Consumer Sovereignty Is A Problem For Government "Stimulus" Plans

It’s a new year and that means we are in for another year of the same rehashed political partisanship disguised as sound economic analysis. The latest rehash is that the US economy is still experiencing the worst post-recession recovery in the nation’s history (a story that’s rehashed year after year) and, as usual, the old saws are dusted off and trucked out as explanations. The usual explanations come in the form of the “savings glut” and the “demand deficit” and the answer is usually increasing spending somewhere and that somewhere is entirely dependent on the policy pronouncement’s partisan leanings. In other words, it’s the job of the government to rush to the rescue, stimulate the economy and make up for the lack of aggregate demand, or the Keynesian policy pronouncement that government should go into debt to make up for the lack of consumption by the consumers on the market.

Of course, if any of this actually worked, the US would be on a rather stable path already since, despite the arguments, government spending and debt has soared significantly in the wake of the 2007 financial crash. To put it into context, the increase in annual US Federal (not to mention State level) government spending since the end of the recession is roughly equal to the entire annual output of Canada and is greater than the economic output of all but nine nations. And that’s just the spending increase. The total spending puts US government entities if calculated as its own country, #4 on the GDP list, a DoD budget increase away from surpassing Japan.

Given this immense level of spending, how come the recovery is still considered to be relatively poor? The problem is that the entire philosophy of government stimulus; be it interest rate manipulations or direct subsidy and spending, runs into a harsh truth. And that harsh truth is what Mises referred to as consumer sovereignty.

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