Private sector just not getting it up

We’ve been told for years that corporate tax cuts would work like viagra to boost private sector investment and productivity, and no doubt we’ll hear much more about it in next week’s budget. 

But it just ain’t working. 

Today’s release by Statscan of private and public investment intentions shows just how limp private sector investment is expected to be in the coming year.  This is despite the pretty strong rebound in corporate profits we’ve recently seen and that is expected this year and next.

Private sector non-residential capital investment is only expected to increase by 2.8% in 2010.   If you take out the increase related to the mining & oil and gas sector and manufacturing related to oil and gas, then it even looks like there will be a decline compared to last year’s low rates.

This is despite expectations of an increase in pre-tax corporate profits of 15% this year and 16.5% next year, according to RBC’s latest forecast and a decent rebound in profits in the past two quarters.

After tax corporate profits are set to rise even faster, with Harper and Flaherty’s corporate tax cuts giving up $8.6 billion in revenues this year, rising to almost $15 billion in 2013/14, as Erin has showed.

This story–of deeper and deeper corporate tax cuts, but sluggish private sector investment and stagnant private sector productivity in Canada–is nothing new.  

I’ve just looked back at the public and private capital investment series numbers from Cansim and they show a similar, if not more pathetic, story.  

Paul Martin’s 2000 tax reform budget cut the federal corporate income tax rate from 28% to 21% over five years, together with cutting capital gains and high income tax rates. Flaherty now wants to cut this corproate tax rate down to 15% in the next two years.  

During this time, from 2000  to 2010, private sector non-residential capital investment will have increased by only 26%, despite a 60% increase in the size of the economy during that time and of course much lower interest rates.  This compares to a 170% increase in public sector investment.  

And it’s not just the impact of the recession.   From 2000 to 2008 (its recent high), private sector non-residential capital investment in Canada only increased by 54% compared to a 116% increase in public investment.   

What’s going on here?  

We’re told over and over again that we need to cut corporate taxes to make Canada competitive and attract investment, and it seems ot make sense, according to simplistic economic theory.

My impression, from having dealt with corporations seeking public bailouts from the Ontario government during the 1990-91 recession, is that most corporate managers and executives aren’t profit maximizers, but they are profit satisficers.  They need to show head office or their investors that they’ve achieved a certain return on investment.  

If they can achieve that the easy way, by getting government to cut their taxes instead of working harder and investing more, then they can go and relax on the golf-course, or whatever it is they do.  This impression is not backed up by any particular theory or economic analysis, but it seems to fit with what we’ve seen.

It is interesting that Michael Porter, the world’s foremost competitiveness guru, has for a long time advocated stronger environmental regulations as a route to increasing competitiveness.  These areas, as well as good physical and social infrastructure and an educated and trained workforce, have figured more prominently in the World Economic Forum’s competitiveness index.

Corporate tax cuts seem to work more like a drug that our corporate executives are getting more and more dependent on.   But unfortunately, it’s not a viagra-type stimulus drug.    They seem to need increasing doses of it every year just to get out of bed and function in a barely satisfactory way. 

The problem is this drug is costing the rest of us enormous amounts of public revenue, which we’re going to pay for again through cuts to public services. 

It’s also leading to corporate execs who would rather go  to the financial casino and gamble to make quick bucks instead of doing more productive work.   And when they gamble and lose, they run back to mommy the nanny state for a bail-out, as Jim has pointed out.

Instead of closing the INSITE needle-exchange for street addicts in Vancouver, Harper and Flaherty should force the CEOs to go cold turkey.  The federal and provincial governments should close down this increasingly expensive publicly-subsidized corporate tax cut drug program for corporate executives, and put the funds saved into productive public investments instead.  We’d all be better off.

31 comments

  • It is completely mad to bring these corporate tax rates down to 15% in a time of recessionary deficits.

    I mean at least make them somekind of targeted tax incentive type tax reductions – say uhhhhh, maybe environment related or job creation related tax cuts. Create some decent sustainable jobs and you will be rewarded. Build yourself a renewable energy source and get a reward- how difficult is that as a policy measure. Just don’t give it away.

    And try and focus the tax measures in sectors that have the highest down stream effect- madness!!

    Truly this is just sheer and plain unbridled madness by the tories. Yet there they sit 33% in the polls- I must say when all this nationalistic hysteria with the Olympics blows past us, I expect a lot of the failings of the tories will start falling. Wait to they start bandy about ideas that the retirement age should be pushed to 67 or somethings quite insane like that. Or how about more across the board public sector wages freezes and cuts! Or how about pensions and healthcare.

