Since the onset of the global financial crisis in 2007-08, the administration and the Federal Reserve have implemented policies explicitly designed to spur investment, grow GDP, and reduce unemployment. These actions haven’t worked — certainly not as expected.
The weapons of choice to boost the U.S. economy have been low interest rates, deficit spending, and increased money supply through the Fed’s balance-sheet expansion to over $3 trillion. Yet almost five years later, GDP growth has been anemic at below 2% and at times negative, and aggregate domestic investment is about where it was in 2004, and considerably below the 2006-2007 level.
Optimists believe it’s still too early and that we have spent too little. More of the same would eventually produce good fortune — at least, that’s the hope.
S.P. Kothari is deputy dean and professor of accounting at the MIT Sloan School of Management. He is the author, with Jonathan Lewellen and Jerold Warner, of ”The Behavior of Aggregate Corporate Investment”.