Author: Jonathan McCarthy

Business investment in equipment surged in the 1990s, then fell back sharply after mid-2000. A popular explanation of these trends holds that the soaring stock market and declining computer prices of the last decade encouraged excess investment, setting the stage for the retrenchment that followed. Yet an analysis of the factors underlying investment suggests that capital spending patterns in the late 1990s would have been quite similar had stock values and equipment prices remained near their recent historical averages.