When such a “capital overhang” emerges, new investment spending tends to be curtailed for a while. Indeed, in 2001 and 2002, real outlays for equipment and software fell at an annual rate of nearly 6 percent. Determining whether a capital overhang exists is difficult, and estimates of the size of overhangs are subject to considerable error.
First, capital stocks are hard to measure; although we know the amount of new capital goods purchased, we can only roughly estimate the rate of economic depreciation and obsolescence. Consequently, we cannot know with certainty the level of the existing capital that is still available to be used.