President Obama has asked Congress for an additional $50 billion in “stimulus” money to finance infrastructure projects. The theory is that the additional spending will cause businesses to boost production to meet this demand. Producers will add jobs, triggering increases in consumer spending that will ripple through the economy and fuel a stronger overall recovery.

Unfortunately, however, such government pump-priming hasn’t worked in the past, and there’s no reason to believe it will work now.

Sure, consumer spending accounts for approximately 70 percent of America’s gross domestic product, and increases in consumer spending would provide the economy with an immediate boost. But a drop in consumer spending is not what ails the economy. In fact, as a percentage of GDP, consumer spending actually increased during the downturn, the Commerce Department’s Bureau of Economic Analysis reports—from approximately 69.2 percent of GDP in the fourth quarter (October-December) of 2007 to approximately 71 percent of GDP in the April-June quarter of 2009.

So the conventional wisdom—that a sharp decline in consumer spending caused the economy’s downturn—is wrong.

What did cause the downturn? The answer is: a sharp decline in private investment.

In fact, the ups and downs of the business cycle are always driven by investment spending, not by consumption spending.

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From the Associated Press:

The employment picture is looking bleaker as applications for jobless benefits rose last week to the highest level in almost six months.

It’s a sign that hiring is weak and employers are still cutting their staffs.

First-time claims for jobless benefits edged up by 2,000 to a seasonally adjusted 484,000, the Labor Department said Thursday. Analysts had expected a drop. That’s the highest total since February.

Initial claims have now risen in three of the last four weeks and are close to their high point for the year of 490,000, reached in late January. The four-week average, which smooths volatility, soared by 14,250 to 473,500, also the highest since late February.

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As the saying goes, this would be funny, if it was not so serious.  As each day of the Obama Administration wears on, the disconnect between reality and the Administration, between America and Washington, just keeps growing.  Consider these examples among many:

The Bank Bill:  Does it bother anyone that the same Congress that is giving us $1.5 trillion deficits as far as the eye can see is writing a 2000 page bill telling banks how to balance their books?  Unfortunately, by almost all accounts but Congress’ – this bill will make lending more difficult, and therefore prolong our recession, at the same time it exposes America to more bailouts for lack of leverage reform.

Russia Spies:  According to a Justice Department official the charges are “’the tip of the iceberg’ of a Russian intelligence conspiracy against the United States.”  Obama knew about the charges prior to a meeting with the Russian President but there is no word on whether he brought it up let alone scolded the Russians.  To the contrary, according to the State Department: “the arrests merely show that the two countries have not yet reached the level of “trust and cooperation” where they can be completely open with one another” and Obama “had no “personal reaction” to the case and that the arrests should not hurt the administration’s attempts to mend fences with Moscow. “I do not believe that this will affect the reset of our relationship with Russia,” according to White House Spokesman Gibbs.  I am certain Putin (and Iran, the Taliban, and anyone else fighting the US) are so very relieved.

The Oil Spill.  Government regulations push oil drilling farther and farther offshore thereby making it a riskier undertaking.  BP takes even more risks and together we get an enormous spill.  Obama says he is in charge of the clean-up – literally – yet day after day after day (70 to be exact) Obama stopped skilled, foreign parties from helping and allowed the damage to increase well and way beyond what should have been the case.  Obama wants BP’s shareholders (they own BP and they are the people paying the price) to pay for it all but shouldn’t BP’s shareholders wonder why the US government made the problem worse and, therefore, demand what lawyers call a finding of comparative fault? – thereby making the US government (you and me) pay for some of the damage?

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From Reuters:

In its final estimate on the first quarter on Friday, the Commerce Department said gross domestic product expanded at a 2.7 percent annual rate instead of the 3 percent pace it reported last month.

Although the growth pace was below market expectations for a 3 percent rate, it still marked three straight quarters of expansion as the economy digs out of its most brutal downturn since the 1930s.

However, recent data have suggested the recovery lost some momentum in the second quarter, with persistently high unemployment restraining consumer spending, and home building and purchases faltering.

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The US economy remains in a tepid stage at best – subject to a multiple dip recession at worst.  Unemployment is high and private sector jobs are taking longer than usual to rebound.  Even the Obama Administration is forced to admit unemployment will be high for a long time to come.   Starting two years ago this July, I said if Obama was elected President, we would have a difficult economy, at best, for at least six years.  Unless our governments, federal and state, make a concerted effort to change the economic psychology facing Americans today, that prediction can’t help but come true.

There is no question that the American economy is in bad shape.  Unemployment has only been this high one other time since World War II, i.e. in the 1980’s.  Recessions similar or deeper than this recession occurred in 1918, the Great Depression, the 3 recessions of the 1950’s, and the stagflation of the late 1970’s and early 1980’s.

Recessions of this magnitude take on a life of their own because both businesses and consumers are plagued with doubts – doubts about future government policy, doubts about consumer spending, doubts about the prospects for future investments.  Those doubts literally diminish future economic activity as investors and consumers favor caution over investing and spending.  The psychology of larger recessions exaggerates downturns as fears mount.  That Psychology of Doubt delays recoveries in ways that cannot be measured by statistics alone.

In order to break that Psychology of Doubt, it takes bold action on the part of governments – not half measures or technical adjustments.  Indeed, each of those recessions did not end until there was a dramatic change in the government policy – usually a change to the very policies that drove our economy into the ditch in the first place – excepting only World War II’s effect on the Great Depression.

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This morning after our weekly conference meeting I joined other House Republican leaders at a press event to discuss President Obama’s State of the Union address tonight.  What I told the press gathered in the U.S. Capitol this morning is that tonight, President Obama needs to prove he’s listening to the American people.  It’s not the message, it’s his job-killing policies.  The President must do more than rhetorically ‘pivot.’  He must scrap his job-killing agenda and work in the bipartisan way he promised during the campaign.

The American people don’t want this government takeover of health care, and it’s time to put it out of its misery. No more tricks.  Instead of just a half-baked spending freeze, how about real budget caps that can be enforced?  And instead of more government ‘stimulus’ bills, we need real solutions to help small businesses create jobs.

Last Friday, on a visit to my home state of Ohio, the President complained about this “buzzsaw” of opposition his health care bill faced.  But what you call a buzzsaw, Mr. President, I call the American people.  They’re saying ‘enough is enough’ to this big-government, job-killing agenda.  And they’re asking “where are the jobs?”  So we’re going to listen to the President, but we’re also going to continue to hold him accountable and offer our better solutions.

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This morning, in testimony before the Joint Economic Committee, Treasury Secretary Timothy Geithner said that, by any measurement of the strength and stability of the US economy, the economy today is better than it was when Obama took office. Sheesh, tell that to the millions of people who have lost their job since January.

Apparently, “any measurement” doesn’t include the unemployment rate, job growth, number of jobs, wage growth, hours worked, home foreclosures, rate of mortgage delinquencies, etc.

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