Robert Higgs published a thoughtful essay a few days ago in the Sacramento Bee. Higgs reminds us of a basic economic lesson that Obama has yet to learn: consumptive spending is not nearly as stimulative as investment spending. Higgs rightly cites a sharp decline in private investment as the reason for the economic downturn. Obama is compounding this cycle by perpetuating a feeling of uneasiness and uncertainty with his plans to raise taxes and regulations on business owners. And with Congress promoting only band-aid stimulus projects as the cure for the economy, we will unfortunately continue to have a long road ahead. Higgs writes,
If politicians truly wish to promote genuine, sustainable recovery and long-term economic growth, they should focus on actions that will contribute to a revival of private investment, not on pumping up consumption. In the most recent quarter, gross private domestic investment was still running at an annual rate more than 20 percent below its previous peak. Net private investment was fully two-thirds below the previous peak.
To bring about this essential revival of investment, the government needs to put an end to actions that threaten investors’ returns or create uncertainty that paralyzes the undertaking of new long-term projects.
Well said. The article in its entirety is a great read.
Read more: http://www.sacbee.com/2010/10/01/3071526/why-stimulus-doesnt-stimulate.html#ixzz11dc1RJCF