Corporate Cash Hoarding

Yglesias: 

The Wall Street Journal has a nice piece on the growing phenomenon of corporate cash hoarding as American firms pile up more highly liquid assets rather than investing in expanding business activities.
This hasn’t attracted nearly enough mainstream attention, and a lot of the not-so-mainstream attention I’ve seen focused on it has been a little bit conspiratorial in tone. This is, however, precisely what a basic demand-side explanation of the recession would predict. If demand for oranges drops, normally people buy apples instead and the economy reconfigures. Or maybe demand for Toshiba laptops drops and people buy Apples instead. But it’s possible instead for demand for everything to drop, in which case people buy cash and cash-like instruments instead. Here, instead of the economy reconfiguring itself to produce fewer oranges and Toshibas and more apples and Apples, the economy instead reconfigures to produce fewer goods and services overall. Hence vacant retail storefronts, idle workers, factories skipping shifts, construction equipment sitting by the side of the road, etc.

What policymakers need to do is recalibrate expectations of demand growth. People need to think that over the next couple of years the United States will be working to rapidly close the gap between potential and actual production. Then these cash indicators will drop to more normal levels, and that itself will increase real output and employment.

And yet investment spending recovered a long time ago and is back to normal.  Housing investment is still down and all spending is a big sluggish. 

Delong:

I do think that this is not a bad way to look at (much of) what is going on in the current Lesser Depression. The boom of the 1990s had been driven by rising exports and, overwhelmingly, business investment in equipment investment and software as Bill Clinton's stabilization of the U.S. government's long-term finances and his shrinkage of the government had unleashed a high-investment, high productivity growth recovery. The recession of 2001 was driven primarily by a fall in exports and secondarily by a fall in business equipment investment. The mid-2000s recovery was led by residential investment, with exports and business equipment investment adding support.
That takes us up to the end of 2005.
With the start of 2006, the housing bubble bursts and residential construction investment begins to decline as a percentage of potential GDP. But for the first two and a half years exports stand up as housing construction stands down and the economy remains near an even keel even with the growing financial turmoil.
Then in late 2008 the economy falls off a cliff: business investment in equipment and software collapses, housing investment collapses further to far below any equilibrium level, and exports collapse. Exports and business equipment and software investment start to recover in the third quarter of 2009. If only their good recovery performance had been matched by a recovery in residential investment and an increase in government purchases, we would due fine.
But there was no recovery in residential construction. There was no increase in government purchases. And starting in 2010 the shrinking government sector puts additional downward pressure on the economy.