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November 21, 2005
Does a global investment shortage matter?
I'm getting tired of the "glass half empty" crowd. Now Brad DeLong has weighed in, saying that we have a "global investment deficiency".
Hmmm...we also happen to have the fastest global growth rate in almost 30 years, according to the IMF. Here is a chart of the three year average of global growth, using the IMF figures and September forecast for 2005.
Maybe investment doesn't matter that much? Or maybe (horrors), our old measures of physical investment are giving us wrong answers?
Time to limber up the old cannon.
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It is interesting that the growth rate never stays below 2.5% for long, and is usually within the tight, stable band between 2.5% and 4.3%.
The curve is smoother than many people realize. Thus an equity portfolio well-diversified across the world will almost never have more than two bad years in a row.
The high growth rates of China and India are actually *needed* to keep the world within the stable band, and are thus the natural balancing needed to offset the slow growth of Europe.
Also consider that if, in 20 years time, if China and India become large economies and shift into lower 5%/year growth rates, and Europe is still slow, then the US could uptick to greater than 4% per year, just for the aggregate world to keep up.
Posted by: Kartik at November 21, 2005 03:33 PM
Growth is the result of past investment though, so the question remains whether there is sufficient current investment. I expect there is a deficit due to low expected returns, so this deficiency is natural.
Posted by: Lord at November 21, 2005 04:08 PM
Actually global investment has been low for about 5 years...
Posted by: Mike Mandel at November 22, 2005 11:11 AM
I went to Brad Delong's blog and quickly concluded that he cannot be taken seriously.
He devotes many, many posts to 'Bush lied' and 'Bush is the worst President ever'. While that may be partially true, any post as neutral as 'Well.. I think Bush is at least better than Carter was.' will be promptly deleted by Brad Delong.
It is fine to dislike Bush, but to devote one's whole blog to such oversimplified absolutes is not a sign of an objective, unemotional mind.
Hence, I conclude that he will ALWAYS say the economy is bad when Bush is President, no matter how good the data. If a Democrat is inaugerated in Jan 2009, he will immediately act as though the *world* economy magically improved in one day.
Probe Delong further, and you will see this to be true....
Posted by: Kartik at November 22, 2005 12:06 PM
Toyota? Hmmm....how long will they reign as #1, before they are challenged by a company coming out of China or India?
Posted by: Mike Mandel at November 23, 2005 12:06 PM
Or maybe this is simply a revival of aggregate demand ala Keynes's General Theory. You aren't saying we were all at full employment a couple a years ago???
Posted by: pgl at December 1, 2005 08:00 PM