The composition of that change is critical. Consumer spending increased 2.2% while business investment plunged 38%.
It is one of the Big Lies in the popular understanding of economics that consumer spending is the key driver of the economy. Instead, business spending is, exhibiting much greater volatility.
The key driver of business spending is corporations' and small business owners' assessment of whether they can earn an attractive return in the future, after-tax and after-inflation.
The government's recent assault on business through higher taxes, modifying contracts, the prospect of national health care, and applying political pressure has led businesses to fear they can't make long-term plans and expect to make a profit without the risk of government intervention and confiscation.
In effect, earning an attractive return, after-tax and after-inflation, is much harder for businesses to envision in light of these policies.
The implication: economic recovery will take longer, and growth will be slower, than if the government had enacted different policies that were consistent with the free market.
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