Gross and Net US Investment

Each year, more than half of the total or gross investment by US firms just makes up for depreciation in older equipment and knowledge. in recent year, it’s more like 75% of current year investment just offsets depreciation. Here are the figures from the ever-useful FRED website run by the Federal Reserve Bank of St. Louis. In this graph, the top line shows gross investment, while the bottom line shows “net” investment after subtracting out depreciation of older capital. As you can see from the gray bars showing periods of recession, firm investment typically drops during a recession. In the pit of the Great Recession back in 2009, all of the gross investment went to replacing depreciated capital, so the US capital stock as a whole did not grow. The next figure just divides net investment by gross investment. Back in the 1970s, net investment was often around 40% of gross investment, but the share has been slumping over time. For the last decade or so, net investment has been about…