Rakesh Bhandari wrote: >I raise a single question (and Doug your reply would doubtless be >most illuminating--am I way off here?): > > Why did the drop off in investment spending *lag behind* the drop >in profitability?
The financial mania, of course. There were plenty of outside funds to tap, and animal spirits were busily tapping them. As they say on Wall Street, the stock market wasn't just discounting the future, it was discounting the hereafter. So despite the dip in profitability, expectations were for endless good times. The "financing gap" - the difference between capital expenditures and internal cash flow - is very high for a recession (and got unusually wide during the boom). Normally it comes close to 0; now it's about 2% of GDP. Doug
