That investment has been too low in the United States has been a constant
theme of some business spokesmen and economists.' We have been advised
of a "shortfall" of capital formation amounting to hundreds of billions
and, by some estimates, trillions of dollars. Presumed consequences have
been lagging productivity and a decline in our competitive position in the
world.
How could this take place in a relatively free, private, profit-oriented
economy? Why would business firms neglect opportunities for productive
investment? Would not the lure of cost reduction and increasing profits
guarantee that all economically efficient investment be undertaken?
The explanation which we have been given is essentially twofold. On the
one hand, government expenditure programs, in their presumed focus on
social justice and a more egalitarian distribution of income, have encouraged
mass consumption and discouraged saving. On the other hand, tax
policy has discouraged investment.