Gerard Jackson on Obama's Stimulus

Like it or not, to get a fairly good grip on why the Democrats' stimulus package and Obama's deep rooted hostility to tax cuts are so damaging one needs to get some understanding of the fallacious thinking being used by some economists to justify this so-called economic program. It is based on the assumption that the US is a two-stage economy. There is a production stage and a consumption stage. It logically follows from this view that the maintenance and supply of capital would depend entirely on consumer demand. It also follows that the case for consumer spending to promote economic recovery rests on the equally fallacious belief that recessions are produced by underconsumption.

However, we in a world of multiple stages of production. It can be no other way except under the most primitive economic conditions, the kind that would prevail among stone-age nomads who live a precarious existence on a day-to-day basis. The logic is therefore ineluctable: any policy that reduces spending between the stages of production by redirecting it to consumption will prolong a recession. Under these conditions one would find that consumer spending would rise relative to total business spending and that unemployment in the higher stages of production would also rise relative to those stages of production close to the point of consumption. This is precisely what happened during the disastrous Roosevelt administration.

America will pay a heavy price for Obama's economic illiteracy