It you keep repeating a lie long enough, people eventually start to accept it as truth. So even as the Federal debt hit new record highs and bankrupt entitlement states like Greece collapse, how else to explain the persistent belief among many politicians and policymakers that the American economy's continuing woes stem from a lack of consumption.
It's the modern incarnation of Keynesian economics, the belief that the economy grows as a result of government spending. By putting more money in people's pockets, so the thinking goes, they will spend more and stimulate growth. This approach holds forth that that consumption itself is the source of prosperity.
The falsehood has been repeated innumerable times in recent years under both the Bush and Obama administrations. It has been used as the economic justification for government interventions like Cash for Clunkers (to boost auto sales), homebuyer tax credits (to boost housing prices) and the supposed "shovel ready" stimulus jobs that even President Barack Obama admitted never materialized as hoped.
Yet you hear it over and over again.
As then-House Speaker Nancy Pelosi (D., Calif.) said back as 2008, "Congress is committed to completing action quickly so that we can get money into the hands of families who will spend it to spur American job creation and economic growth."
Just recently Rep. Mike Honda, (D., Calif.), who serves on the House Budget and Appropriations Committee, remarked: "If we invest money into this economy and get cash into people's hands, they'll spend it and once they start spending the money, it starts to circulate through our economy and it'll stimulate the economy."
Creating a job is easy. But as has been evidenced by the still persistently high unemployment rate, despite the record stimulus (read: spending), creating a remunerative job -- one that actually results in the production of new wealth -- is an entirely different matter. Wal-Mart's (WMT)
From food to fashion, the desire and need to consume is a given -- and limitless. Regardless if it's a cup of coffee or a Caribbean vacation, we desire things which improve our lives and happiness.
But before wealth can be consumed, it must be produced. Our very lives depend on the creation of new wealth, not the forced redistribution to homeowners, car companies financial firms or anyone else bureaucrats determine is a "public good".
Either by taxes or inflation, the belief that the economy prospers when government takes from those who produce and gives to those who do not evades the obvious: no wealth is created. It's just transferred from those who've earned it to those who have not, precisely why deficits have skyrocketed under the "consumptionist" approach even as unemployment and GDP growth have barely budged.—Jonathan Hoenig is managing member at Capitaistpig Hedge Fund LLC