Economy
Why aren’t companies speeding up investment? A new theory offers an answer to an economic paradox
David Ikenberry discusses the paradox of slow corporate investment despite record profits and cash reserves. He attributes this to excess capacity and structural economic rigidities, challenging traditional assessments like Tobin’s Q and highlighting the need for understanding demand issues in economic policy.
David Ikenberry, University of Colorado Boulder
For years, I’ve puzzled over a question that seems to defy common sense: If stock markets are hitting records and tech innovation seems endless, why aren’t companies pouring money back into new projects?
Yes, they’re still investing – but the pace of business spending is slower than you’d expect, especially outside of AI.
And if you’ve noticed headlines about sluggish business spending even as corporate profits soar, you’re not alone. It’s a puzzle that’s confounded economists, policymakers and investors for decades. Back in 1975, U.S. public companies reinvested an average of 25 cents for every dollar on their balance sheets. Today, that figure is closer to 12 cents.
In other words, corporate America is flush with cash, but it’s surprisingly stingy about reinvesting in its own future. What happened?
I’m an economist, and my colleague Gustavo Grullon and I recently published a study in the Journal of Finance that turns the field’s conventional wisdom on its head. Our research suggests the issue isn’t cautious executives or jittery markets – it’s about how economists have historically measured companies’ incentives to invest in the first place.
Asking the wrong Q
For decades, economists have relied on a simple but appealing ratio – Tobin’s Q, named after the famous economist James Tobin – to gauge whether companies should ramp up investment.
They calculate this by dividing a company’s market value – what it would take to purchase the firm outright with cash – by its replacement value, or how much it would cost to rebuild the company from scratch. The result is called “Q.” The higher the Q, the theory goes, the more incentive executives have to invest.
But reality hasn’t conformed to fit the theory. Over the past half-century, Tobin’s Q has gone up, yet investment rates have gone down sharply.
Why the disconnect? Our research points to one key culprit: excess capacity. Many U.S. companies already have more factories, machines or service capability than they can use. By not correcting for this issue, the traditional Tobin’s Q will overstate the incentive that companies have to grow.
To see this, consider a commercial real estate company that owns a portfolio of office buildings. In recent years, with the rise of e-commerce and remote work, many of their properties have been running well below capacity. Now suppose a few new tenants start paying rent and begin absorbing a portion of that empty space. Stock prices will rise in response to seeing these new cash flows, which in turn will lead Q to rise.
Traditionally, this increase in Q would suggest that it’s a good time to invest in new buildings – but the reality is quite different with idle capacity still in the system. Why pour money into building another office tower if existing ones still have empty floors?
This key idea is that what matters isn’t the average value of all assets – it’s the marginal value of adding one more dollar of investment. And because capacity utilization has been steadily eroding over the past half-century, many firms see little reason to invest.
That last point may come as a surprise, but the U.S. economy, with all its factories and offices, isn’t nearly as abuzz with activity as it was after, say, World War II. Today, many sectors operate well below full throttle. This growing slack in the system over time helps explain why companies have pulled back on their rate of investment, even as profits and market values climb.
Why has capacity utilization fallen so much over the past half-century? It’s not entirely clear, but what economists call “structural economic rigidities” – things such as regulatory hurdles, labor market frictions or shifts in cost structure – seem to be part of the answer. These factors can drag businesses into a state of chronic underuse, especially after recessions.
Why it matters
This isn’t just an academic debate. The implications are profound, whether you closely follow Wall Street or just enjoy armchair economic policy debates. For one thing, this dynamic might help explain why tax cuts haven’t spurred investment the way supporters have hoped.
Take the 2017 Tax Cuts and Jobs Act, which slashed the top corporate tax rate from 35% to 21% and introduced full expensing for equipment investments. Supporters promised a wave of new investment.
But when my colleague and I looked at the numbers, we found the opposite. In the four years before the tax cuts, publicly traded U.S. firms had an aggregate investment rate, including intangibles, of 13.9%. In the four years after the tax cut, the average investment rate fell to 12.4% – in other words, no evidence of a bump.
Where did those liberated cash flows go? Instead of plowing this newfound cash after the tax cuts into new projects, many companies funneled it into stock buybacks and dividends.
In retrospect, this makes sense. If a company has excess capacity, the incentive to invest should be more muted, even if new machines are suddenly cheaper thanks to tax breaks. If the demand isn’t there, why buy them?
Even with the most generous tax incentives, the core challenge remains: You can’t force-feed investment into an economy already swimming in excess capacity. If companies don’t see real, scalable demand, tax breaks alone aren’t likely to unlock a new era of business spending.
