Thursday, October 07, 2010

Stimulate Consumer Spending? Why?

In an excellent article in the Sacramento Bee, Robert Higgs discusses some interesting facts about spending in the economy. We are told by politicians that we need to stimulate consumer spending so the economy can get back on track. Yet, according to data presented by Higgs, consumer spending during the downturn actually increased and is currently at 71% of GDP. However, investment spending fell some 36% from a peak in 2006 and has yet to recover. From the article:
When private domestic investment last peaked, in the first quarter (January-March) of 2006, it was nearly $2.3 trillion (in dollars of 2005 purchasing power), or 17.5 percent of GDP. When it hit bottom in the second quarter of 2009, it had fallen by 36 percent to $1.45 trillion, or 11.3 percent of GDP. It is still far below the 2006 peak. By contrast, in the second quarter of this year, personal consumption was actually at an all-time high, at nearly $9.3 trillion (in 2005 inflation-adjusted dollars). If stimulating consumption were the key to an economic recovery, we would have achieved one already.
Investment is crucial to growing an economy and it is lagging. Consumer spending, while important, is already at an all-time high. But what do our brilliant solons keep pushing? More consumer stimulus. What else are they pushing? Higher taxes on investment. At the same time they wonder why the economy isn't performing better. It's far past the time to send these idiots packing.