America's spending on physical capital, including buildings and machinery, is declining as a percentage of its total production. Economists have offered a number of explanations for this trend. For example, one might expect this to happen as the technology and service sectors get larger relative to other, more physical-capital-intensive sectors such as manufacturing. In addition, firms are devoting an increasing fraction of their investment to “intangible capital” such as research and development, intellectual property, branding, and organization. And whatever the mix of causes ultimately turns out to be, it might have important implications for economic policy.
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