That doesn’t mean tax policy doesn’t matter – it does, especially for smaller firms with real growth prospects. But for the large, well-established firms that make up the lion’s share of the economy, the bigger challenge is demand. Rather than trying to stimulate even more investment, policymakers should prioritize understanding why demand is sagging relative to supply and reducing economic rigidities where they can. That way, the capacity generated by new investment has somewhere useful to go.
David Ikenberry, Professor of Finance, Leeds School of Business, University of Colorado Boulder
This article is republished from The Conversation under a Creative Commons license. Read the original article.
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Last Updated on September 17, 2026 by Daily News Staff
HOLLYWOOD, Calif. — Paramount’s century-long connection to Hollywood could be facing one of its biggest challenges yet, as the entertainment giant reportedly prepares for the possibility of moving major operations out of California amid an escalating legal battle over its proposed acquisition of Warner Bros. Discovery.
Paramount has informed the offices of Los Angeles Mayor Karen Bass and California Attorney General Rob Bonta that it is prepared to formally announce plans to leave California, according to reporting Wednesday from TheWrap. Paramount has not formally announced a relocation, and a company spokesperson declined to comment to the publication.
The potential move centers on Paramount Skydance’s proposed approximately $110 billion acquisition of Warner Bros. Discovery, a deal being challenged on antitrust grounds by California and a coalition of 11 other states, along with a separate challenge from the Writers Guild of America. California Attorney General Rob Bonta argues that combining the two entertainment companies could reduce competition, potentially leading to higher prices and fewer choices for consumers.
A court agreement currently prevents Paramount and Warner Bros. Discovery from completing the merger until June 1, 2027, or until after a court decision on the states’ claims, whichever comes first. The antitrust case is scheduled for trial in March 2027.
Paramount’s Hollywood Future
At the center of the controversy is Paramount’s historic studio complex at 5555 Melrose Avenue in Hollywood, one of the entertainment industry’s most recognizable properties.
The Los Angeles Times reported that Paramount CEO David Ellison has told associates that he would prefer to remain in Los Angeles. However, Paramount’s board has reportedly approved a contingency plan that could move the company’s headquarters out of Hollywood, and Ellison has indicated that the company is prepared to sell its historic studio properties and relocate operations if the merger remains stalled.
Tennessee, Texas and Georgia have emerged in reports as potential destinations should Paramount ultimately decide to relocate.
The financial pressure is significant. Beginning October 1, Paramount faces a roughly $7 million-per-day additional payment obligation tied to delays in completing the Warner Bros. Discovery transaction. Paramount has asked the federal court to require the states and the Writers Guild of America to post a $1.88 billion bond to cover potential costs associated with the delay.
What’s at Stake for Los Angeles?
A Paramount departure could extend far beyond the loss of a famous Hollywood address.
An economic analysis cited by TheWrap estimates that a large-scale Paramount departure could put as many as 57,980 full-time jobs, $21.2 billion in annual economic output and approximately $1.17 billion in state and local tax revenue at risk. Those figures represent an economic-impact scenario rather than a prediction that all of those losses would necessarily occur.
There are competing concerns about the merger itself. Los Angeles County analysis has estimated that completing the Paramount-Warner Bros. combination could also eliminate thousands of entertainment and related jobs because of consolidation. Opponents of the merger, including entertainment unions, have raised concerns about reduced competition and employment, while supporters argue that reaching a settlement could help prevent Paramount from moving operations out of California.
Mayor Bass has said she remains focused on protecting Los Angeles entertainment jobs and keeping Hollywood’s entertainment industry centered in the city. Bonta’s office, meanwhile, has maintained that California will continue enforcing its antitrust laws while remaining open to good-faith discussions. There is still an opportunity for the dispute to be resolved before Paramount makes a final decision about its California operations. Paramount Skydance and representatives for California Attorney General Rob Bonta are scheduled to participate in court-ordered settlement talks on October 14 and 15. The discussions could potentially resolve the antitrust dispute and clear a path for Paramount’s proposed Warner Bros. Discovery acquisition. For now, Paramount has made no official announcement that it is leaving California. The company declined to comment on reports Wednesday that it was preparing to announce a departure. That leaves the future of Paramount’s Hollywood operations — including its historic Melrose Avenue studio — uncertain as the legal and financial pressure surrounding the merger continues to build. Settlement Talks Scheduled
For now, the gates at Paramount remain firmly planted on Melrose Avenue.
Settlement Talks Scheduled
There is still an opportunity for the dispute to be resolved before Paramount makes a final decision about its California operations.
Paramount Skydance and representatives for California Attorney General Rob Bonta are scheduled to participate in court-ordered settlement talks on October 14 and 15. The discussions could potentially resolve the antitrust dispute and clear a path for Paramount’s proposed Warner Bros. Discovery acquisition.