    With one hand they give away billions in taxes to the corporate sector which pumps up the deficit, and then asks the rest of us working folk and the general public to put up with less public services and public sector wages and benefits.

    How hard is it to see this contradiction? Yet 33% of us still think they are fit to rule!?

    Yikes and Jim wants to talk about financial education- I think political education should get a bit higher on the agenda!

    pt

  • This is about as insightful as claiming that the heavy snowfall in Washington DC this winter is convincing proof against the global warming hypothesis.

    The econometric literature on the effects of corporate income taxes is extensive. A half-baked anecdote such as this is simply not convincing.

    Unless, of course, you have no interest in engaging the econometric evidence, and simply wish to preach to the choir.

  • I’ve got to agree with Stephen on this.

    First, comparing private-sector investment to public-sector investment is non-sensical, since private-sector investment is determined by market forces whereas public sector investment is determined by a central planner. The size of the cheques that government writes doesn’t tell us anything useful about corporate capital investment.

    Second, Toby’s analysis doesn’t address what would likely have happened if we hadn’t had corporate tax cuts. In all likelihood, private sector non-residential capital investment would have increased by far less than 26%. Nowhere in your analysis is there evidence to suggest otherwise.

  • I think Stephen and David are going to have to realize that since they’ve been wrong for so long, with such disastrous results, they’re just going to have to accept the fact that they have no credibility, they don’t know what they’re talking about, and they’d best burn that “extensive literature” as it’s good for shit.

    We cut taxes and we didn’t get anything out of it.

    End of story.

    Second, Toby’s analysis doesn’t address what would likely have happened if we hadn’t had corporate tax cuts. In all likelihood, private sector non-residential capital investment would have increased by far less than 26%. Nowhere in your analysis is there evidence to suggest otherwise.

    You realize, David, that nowhere in your lame rebuttal do you attempt to deal with the fact that if the NDP had been in charge our economic growth rates would have been in the double-digit range.

    You’ve also failed to account for the claim that if I, thwap, had been installed “dictator-for-life” back in 2003, we’d all be living like absolute kings.

    Until you’re prepared to account for every hypothetical anybody on the internet can toss your way, it’s best that you not blither nonsense like what you just posted.

  • thwap, all you really had to say was “Amen”. That’s all the choir is supposed to say.

  • Stephen and David:

    Firstly, I didn’t claim to any convincing empirical or econometric evidence of this thesis; I’m merely trying to make sense of what we’ve seen over the past decade with some of my direct experience. I don’t know if anyone has explored this hypothesis, but it seems to make sense, based on how managers actually seem to operate (which is unfortunately usually ignored in a lot of economic analysis).

    In terms of your analogy of snowfall in Washington; certainly one year of heavy snowfall wouldn’t be convincing proof of anything, but what about ten years? We’ve have ten years of supply-side driven corporate tax cuts, but little increase in investment rates and stagnant productivity. Please offer me a convincing alternate theory.

    What would have happened if we hadn’t cut corporate taxes? Perhaps we could have pursued an alternative economic approach, with more strategic sectoral development, focused R&D support, more public funding for the areas that Porter and many others see as stronger determinants of productivity and competitiveness instead of having blind faith in ongoing steep corporate tax cuts. The problem is that we’ve also contributed to a race to the bottom with corporate tax cuts. There may be some comparative econometric evidence to show that it works over a short period because it helps poach investment from another country, but it doesn’t work in the long run if everyone is doing it.

    Of course I’m aware of some of the econometric evidence that shows that corporate tax cuts, and particularly capital tax cuts, would lead to a significant boost in investment. But it doesn’t seem to have happened, has it? I also spent enough time doing econometrics to be skeptical of a lot of the so-called evidence out there. We all know that a lot of it is far from scientific and, in the case of CGE models, based on highly restrictive assumptions and limited data.

    There was probably also a lot of evidence demonstrating the economic benefits of stock option based compensation. But it hasn’t turned out that way, has it?

    Finally, in terms of preaching to the choir, by far the largest choir in economics is the one that unquestioningly follows the narrow assumptions and prescriptions of neoclassical economic theory.

    I’m just trying to figure out what is happening here, because the real life results don’t seem to have lived up to the predictions (whether they were based on econometric evidence or just faith). If I worked at a university and had the time, I’d probably do this research.

