see - (click charts to enlarge):

As of the first quarter, real nonresidential investment is 23.1% below its long-term pre-crisis trend, slightly wider than in the fourth quarter of 2010. This is the clearest sign of the weakness of the economy, since no one can argue

Yesterday we had bad news about Niaspan:

The NIH has stopped a study with Abbott Laboratories’ (ABT) cholesterol fighter Niaspan 18 months early after results showed the drug failed to prevent heart attacks and even may have boosted stroke risk. And as Bloomberg notes, the results could heighten the debate over whether raising good cholesterol actually helps patients ….

In a study follow-up, participants who took Niaspan and simvastatin had increased HDL cholesterol and lowered triglyceride levels compared to participants who took a statin alone. But the combination treatment failed to reduce heart attacks, strokes, hospitalizations for acute coronary syndromen or revascularization procedures to improve blood flow in the arteries of the heart and brain.

Certainly Abbott stock will fall in the short run. But in the big picture, this is an important step forward in the long and excruciating process of sorting out fact from fiction. It fits

Many economists are racing to declare a manufacturing revival. The latest to join the bandwagon is Paul Krugman. In his latest column, Krugman writes (my emphasis added)

Manufacturing is one of the bright spots of a generally disappointing recovery ... Crucially, the manufacturing trade deficit seems to be coming down. At this point, it's only about half as large as a share of G.D.P. as it was at the peak of the housing bubble, and further improvements are in the pipeline … one piece of good news is that Americans are, once again, starting to actually make things.

Oh, how I wish Paul was right. Unfortunately, I still don't see it in the trade numbers. In fact, the real trade deficits in capital and consumer goods are both nearing all-time (negative) records. Meanwhile, the real trade deficit for industrial supplies and materials has improved in

Mark Perry, who I recently had the pleasure of meeting and who seems like a nice guy, replies to my manufacturing revival post by focusing on profits. He writes that

… real manufacturing profits have completely recovered from the recession, and reached an all-time high in the fourth quarter of last year

He then goes on to conclude:

In the end, it's profitability that's the most important gauge for the health of a company or industry, not the amount of shipments, output, or employment levels

With all due respect, Mark misses the point. First, the measure of profits that he is using includes the profits from foreign subsidiaries of U.S. companies, so his measure of profits could be going up because factories in other countries are expanding, By comparison, I am looking at the shipments by factories in the U.S. I think my scope better fits

There’s been a lot of happy talk recently about the revival of U.S. manufacturing . According to an article in the New York Times, “manufacturing has been one of the surprising pillars of the recovery. “ In a Forbes.com column entitled “Manufacturing Stages A Comeback,” well-known geographer Joel Kotkin talks about “the revival of the country’s long distressed industrial sector.” The Economist writes that “against all the odds, American factories are coming back to life.”*

Truly, I’d like to believe in the revival of manufacturing as much as the next person. Manufacturing, in the broadest sense, is an essential part of the U.S. economy, and any good news would be welcome.

Unfortunately, the latest figures do not back up the cheerful rhetoric.

Newly-released data suggest that the manufacturing recession was deeper than previously thought, and the factory recovery has been weaker. On May 13 the Census Bureau issued revised

As we know, the U.S. is still stuck in a capital spending drought. According to my calculations, nonresidential business investment in the first quarter of 2011 was still 23% below its long-term trend. By contrast, nonfarm employment is about 8% below its long-term trend.

But there are some companies that are still investing in the U.S. As part of a new paper for the Progressive Policy Institute, I identified America’s “investment heroes.” The companies which are the leaders in domestic capital spending. Here’s the table from the paper:

(Click to enlarge)

In 2010 AT&T (T) was the domestic capital spending leader, by a wide margin. Verizon (VZ) was next, followed by Wal-Mart (WMT). These are companies that invested huge sums into the domestic economy, at a time when many other companies were still holding back. Out of the top seven “investment heroes,” 3 were telecom companies, 3 were energy

I was just revising a portion of my textbook, Economics:The Basics, and I happened to come across this March 21, 2011 entry in the Federal Register, where the Air Force is granting a waiver from the "Buy American" requirements of the American Recovery and Reinvestment Act of 2009. This is what the waiver said:

The domestic nonavailability determination for these products is based on extensive market research and thorough investigation of the domestic manufacturing landscape. This research identified that these products are manufactured almost exclusively in China.

