U.S. Business: Too Much of a Good Thing?

Private capital investment—the money industry spends for new plant and equipment—is ordinarily welcomed as an economic vitamin pill. At today's record pace, however, there are increasing worries that such outlays may prove more poisonous than profitable.

Two problems worry Washington. First, a capital-goods boom could add seriously to inflationary pressures in an economy already grappling with shortages of skilled labor and investment money. Second, it might produce overcapacity—followed by falling profits, idle men, and perhaps even a recession.

Signs of Strain. Private spending for new plant and equipment rose 15½% last year to a record $51.8 billion. In January, the President's Council of...