    But without convincing ongoing evidence that ongoing corporate tax cuts are working in the way they were advertised, I think it is time to stop the cuts and end this very expensive experiment.

  • As far as I have seen there is no conclusive econometric evidence that lower corporate tax rates lead to higher rates of investment, GDP growth or productivity growth.

    There are some cross-country and historical comparisons that small open economies with high levels of GDP per capita and decent productivity growth (ie the Nordics) do tend to rely less on corporate income taxes and more on consumption taxes, so we should take those lessons about tax mix seriously — that you should not have corporate taxes that are way out of line.

    But investment is mostly driven by demand side factors not supply side ones. To imply that lowering corporate rates will lead to increases in investment and thus faster growth is seriously misleading.

  • Mr. Gordon,

    You sure do have an awful stench of academia to you.

    Maybe at some point in your life you should get out of your vacuum and come into he real world.

    Crunching all those magical numbers is in many cases just a culturally accepted ritualistic case of and proof that we indeed have a whole lot of wealth in our society to sit around comparing straight lines on a set of flimsy data and techniques that are about as incite ful as a sledge hammer.

    Call me an academic thumper or what ever you will, but the world of economics that you live in is about mainly mainly a fictional numeric tale. Your empircal research is based upon data that is about as out of touch as the theories they rest upon.

    You and the lot you hang with live in a world of denial and deceit and until you wake up one day and realize that all your scientific tendencies and beliefs are but an artful dance around the fire pit. The shyness of your nakedness is your problem- and until you finally get a grasp of the real world of economics, you will continually guide those that want to believe that this seemingly number one non-fiction best seller is actually just a romantic fictional tale of greed and lust and potentially impotency buried deep within your logic.

    I mean really Stephen, you don’t take all those numbers and regression models seriously do you.

    Maybe you should avoid straight lines and such for a month or two until your are healed, I do believe clustering, factoring and discriminant analysis and other grouping techniques do hold some hope of one day bringing at least a few glimmers of scientific rationality to the dismal science.

    I am sorry but I have worked a very long time in the numbers and for somebody such as yourself to start lecturing us all on the merits of numerical proficiency and somehow a definitive endorsement that tax cuts somehow lead to increased business investment, especially in a small open economy, mostly owned by foreign based multinationals, is a bit hard to accept, show this grand library of empirical research for such as country as ours.

    WTF!

  • Stephen,

    And you’ve done your bit too, for your side. I’m sorry but I’ve run out of patience for neoliberalism.

    We did everything we were supposed to do, cut taxes, privatize, suppress inflation by suppressing employment and wages, deregulation, free trade deals, … everything, all of it. And what did we get?

    The worst economic crisis since the Great Depression.

    Ontario a “have-not” province. Rising household debt. Rising homelessness. Rising inequality.

    As with the neo-cons and other imperialists in Afghanistan, neo-liberals have to learn to recognize failure at long last.

  • I would imagine that a certain cognitive dissonance arises when the realization sets in that one has been pushing a policy flop. For what ever the initial noble intentions may have been, the failure, if fully acknowledged, would inevitably cascade outward to the point where behind the technocratic mask was revealed a little ideological man with an albeit brass bull-horn.

    Go easy on the orthodox economists it has been a rough two years I imagine.

    Paul,

    What is the difference between God and an orthodox economist?

    God does not do economics.

  • yes I am sorry for making fun of their nakedness.

    I realize, and I sometimes cannot resist to jab deeply when I should merely be putting up my shield as the orthodox village idiots are no longer quite the threat they once were.

  • Paul I think you are being a little too harsh. You have to admit the ten years between 1997-2007 really looked like a policy triumph as long as you did not look too closely. They like everyone else had model of how the economy works (or ought to work); and they like everyone else had a set of policies they thought would work. And they like everyone else when faced with non-conforming facts will continue to cling to the initial model and the policies sometimes for a long time. It is not pretty but it is fairly typical.

    Just last week I saw a group of Russian protesters holding up pictures of Stalin. Look how long it took bastard Keynesians to throw in the towel. You can expect the orthodox boys (for it is almost always boys) to keep ringing the same bells for a while. They, after all, have a materially interested and well paid choir to play to. Special interests like that do not go away just because the facts refuse to confirm policy.

    You will just have be content in the knowledge that they are the purveyors of what is now well recognized as a degenerating policy paradigm.

