Tyler Cowen has been busy opining on macroeconomic policy during the 1930’s including a November 23rd NYTimes oped critiqued by Econoclast but let us turn attention to Tyler’s critique of what Brad DeLong had to contribute. While I am grateful that Tyler pointed out my graph of net investment, I’m puzzled by this:
Only in 1941 did net investment exceed its 1929 level. Here's a chart which seems consistent with these claims and which shows the difference between the net and the gross series for investment. The waves are very similar but at different absolute levels. Can any readers explain what is going on In this time period, using this data, is net or gross investment a better indicator of recovery and economic conditions? Is the pro-New Deal claim that making net investment "less negative" (but still negative) counts as a success or rather that the gross investment series is what matters?
Whether one uses gross investment as Brad did – or net investment as I did (given the George Will tirade) – the measured increase in investment demand was roughly the same. So Tyler’s first question seems silly from a Keynesian perspective, while the answer to his second question is YES.
One might be wondering why I choose to graph exports (EX) minus imports (IM) as a share of GDP (all series in real terms) for the more recent years in a post about net investment during the 1930’s, but this is by way of an analogy. We have had negative net exports (NX) for quite a long time but we are not shy about saying how an increase in export demand had been fueling economic recovery until recently. So I do not see anything odd about Brad showing us gross investment without including the depreciation chart.
Now if Tyler wants to lament that the capital stock fell during the 1930’s, he has a point but a very different point. Incidentally, the net financial wealth of the U.S. has also been eroding during this prolonged period of current account deficits.