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Current debate on economic stimulus plans is flawed as Americans are already spending too much!

Current debate on economic stimulus plans is flawed as Americans are already spending too much!

The argument over whether it is the President’s tax cut package or the alternative
proposed by congressional democrats, which does more to stimulate consumer
spending, misses the fundamental economic concept that it is production not
consumption that grows an economy. What so many modern economist fail to understand
is that the only true way that a society can increase consumption is to first
increase production. Increased production must be proceeded by capital accumulation,
which must be financed though savings. It is under-consumption that frees up
the necessary scarce resources that makes capital formation possible.

Jean-Bapsiste Say, a 19th Century French economist, wrote over 200 years ago “Encouragement
of consumption is no benefit to commerce, for the difficulty lies in supplying
the means, not in stimulating the desire of consumption; and we have seen that
production alone furnishes those means. Thus, it is the aim of good government
to stimulate production, of bad government to encourage consumption.”

Ironically, the real problem with the U.S. economy is too much consumption
and not enough production. How can anyone say that with record home and auto
sales, and with a mountain of consumer debt, that Americans are not spending
enough? One need only look at the massive merchandise trade deficit to see
that the real problem is that we are not producing enough! Any economic plan
aimed at stimulating even more consumption will not grow the economy but the
trade deficit, as Americans spend more money on imported productions, and the
budget deficit, as the tax cuts funding this consumption are not accompanied
by spending cuts. The increase in these twin deficits will actually hurt long-term
economic growth, and will ultimately result in less not more consumer spending.

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