  • Furthermore, it was made to look as if the post was saying that tax cuts will NEVER spur investment, when it’s clear that it’s saying that IN THIS CASE tax cuts haven’t spurred investment and therefore we should be sceptical about continuing to use them in light of fiscal realities.

    That’s a far cry to using a blizzard in Washington DC as evidence against the theory of global warming.

  • As far as I have seen there is no conclusive econometric evidence that lower corporate tax rates lead to higher rates of investment, GDP growth or productivity growth.

    Huh? How much effort did you put into your literature survey? Very well: here you go. Here’s an ungated version. Pay particular attention to the second paragraph that reviews the existing literature:

    “Starting with Jorgenson (1963) and Hall and Jorgenson (1967), many public finance economists have addressed this topic. A small selection of important studies includes Summers (1981), Feldstein, Dicks-Mireaux and Poterba (1983), Auerbach (1983), King and Fullerton (1984), Slemrod (1990), Auerbach and Hassett (1992), Hines and Rice (1994), Cummins, Hassett, and Hubbard (1996), Devereux, Griffith, and Klemm (2002), and Desai, Foley, and Hines (2004b). Auerbach (2002), Gordon and Hines (2002), Hasset and Hubbard (2002), and Hines (2005) survey aspects of this literature. Generally speaking, this research finds adverse effects of corporate income taxes on investment, although studies offer different estimates of magnitudes.”

    I’m very, very disappointed with you, Marc. You really should have done *some* homework before writing that.

  • You sure do have an awful stench of academia to you.

    Um, yeah. Bashing pointy-headed intellectuals is what progressive economics is *all* about.

  • Finally, here’s a question: what is the progressive case for higher corporate tax rates?

    I’ve heard several that have been – or appear to have been – advanced by self-described progressives, but they’re all pretty dumb:

    – Arguments that pretend the literature on the efficiency effects of corporate taxes doesn’t exist.

    – Arguments that pretend that the literature on the incidence effects of corporate taxes doesn’t exist.

    – Arguments that labour under the delusion that corporations are people.

    – Even dumber arguments.

    There is no theory that explains how we can build a prosperous social democracy based on high corporate taxes. There is no evidence that suggests that we can build a prosperous social democracy based on high corporate taxes. There is no example that we can point to of a prosperous social democracy that is based on high corporate taxes.

    So why does the Canadian Left advocate high corporate taxes?

  • How about this?

    When we had higher corporate taxes we had better economic statistics than we do now?

    We had higher levels of economic growth.
    We had higher levels of income growth.
    We had falling economic inequality.
    We had smaller deficits.
    We had better funding for public services.

    I’ll grant you the existence of an enormous amount of literature on efficiency effects of corporate taxes.

    You don’t have to concede anything for me granting you that.

    But tell you what, why don’t you at least acknowledge that your policy prescriptions (described in an earlier comment of mine) have produced a huge amount of failure (also described above)?

  • There are theoretical arguments that corporate taxes have negative efficiency impacts but this is not settled in the least empirically. It is not that we should ramp up corporate taxes to 70% or anything, but there is no reason why recent corporate tax cuts – that have taken Canadian rates well below US ones – should not be repealed.

    And to the extent that there are efficiency impacts of corporate taxes they must be weighed against the beneficial impacts of any associated public spending. If spent in a pro-growth manner corporate income tax increases may have no efficiency losses whatsoever. But I still think within the range of taxes we have seen in recent years, efficiency impacts will be extremely small.

    Most corporations in Canada have to be here to access the Canadian market, or resources they want to exploit. And there are many more other aspects to investment decisions than just CIT rates. Cheap electricity in BC or Quebec overwhelms most differences in CIT rates. These subtleties are almost never captured in empirical studies, so on balance Toby is right to be skeptical of them.

    Finally, if you do want to cut CIT rates you must increase top marginal personal income tax rates or else you give windfall gains to the wealthy.

  • None of those statements are consistent with the facts.

  • Crap. That last post was for thwap.

  • Finally, if you do want to cut CIT rates you must increase top marginal personal income tax rates or else you give windfall gains to the wealthy.

    Where did that conclusion come from? That’s not what I get from the literature on the incidence of corporate tax rates.

  • And to the extent that there are efficiency impacts of corporate taxes they must be weighed against the beneficial impacts of any associated public spending.

