The Economist asks “What explains the rise in corporate thrift?” I think the question needs to be more carefully defined. To what degree is the “rise in corporate thrift” driven by the hoarding of cash and to what degree by an effort to reduce the overwhelming burden of debt? When firms are observed “hoarding cash”, is this a reflection of a movement of their financial investment portfolios into cash or a genuine decision to reduce internal investment? Sharpening the question via a more careful breakdown of firm behavior would improve the quality of the discussion.
Another factor that needs to be considered is whether we are talking about the decline in corporate investment over the last decade or so or the more recent jump in corporate savings. While the Economist is clearly addressing the recent rise in corporate savings due to the crisis, Yves Smith and Rob Parenteau have an op-ed in the NYT that looks at longer term trends in corporate investment. Their thesis that “incentives for both managers and investors now favor myopia and speculation, undermining the very operation of capitalism” merits further analysis.