Why Are Corporations Holding Trillions In Cash?

Tyler Cowen has two answers to this question.  One answer suggests that they are converting their cash into securities and bank deposits that should funnel its way into productive uses.  The other is that perhaps there is a scarcity of good investment opportunities.  His first response is often used by defenders of Say's law which Krugman attacks in the post below.  His second response raises a question about the lack of product demand that restricts investment in additional capacity.  Corporations have excess cash because corporate profits have risen due to lower labor costs.  That leads to falling demand for their products.  In other words, Tyler Cowen has an incomplete picture of the macro economy that explains his "confusion". 

Larry Summers offers a complementary explanation for corporate cash holdings.  He believes that corporations anticipate a change in the tax code that will allow them to repatriate profits from their international subsidiaries at a reduced rate.  Under the current tax code their international profits would be taxed at the US corporate tax rate if they were brought back to the US for investment in the domestic economy.  Summers argues that government ought to make a decision one way or the other so that corporations can make a rational decision about how to deploy their international cash.