For now, Paramount has made no official announcement that it is leaving California. The company declined to comment on reports Wednesday that it was preparing to announce a departure.
That leaves the future of Paramount’s Hollywood operations — including its historic Melrose Avenue studio — uncertain as the legal and financial pressure surrounding the merger continues to build.uilding around the Warner Bros. Discovery deal, the question of whether one of Hollywood’s most historic studios will continue calling California home has moved from speculation to a potentially consequential decision for Los Angeles and its entertainment industry.
STM Daily News will continue monitoring the Paramount-Warner Bros. Discovery dispute and what it could mean for Hollywood, entertainment workers and the future of film and television production in California.
Source and Related Reading
- California Attorney General — Agreement Halting Paramount/Warner Bros. Merger — Primary source explaining the states’ antitrust challenge and agreement delaying completion of the merger.
- Los Angeles Times — Paramount and Bonta Ordered Into Settlement Talks — Reports the October 14–15 settlement meetings and current state of the dispute.
- Los Angeles Times — Paramount’s Possible Hollywood Exit — Detailed reporting on the relocation contingency, potential destinations and implications for Los Angeles.
- Reuters — DOJ Backs Bond Demand in Paramount-Warner Fight — Covers the $1.88 billion bond dispute, $7 million daily fee and March trial.
- TheWrap — Paramount Preps California Exit — Reports the latest developments surrounding Paramount’s potential departure.
(Feature Impact) Every year, approximately 200,000 service men and women transition from military life to corporate America. Finding the right civilian career is a transition, but it’s an opportunity to leverage military leadership and mission-driven talent.
Traditional hiring processes often focus on conventional resumes, but forward-thinking organizations recognize military experience as a competitive advantage in today’s workforce. The resilience, integrity and adaptability of America’s veterans and military families make them uniquely positioned to drive growth and innovation in their communities.
“Veterans bring unmatched discipline, adaptability and a results-driven mindset that directly translates to high-impact corporate careers,” said Drew Matheson, senior director at Capital One’s Commercial Bank and retired U.S. Army infantry officer. “While military experience doesn’t always fit perfectly on a traditional paper resume, employers like Capital One who know how to decode these unique leadership skills are able to unlock an incredible pipeline of proven performers.”
To help transitioning service members successfully navigate this career pivot, military community leaders at Capital One offer these five essential tips for service members entering the civilian workforce:
Start With What You’ve Already Earned
Opportunity starts with preparation. Beyond the well-known Post-9/11 GI Bill, which can cover tuition, housing and books, transitioning service members can look into vocational rehab or the SkillBridge program, which allows them to do civilian internships during the last 180 days of service. Many employers also offer internal tuition reimbursement programs. Taking the time to proactively map out these benefits ensures you aren’t leaving valuable opportunities or money on the table.
Find Employers with Veteran Support Structures
With almost half of veterans leaving their first post-military job within a year, according to research published by the Institute for Veterans and Military Families and VetAdvisor, finding the right culture and community is key to a successful transition. Look for employers with active veteran networks and dedicated mentorship.
For example, Capital One’s Salute Business Resource Group serves as a thriving internal community of more than 6,000 members, offering peer support, year-round professional development and mentorship for veterans, reservists and military spouses. Additionally, partner organizations like Hiring Our Heroes provide career workshops, fellowships and job fairs to ensure you’re employment-ready from day one.
Lean Into and Translate Your Soft Skills
Veterans bring a distinct competitive advantage to the applicant pool. You should confidently lean into the cross-functional “soft skills” learned in the line of duty such as risk management, crisis resolution and building trust under high-pressure scenarios.
The trick is translating these capabilities out of military jargon on your resume. Swap military terms like “NCOIC” for “Operations Manager” or “commanded” for “directed.” To make this easier, look for military-friendly employers that employ dedicated military recruiters who specialize in decoding military resumes to align skills with the right roles.
Prioritize Support for the Whole Family
Military service is a family commitment, and the transition out of uniform affects everyone. Military spouses often face unique career hurdles, including frequent relocations and employment gaps. When evaluating employers, look for companies that offer holistic benefits and flexible structures.
For example, Capital One, recognized by “U.S. Veterans Magazine” as a Top Veteran Employer and Top Military Spouse Employer, actively supports military spouses and families through dedicated spouse hiring initiatives and internal support mechanisms. Furthermore, look for organizations that support continued military training and active-duty leave, ensuring military associates never have to choose between their service and their careers.