    I’m not against higher levels of tax revenues and spending (unless it’s done badly). The issue is the tax *mix*. There are other, better ways of generating those revenues.

  • There are theoretical arguments that corporate taxes have negative efficiency impacts but this is not settled in the least empirically.

    Really? Where are the studies that show that the literature reviews I pointed you to earlier are wrong?

  • Hey Stephen,

    If pointed headed economics’s academics, especially the neo-classical ones, could ever get into a space that actually contributed more than just ideologically based, pseudo scientific support for a failed economics project by the financial elites of this planet then maybe the bashing would actually be contained.

    Why not try and regress that.

    The neo-cons have had there day and failed miserably and if you could get beyond your nakedness, you might be able to come to that conclusion.

    Let me say this quite clearly in a civilized world a low taxation corporate rate does nothing but promote a race to the bottom. Just go to a free trade zone and see all those success stories!

    Haiti comes to mind. A garment industry stuck in the middle of some of the worst poverty on this side of the ocean. Some of the lowest tax rates, did nothing to attract investment, at least of a kind that one can build a sustainable economy. In fact it was mainly cheap labour.

    As we all know there is a host of variables involved and if you could actually measure a good majority of them, and then collect the data using a proper methodology, and then somehow if you actually got to this point, then maybe- just maybe you might find a few sliver of scientific evidence.

    But let me say this, many of the variable are quite difficult to measure and I have yet to see an encompassing study that would deal with the issue in a methodlogically sound manner that would remotely be seen to take into all the possible variants that would have to be considered.

    I want to ask those neo con academics, why is it that after a mere say less than a 100 years of a dynamically changing beast as the major economies of the world, given the rudimentary measurement instruments and scantlly clad data, do we think we have such a dearth of data and such that we can make grandiose conclusions that we have most of it all figured out.

    Why do we even have to pretend that we are even close to understanding things such as investment?

    I mean given the past 3-4 years I would severely call into question any and all theories over investment.

    It is only rational that one must look and revisit such devices. I think if anything, that is about all that I really can conclude.

    We are but infants trying to make our way in the understanding of scarcity. We have hardly begun to realize that if anything, we do not know much.

    I am not anti academic, but lets all make our way down the path and understand that the past events the great crisis leaves a great many of the theories that have guided policy a target for great debate. Oddly enough some, such as yourself, seem to want to just omit the fact that we just went through a whirlwind, and we are still only in the beginning of living through its aftermath.

    So pardon me if I get a little uptight. Potentially your lot needs to enroll in some kind of 12 step program.

    I am sure David Harvey has a few openings in his virtual class. I would imagine he could help such addicts.

    However the first step is admitting there is a problem.

    This the orthodoxy has not done yet.

  • Windfall gains from CIT cuts is from Jon Kesselman.

    I’ve read reviews of the literature and do not come to the conclusions you assert as universally accepted, Stephen. What lit reviews of the empirical literature, specifically, are you talking about?

    We do not much disagree on tax mix but I just think there is scope for increasing CIT rates that would have little impact on the economy, given where other major countries, in particular the US, already are in comparison, and given the good places for new expenditures to go there is every reason that such a move would be pro-growth not anti-growth.

  • I did my own review of this literature a few years ago:
    http://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/btn6_4.pdf.

    Here’s a pertinent passage related to the corporate tax claims above. I still have yet to see any real economic evidence to the contrary:

    “Another group of studies often cited by advocates of smaller government comes from computer simulations that find that an extra dollar of government revenue actually costs the economy something like $1.38 or more in lost economic activity (see Dahlby 1994).

    “It is important to note that these results are not derived from real-world data. They are quasi-empirical studies that start with a theoretical model where taxes impose large deadweight costs to the economy, then put some real numbers to the model to enable them to simulate what the cost of extra taxation is at the margin. They are “educated fiction” based on the virtual reality of computer models (Lindert 2004).”

  • Shorter Stephen Gordon: “Who you going to believe? My extensive literature or your own lying eyes?”

    It’s really not as complicated as you’re trying to pretend it is. If you give cut corporate taxes in the hopes that the people in charge will have more profit left over for investment and job creation, and then you don’t get the investment and job creation, then your tax cuts didn’t work.

    If you have to spend massively to forestall a recession and you need a revenue source, avoiding proposed corporate tax cuts and perhaps rolling back unproductive earlier ones, is a good idea.

    Sorry to be curt Stephen, but your philosophy was tried an it failed.

