There has been some concern over business investment and various plans have been floated to increase that investment. I think most of them are simply of the “Now More Than Ever” variety. That is, they are marginal improvements in the incentive structure facing businesses and folks are arguing that now more than ever we need that.
This doesn’t move me much because there is no evidence that I see that “now more than ever” poor policy incentives are halting businesses investment. Equipment and Software is surging and to the extent its not moving at record levels it is only because of the poor performance of transportation equipment.
That I believe is in part due to concerns over fuel pricing.
Now, although Equipment and Software is surging investment in business structures has been depressed. This is related to the credit crisis though I still believe it deserves more investigation as to the real root cause. However, there is no evidence that I see, that it has any thing to do with policy incentives.
There is one area of business investment, however, that is strongly affected by policy and that investment in Mines and Wells. There are meaningful limitations on our ability to drill new well and dig new mines, especially when they will potentially produce lots of pollution.
However, in contrast to the “Now More Than Ever” arguments I want to say that now is different. There are restrictions on pollution that we could afford in better times that we cannot afford now.
I also want to point out that not just the extra natural resources but the increase in investment in natural resource extraction equipment is not trivial.
I’ve broken down investment in non-residential structures into their major components.
- Mines and Wells (dark blue)
- Power and Communication
- Health Care Facilities
As you can see Mines and Wells has grown to the largest and most volatile sector. Now this is driven in large part by the increase in oil prices and their fall during 2008.
However, restrictions on drilling and mining do discourage a significant amount of production – as is there intention.
My point is that by recognizing the importance of this sector we may reconsider those intentions and see that now may be a time when we are willing to endure more pollution for more jobs and more production.