3. Why is business investment so weak? Part of the reason is that the downturn is severe and investment responds to the overall economy. Part of the reason is that the credit crunch makes financing more difficult. Part of the reason is that the policy environment seems adverse to business. I am referring here to a group of policies that include higher minimum wages, the seeming retreat from free trade, proposed mandates to provide employees health insurance, higher prospective energy costs from climate change regulation, and the likelihood of higher future tax rates resulting from the huge fiscal imbalance we are now experiencing. All of these factors have worked in concert to depress business investment.
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