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The Source of the Problem Ain’t Inadequate Aggregate Demand

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Neal Phenes sent me this item from The Daily Ticker [2].

Mr. Task and his interviewees should check the data before concluding that the problem with today’s economy is inadequate demand – that is, before concluding that what today’s economy needs above all is “demand stimulation.”

Inflation-adjusted personal consumption expenditures in the U.S. today are higher than they were in the third quarter of 2007 [3] (the quarter before the recession began).  True, these expenditures are only about one-percent above their pre-recession level, but higher they nevertheless are – a fact that requires some twisting of Keynesian dogma in order to continue making a case for more government ‘stimulus’ spending.

The problem isn’t that consumers aren’t spending; it’s that businesses aren’t investing.  And businesses aren’t investing because Congress and, especially, the administration exhibit a ceaseless fetish for top-down, command-and-control, debt-financed ‘governance’ of the economy – an enterprise-quashing recipe made only more poisonous by Mr. Obama’s soak-the-rich speechifying.


Relatedly, see Michael Boskin’s fine essay in today’s Wall Street Journal [4].

UPDATE: I’ve updated the title of the post to better reflect my intended meaning – which was never that aggregate demand is today at its full-employment level.  Rather, my meaning was, and is, that the originating problem – the cause of our woes – isn’t inadequate aggregate demand but, rather, whatever is causing business investment (and, hence, aggregate demand) to be too low.  Failure of households today to spend seems an unlikely candidate.