As the economy slows and flirts with recession, overexuberant investment looms as one threat to prosperity. Already, it helps explain the carnage among technology stocks. There's no obvious reason that companies can't invest too much in high-tech boxes just as they've historically overinvested in office buildings or commercial jets. The dot-com debacle may simply portend a bigger problem. Overinvestment depresses profits.
Retrenchment follows as spending is cut until surplus supply is absorbed and profitability restored.
Let's examine some numbers. Between 1995 and 1999, business-equipment investment increased about 65 percent. Three-quarters of the increase occurred in high technology. Everyone knows about computers. The sleeping giant is communications.