One of the key economic tales told by the Trump administration is that corporate tax cuts would spur huge investment and growth in the US economy, raising wages and ushering in a new era of bullishness. Not quite.
Tax cuts pushed up the market, at least until the winds shifted last week. That is because nearly half of the corporate profits that were repatriated went straight into stock price-bolstering share buybacks. Capital expenditures grew too, at least for a couple of quarters. But what business is investing in has changed quite a lot in recent history — and that alters everything.
Back in 1998, towards the end of the previous long US expansion, 48.3 per cent of business investment went to new structures and industrial equipment and about 30 per cent into technology such as information processing equipment and various types of intellectual property, according to data compiled by Daniel Alpert of Westwood Capital.