As Professor Ruccio observes, investment is responsive to the profit rate. It seems to me that it's not so much that capital is "on strike" as much as the profit rate has fallen because of an economic contraction resulting from the financial crisis and debt overhang, along with firms attempting to increase their profit rate, e.g., by downsizing and offshoring.
New money enters the economy in only two ways — either non-government borrows creating deposits (M1) or government spends, creating deposits (M1). Credits to M1 deposit accounts are saving created by money creation that becomes available for spending on either new investment or consumption to the degree it is not saved, including financial investment, or used to retire outstanding debt.
BTW, the amount credited to deposit accounts is saved within the banking system as a whole or as cash in circulation until the bank loan that created the deposit is repayed or the tax credit created by government spending is destroyed through being used to meet a tax obligation.
The problem is effective demand. The capacity to supply exceeds the appetite to buy based on income as the ability to repay debts incurred that create new money. The options are then either drawing down savings or selling assets.
Fiscal austerity has exacerbated the problem since when non-government is reluctant to borrow, if government does not make up the difference between output capacity and purchase of output, then either unplanned inventory will build up, which cannot go on for long, or firms will idle capacity, the economy as whole will underperform, firms will not invest in hiring, inventory, or new capital goods.
Reducing wages to spur investment is a fool's errand since this just reduces purchasing power of consumers, and the US economy, for example is made up of about 70% consumption and 30% investment.
The solution? Government putting purchasing power in the pockets of those most likely to consume promptly rather than to save, including paying down outstanding debt. This means providing enough stimulus to reduce the debt backlog sufficiently to stimulate new spending.
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David F. Ruccio | Professor of Economics, University of Notre Dame