The natural rate of return on capital obviously varies for different businesses in different locations. The problem is clearly that for many businesses in many places that rate of return is beneath the astonishingly low market interest rates. This stifles growth.
Of course to many, this is all financial market shenanigans played out by rich people in pinstriped suits. The actual effects of this read into labor markets, for if the return to capital investment is too low to stimulate borrowing, then hiring will also be stagnant. That is where we now are.
The Fed’s slowdown of monetary stimulus was too small to have any real negative effect, and that is why Wall Street is untroubled and stocks fly high. Clearly 2014 is going to be a long, slow year for our economy.
Michael J. Hicks, Ph.D., is director of the Center for Business and Economic Research and a professor of economics at Ball State University. Contact him at email@example.com.