Build Your Civilian Network Early
In the military, your network is built in. In the civilian world, you have to cultivate it. Long before your terminal leave begins, connect with veterans who work at companies you admire. Reach out for brief, 15-minute informational interviews to learn about their transition journeys rather than simply asking for a job. With more than 70% of civilian jobs filled through networking, according to estimates from Career Horizons, making organic connections early is a powerful tool for getting your foot in the door.
To find additional resources and learn more about how to support the hiring of veterans and military spouses, visit CapitalOneCareers.com/Military.
Photo courtesy of Shutterstock
SOURCE:
Economy
U.S. Consumer Confidence Slips as Americans Grow More Cautious About the Future
U.S. consumer confidence edged lower in August as Americans became more pessimistic about jobs, income and business conditions over the next six months, despite improved views of the current economy.
NEW YORK — U.S. consumer confidence edged lower in August as Americans expressed greater concern about future business conditions, jobs and household income, even as their assessment of the current economy improved.
The Conference Board reported that its Consumer Confidence Index fell 0.8 points to 89.4 in August, down from 90.2 in July.
The relatively small decline, however, masks a widening gap between how consumers view conditions today and what they expect in the months ahead.
The Present Situation Index, which measures consumers’ assessment of current business and labor market conditions, climbed 6.8 points to 121.2, reversing three consecutive months of declines.
Meanwhile, the Expectations Index, which measures the short-term outlook for income, business and employment conditions, dropped 5.8 points to 68.2.
“Consumer confidence moderated slightly in August for a second consecutive month,” Dana M. Peterson, chief economist at The Conference Board, said in the organization’s Aug. 25 release.
Jobs Look Better Today — But Consumers Worry About Tomorrow
Americans’ perceptions of the current labor market improved considerably during August. About 27% said jobs were plentiful, up from 24.4% in July, while 19.5% said jobs were hard to get, down from 21.7%.
The outlook for the next six months was considerably weaker.
Only 14.6% expected more jobs to become available, compared with 16.4% in July. At the same time, 26.1% expected fewer jobs.
Consumers were also less optimistic about their incomes. About 17.6% expected their income to increase, down from 19.5% in July, while 13.8% expected their income to decline.
Prices Remain on Consumers’ Minds
Inflation continues to influence how Americans feel about the economy. According to The Conference Board, consumers’ written responses frequently mentioned prices, oil and gasoline, food and groceries, trade, jobs, and war or conflict.
Average and median expectations for inflation over the next 12 months also increased slightly.
Interest rates remain another concern. More than six in 10 consumers — 61.3% — expected interest rates to rise over the next year, although that was slightly lower than the 62% recorded in July.
Consumers Are Still Planning to Spend
The softer outlook hasn’t eliminated Americans’ willingness to make purchases.
Auto-buying expectations remained strong on a six-month moving-average basis, while homebuying expectations declined slightly in August but remained on a longer-term upward trend after hitting decade lows in early 2024.
Restaurants, bars and takeout; utilities; and streaming, internet and mobile services ranked among consumers’ leading planned service expenses.
Consumers were less enthusiastic about discretionary activities including movies, personal-travel hotels, airfare, amusement parks, museums and historical sites.
Why It Matters
The August numbers paint a mixed picture of the American consumer.
People are seeing some improvement in the economy they are experiencing today, particularly in the labor market. But their expectations for the next six months are becoming noticeably more cautious.
That divide matters because consumer spending represents a major part of U.S. economic activity. If concerns about employment, inflation and household income begin translating into reduced spending, weakening confidence could eventually become more significant for the broader economy.
For now, the August survey suggests Americans haven’t stopped spending — but they’re increasingly keeping an eye on what may be coming next.
The preliminary August Consumer Confidence Survey was conducted online for The Conference Board by Toluna. The survey period was Aug. 3–16, 2026.
Source: The Conference Board, August 2026 Consumer Confidence Survey®, released Aug. 25, 2026.
STM Daily News Economy News Brief
Sources
- The Conference Board — U.S. Consumer Confidence, August 2026 — Primary source for the August Consumer Confidence Index, Present Situation Index and Expectations Index.
- The Conference Board — Consumer Confidence Survey & Data — Consumer confidence survey information, methodology and release schedule.
Related Economic Data
- Bureau of Economic Analysis — Consumer Spending — Official U.S. data tracking personal consumption expenditures. Consumer spending increased 0.2% in July 2026.
- BEA — Personal Income and Outlays, July 2026 — Tracks household income, disposable income, consumer spending and saving.
- Bureau of Labor Statistics — Consumer Price Index — Official inflation data. The July 2026 CPI was up 3.4% from a year earlier; August CPI is scheduled for release September 11.
- Federal Reserve — Consumer Credit — Federal Reserve data covering revolving and nonrevolving consumer credit.
