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Consumption has recovered, jobs will follow

As a supply-sider, I don't believe that consumption drives economic growth. The driver of growth is supply, and supply goes up when people work more, when the factors of production become more productive, when investment goes up, and when risk-taking goes up. I show this chart of real personal consumption expenditures merely to show that what has happened in the economy over the past year is typical of every business cycle recovery. With almost all economic indicators confirming a decent recovery, with productivity up strongly, with business capital spending up strongly, with risk appetites increasing (e.g., the 60% rebound in the S&P 500 and the dramatic narrowing of credit spreads) and with consumption up as well, it is only a matter of time before we see an increase in the number of jobs. Jobs are the last place that a recovery will show up.

Things could have been a lot better, unfortunately, if it weren't for all the government "stimulus" spending. The bulk of that spending consisted of transfer payments which, because they take money from one person and give it to another, do nothing to create new growth. And the massive deficit that resulted from all the "stimulus" spending has sopped up a huge portion of the economy's savings that could have been directed to truly productive activities instead.

The recovery skeptics keep insisting that the economy is on "stimulus life support," and that any move to cut back on fiscal or monetary stimulus would threaten a double-dip recession. I don't believe it for one second. On the contrary, I keep insisting that the economy is recovering despite the government's best efforts to suppress growth. It never pays to underestimate the strength and dynamism of the U.S. economy.

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