  • After all that, you direct me to a working paper, Stephen? I had take a whole new post on just to chronicle that paper’s main shortcomings.

  • Stephen and others can no doubt point to numerous papers from the 1960s to the 2000s that demonstrate a positive relationship between lower corporate taxes and investment.

    However, the point I made is that these are often based on cross-country data, do not account for a race to the bottom where others are doing it and have limited relevance to our recent experience.

    For instance, the study that he cited is based on cross-country data for the period 2003-2005. The countries it highlights as having particularly low statutory or effective corporate tax rates and higher rates of investment are Mongolia, Hong Kong, Latvia, Ireland, Croatia, Slovakia and Lithuania. At the other extreme, with higher effective corporate tax rates and low rates of investment are Bolivia, Pakistan and Japan. In each of these countries there were other more important political and demographic factors that influenced their economic development and investment rates than low taxes. I don’t need to get into the details of these because they should be obvious to anyone with any awareness of world events in recent years.

    What has been the longer term consequence of an economic model that embraced low corporate taxes in some of these countries over a longer period, past the two years of data used in that study?

    Well, we know that Ireland and Latvia are now pretty much economic basket cases: Latvia’s economy is expected to shrink by -20% during this crisis, with unemployment climbing to 23% and Ireland’s GDP is expected to drop by -14%. Obviously there are a lot more factors at play here in each of these countries than corporate tax rates, and that’s my point.

    If you take these outliers at either end out of the study that Stephen points to, then there doesn’t appear to be much of a correlation at all between low effective tax rates and investment rates. And if the study looked at a longer period than just two years, I very much expect that the results would have been quite different.

    If I was trying to prove a point about the benefits of low corporate tax rates, I don’t think I would point to a study that includes Latvia and Ireland as good examples, and that only includes data for the 2003-2005 period.

    In terms of the Canadian experience, Statistics Canada’s quarterly financial statistics data show that Canadian corporations enjoyed an increase in net profits (after tax) of 103% from 2000 to 2007. Meanwhile, GDP figures show that business investment in non-residential construction and machinery and investment only increased by 44% during that period, and investments in M&E only increased by 24%. We know that a lot of this business investment was driven by the oil sands development in any case and lower corporate taxes probably didn’t have much impact. Net profits did fall in 2008, but that was largely because of a drop in oil and gas prices.

    No matter how many dated or irrelevant studies you point to, I don’t think there should be much dispute that the deep corporate tax cuts have not resulted in the type of increases in investment and productivity that they were supposed to. Of course Canada had a higher dollar during that time. But what caused this increase in the value of the dollar? It can’t just be explained by higher oil prices, but foreign investment takeovers of our resource sector also played a role, as Jim Stanford has pointed out.

    What would have happened if we hadn’t cut our corporate taxes as much? That’s a counter factual question that would require assumptions about what we did with the additional revenues, what sort of economic and industrial policy we followed, and how other countries would have reacted.

    The world–and people, and investment decisions–is more complex (and interesting) than the simplistic mantra that low taxes will lead to more investment and therefore higher productivity, etc.

    As far as I’m concerned, and I think the Canadian experience to date show it, this race to the bottom with corporate tax cuts is not working. This highly expensive ideologically-driven experiment has been a failure and needs to end.

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  • I am sympathetic to the thrust of this post and supportive comments, but there is an issue that does not seem addressed by it nor the comments, negative as well as positive: what about the crowding-out argument? I don’t know how much weight to give it myself, it’s hard to judge, but there is at least some truth to it (or else communist and excessive command and control economies would (have) work(ed) better).

    Maybe someone like Gordon could argue that the public investment was/is crowding out private investment that would have had greater benefits for productivity, growth, etc. That crowding out isn’t just a quantitative problem, but also a qualitative one, that the nature of private investment is different and better, in some senses, and has better effects. And thus, less public investment would allow more and better private investment. And therefore, comparing public investment to private investment is misleading, because (a) it takes more public investment to achieve the same beneficial effects as a lower rate of private investment; and (b) greater public investment has the negative effect of driving out the otherwise more productive private investment [note: certain contradiction between a & b, though not necessarily].

    I honestly don’t know. There is obviously some truth to b, how much, I can’t say, and maybe to a, depending on the industry, context, etc.. But it’s not cut and dry. I’d be curious to hear this point addressed, re. Canada 1990s-2010, and re. future policy.

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