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Private fixed assets are things like machinery, computers, factories, power plants, housing–all the privately-owned productive assets of the country. From 1999 to 2009, the real net stock of private fixed assets grew by 26%, the slowest 10-year increase in the post-war period, according to data from the Bureau of Economic Analysis.
That slow growth in real private fixed assets is bad enough. What’s worse, housing accounted for the majority, 53%, of the real increase in private fixed assets. By comparison, information technology equipment and software–computers, software, and communications equipment–only accounted for 14% of the increase in productive assets. If we toss in spending by on ‘communications structures’, that gets us up to 16%.
In any case, the net real increase in housing fixed assets was more than triple the net real increase in IT fixed assets. That may help explain why we are in such dire straits now—plenty of new homes, not enough investment in IT.
That’s why I’m not terribly concerned about the slow pace of recovery in the housing market. I’d rather see money go to more productive uses.
Some caveats: This analysis does not include government assets or consumer durables.
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2 comments
Do you the data to compare this with 1989-1999? How much out of the norm is this?
Steve
Not sure this is that relevant as real estate prices were driven by a speculative bubble, I bet the speculative rise in prices dwarfed physical “investment” in construction or other house remodeling. Consumer durables would actually be relevant as many people started using their house as an ATM during the bubble, using the price rise to pay for cars, TVs, etc, taking out HELOCs that they used for all kinds of activity. Also, if someone were to take out a HELOC to pay for online or college tuition, I suspect that won’t show up in your “fixed asset” stats anywhere, since it’s a soft skill. That’s a big oversight as the US is a 70% service economy, fixed assets are increasingly outdated and irrelevant. As for the dearth of IT investment, I think that was the market doing its job: would you invest in newspapers that are dying off online or a company like Facebook that just breaks even or ekes out a profit? The lack of micropayments led to everyone copying Google’s ad model, which doesn’t work outside search. You’d be a fool to invest in IT with no proven revenue model, particularly when the tech dummies are too dumb to realize this.
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