Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Sunday, February 22, 2009

Private Sector Investment in the 30's

The graph in the Delong Post I linked to recently seems pretty straight-forward. Private investment tanked from 1929-33, then recovered through 1937. After a slip in '38, it took off again. But even that is subject to controversy.

The chart you will find here at Econospeak shows net investment, calculated by subtracting depreciation from real investment. It has been reproduced and discussed at other places.

George Will and Paul Krugman got into an on-air dust-up over the subject.

My comment at Econospeak:

The only way to actually get negative investment is to turn the hard asset into cash. The graphed calculation does not do that.

Has it occurred to anyone that net investment, using depreciation as the subtrahend, is a concept that doesn't actually mean anything real?

Investment is cash paid out in exchange for an asset - a real transaction. Depreciation is an accounting abstraction that allows for the amortization of investments made some time in the past over the presumed useful lives of the purchased assets.

The whole concept is ridiculous. Does the fact that they are both dollar denominated justify this kind of confusion? You might as well subtract a duck from an egg.

Krugman made no mention of this, refuting Will on a totally different basis. Am I wrong? Help me out, somebody.

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