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Vulgar Keynesianism on Steroids

Here’s a letter to the New York Times:

James Livingston rightly proclaims “the moral worth of consumer culture” and correctly notes the trivial fact that increased savings do not automatically result in increased and widespread prosperity (“It’s Consumer Spending, Stupid,” Oct. 26).  These points, however, are inadequate to support his conclusion that economic growth is driven overwhelmingly by consumer and government spending, and that “[p]rivate investment isn’t even necessary to promote growth.”

Such an astounding conclusion requires a potent argument.  But Prof. Livingston delivers only a storm of feeble anecdotes, post-hoc fallacies, and non sequiturs.

An example of the latter is his observation that “Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent.  Meanwhile, net business investment declined 70 percent as a share of G.D.P.”  Yep.  But this fact does not remotely mean that “net business investment atrophied” or that it plays no crucial role in economic growth.

Because each dollar successfully invested raises G.D.P. by multiple dollars, net-investment’s decline as a share of rising G.D.P. (and not, please note, absolutely) is evidence of the impressive success of private investment rather than of the proposition that economic growth requires only “[c]onsumer debt and government spending.”

Donald J. Boudreaux