Although the financial-market panic that had flared up in late September 2008 began to subside early in 2009, net private investment continued to fall, becoming negative (-$53 billion, annual rate) in the first quarter of 2009 and even more negative in the second quarter (-$119 billion). Although some improvement began in the third quarter of 2009, net private investment remained negative during the third and fourth quarters. For the entire year 2009, the amount of net private investment amounted to a large negative amount (-$69 billion). So, in other words, the value of the private business capital stock fell by that amount. Hardly by coincidence, real GDP also fell substantially in 2009, by 2.6 percent.

In 2010, net private investment increased smartly for three quarters, reaching an annual rate of $270 billion in the third quarter, then contracted sharply – by almost 47 percent – to $144 billion in the fourth quarter. For the entire year, the amount of private net investment was $177 billion. Whether the collapse in the final quarter of 2010 will turn out to have been a fluke or the beginning of a longer-term decline, we shall have to wait to see.

This is from Robert Higgs, “Private Investment Remains in a Deep Ditch,” February 20.

The whole thing (it’s not long) is worth reading. I don’t totally buy Higgs’ idea, stated in the article, that unemployment can’t fall without a big increase in investment because unemployment can be low with any level of investment if wages are flexible enough. Wages are more flexible in the long run than in the short run and would be more flexible than they are if not for the long-term European-style unemployment benefits that Bush Jr. and Obama saddled us with.

In any case, these numbers are scary, with or without wage flexibility. Regime uncertainty, anyone?