Which products are they talking about?

… [T]he following construction items to be incorporated into the project FTQW094001 for the construction and replacement of military family housing units at Eielson AFB, Alaska under task order FA8903-06-D-8505-0019. The items are 1″ Collated Screws, Shank #10; 1-1/2″ (Taco) Air Scoops for Hydronic Heating Systems; 1-5/8″ Ceramic Coated Bugle Head Course Thread Screws; 2″

Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy. Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years. Finally, imagine that industry charged falling prices for both consumers and businesses.

But of course, that industry is not imaginary: The telecom industry, and in particular the wireless sector, has outperformed the rest of the economy on key measures such as customer satisfaction, investment and price. Moreover, at a time when President Obama is calling for more innovation, the wireless industry has produced more genuine new products and services than anyone else.

So given the great performance of the industry during this tough period, why the heck does the Federal Communications Commission keep imposing additional regulations on wireless providers? The latest case of regulatory overreach: On April 7, the FCC issued an order

This is a long post, but not epic.

A new story from the Associated Press argues that there has been a big productivity surge in the U.S., post-financial crisis. Paul Wiseman writes (my emphasis added):

Companies are producing and profiting more than when the recession began, despite fewer workers. They’re hiring again, but not fast enough to replace most of the 7.5 million jobs lost since the recession began.

According to the conventional wisdom, as summarized by Wiseman, the U.S. has sailed through the crisis in better shape than our industrialized rivals. The conventional wisdom also says to the degree that we have

Karl Smith writes "In Which I Disagree With Almost Every Word Mike Mandel Says." It’s a long post (though not nearly as long as mine), and I just wanted to reply to two points.

First, Karl says:

The only way to get GDP wrong is either to miscount the number of goods and services sold in the U.S. or to misestimate the price index of final goods – not intermediate goods.

Um, no. This statement is simply wrong.

Gross domestic product = exports + gross domestic purchases – imports.

Imports, as it turns, out, include a lot of imported intermediate inputs (according to this piece in the February 2011 Survey of Current Business, "BEA estimates that about 40 percent of imported commodities are used as intermediate inputs by businesses"). So that getting the price index wrong for imported intermediate inputs slides right into GDP.

More fundamentally,

In the 2007-09 period, the U.S. economy experienced its worst recession since the Great Depression. Nevertheless, despite this deep downturn, the near-collapse of the financial system and unprecedented global economic turmoil, U.S. productivity growth actually seemed to accelerate in the 2007-09 period, or at least maintain its previous pace.

The 2007-09 productivity gain had a major impact on both economic policy and political discourse. First, it gave the Fed a free hand to feed mammoth amounts of liquidity into the system without worrying about inflation. Second, it convinced the economists of the Obama administration that the economy was basically sound, and that the big problem was a demand shortfall. That’s why they expected things to get back to normal after the fiscal stimulus.

However, I’m going to show in this post that the productivity gain of 2007-09 is highly suspect. Using BEA statistics, I identify the industries that contributed the

I don’t mean to be apocalyptic here, in the face of the terrible tragedy hitting the Japanese people. But I think the current crisis is going to accelerate the aging of Japanese society, especially if the nuclear disaster gets worse. And I’m wondering whether we are seeing the beginning of the end of Japan as an industrial power.

Think about this from the perspective of an executive running a major Japanese manufacturer. In the short-term, when you are facing all the problems at home, you may find it appealing, wherever possible, to ‘temporarily’ switch over much of your production to either China or the U.S., your two major markets. This can be justified, patriotically, as the need to keep up profits to help fund the reconstruction of Japan.

But you may not want to move that production back again. In the medium-term, as you consider how much to invest in