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The Source of the Problem Ain’t Inadequate Aggregate Demand

Posted By Don Boudreaux On September 8, 2011 @ 11:49 am In Country Problems,Data,Inventive intervention,Myths and Fallacies,Regulation,The Economy | Comments Disabled

Neal Phenes sent me this item from The Daily Ticker [1].

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 [2] (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 [3].

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.

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URLs in this post:

[1] this item from The Daily Ticker: http://finance.yahoo.com/blogs/daily-ticker/memo-washington-gridlock-not-good-small-businesses-150219163.html

[2] Inflation-adjusted personal consumption expenditures in the U.S. today are higher than they were in the third quarter of 2007: http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=58&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=2007&LastYear=2011&3Place=N&Update=Update&JavaBox=no#Mid

[3] Michael Boskin’s fine essay in today’s Wall Street Journal: http://online.wsj.com/article/SB10001424053111904583204576544712358583844.html?mod=WSJ_Opinion_LEADTop

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