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The Source of the Problem Ain’t Inadequate Aggregate Demand

Neal Phenes sent me this item from The Daily Ticker.

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 (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.

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.