The Myth Of A Trump Investment Boom

Last week, the NY Times had an article that seemed to imply that the passage of tax reductions and Trump's roll back of regulations was setting off a wave of new corporate investments. As the Times described it, "Mr. Trump’s more hands-off approach has unleashed the 'animal spirits' of companies that had hoarded cash after the recession of 2008."

Of course, there were a number of major problems with that thesis. First, as the article readily notes, there are actually very few federal regulations that have actually been rolled back and, besides, there is little evidence that regulation inhibits business or the deregulation spurs it. In addition, there is also scant evidence that the tax plan has prompted new investment either. In fact, most CEOs readily admit that the benefits of the tax plan will primarily go to executive and shareholder compensation.

In fact, the article could cited only one company that was making an investment decision based on regulatory rollback or the tax bill. That one example was a $50 billion investment over 5 years announced by Comcast that was timed to the passage of the tax bill but provided no real evidence that those plans weren't already long in the works. A number of companies essentially "re-announced" investments that had already been planned and announced months ago, pretending that those investments were triggered by the tax bill.

In fact, the article itself states that the most important reason for increased business optimism is that the domestic and world economy are all growing at the same time right now. The article goes on to tout the fact that "capital spending had risen significantly, climbing at an annualized rate of 6.2 percent during the first three quarters of last year."

As Dean Baker points out, investment growth of 6.2% is hardly anything to brag about. In a one period from 2013Q3 to 2014Q3, investment growth was up 9.1% and in the period 2011Q1 to 2012Q2, it grew an even more impressive 11.1%. So the idea that current investment growth reflects anything out of the ordinary from what we have experienced in the last 6 years is just not supported by the evidence.

But Baker's further point is that almost 40% of that new investment growth came from the oil and mining sectors primarily driven by the increase in oil prices that bottomed in 2016 but began rising in 2017 and ended the year nearly double in price. So, historically low oil prices were the reason for low investment in 2016 and higher oil prices have led to more investment. Yes, investment is investment and these investments will certainly be welcome by struggling oilmen in Texas. But the mythical "investment boom" created by Trump policies that the Times seems to see simply doesn't exist.

What is real is the understanding corporate executives have that when they do break the law in pursuit of ever greater profits, the Trump administration will gladly turn blind eye. And that is surely enough to lift any CEO's spirits.