Some Reflections on Capital Requirements for 1980
Abstract
It seems a bit ironic that in the Bicentennial year of this country's history a session of the American Economic Association should concern itself with the problem of shortage, for surely this must have been a subject of discussion by colonial economists two hundred years ago. Yet clearly capital have not been a chronic problem of the U. S. economy, and most of us view this as a problem of more recent vintage. However, some of you may remember that almost twenty-five years ago Wassily Leontief (1953) stressed that the net impact of our foreign trade was to import and to export labor. He went on to argue further that because of the high productivity of U.S. labor relative to other countries, rather than labor was our relatively scarce resource. At the time of Leontief's original work this finding was considered a paradox and many individuals, including myself, were critical of his findings, either on theoretical or empirical grounds. Yet today his contention that labor is our relatively abundant resource and that is our scarce resource is regarded by some as an appropriate description of the economic scene. If I were to interpret today's assignment as an attempt to answer the questionWill there be a shortage? -my answer would have to be a simple No, for we are all aware that investment always equals saving and that in a free market economy there can be no real shortages of a reproducible good. Of course, I might 'also want to point out that while, in theory, such a disequilibrium could not persist, at least in the long run, in reality, institutional constraints and distortions do present obstacles to an automatic adjustment to an optimal level of formation. My talk today, however, will not discuss such issues but will concentrate on such questions as: 1) What level of fixed nonresidential investment is consistent with our pronounced long-run national objectives of full employment, increasing productivity, environmental cleanup and a drive towards energy conservation and decreasing dependence on foreign sources of petroleum? 2) How does one go about estimating these investment requirements within a consistent GNP framework? and 3) How sensitive are the estimates to the various steps of the procedures employed? The general methodology employed by the Bureau of Economic Analysis (BEA) in its requirements study was a combination of a macroeconometric forecasting model and a detailed input-output model. Such an approach was used because it was believed that building up the aggregate from detailed industry estimates would not only yield a better total, but would also permit one to see what was going on, that is, to separate out the various factors that contribute to total requirements by business: expansion, replacement, environmental cleanup and the drive towards energy conservation and self-sufficiency. The broad steps required for such an approach were as follows: 1) projecting GNP and its major components to 1980; 2) translating these aggregate GNP projections into detailed industry bills of goods; 3) deriving the Gross Domestic Output requirements by industry associated with this set of final demands (through the use of a projected input-output inverse matrix); 4) estimating the gross stock needed to produce the projected industry outputs (by multiplying the projected industry out*Associate Director for National Analysis and Projections, Bureau of Economic Analysis, U.S. Department of Commerce.
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