Okay, okay, I admit it, I have been wrong.  All economists know that the only way to improve our economic prospects and grow  jobs is to raise consumption.  I have been urging since the start of the “Great Recession” that we return to the mountain of cheap, easy credit that fueled our economy to its greatest height in 2007.  The Obama Administration has been engaged in big time deficit spending to pump up the economy.  We both have been wrong and I am not happy to admit that I made a mistake.  I leave it to the president to admit his.

It has become abundantly clear that the average American’s reaction to the economic slump and whole-scale job loss has been to reduce his expenditures, hold more tightly onto this resources, and eschew taking on more credit.   Thus my suggestion to boost consumption by taking on more debt is going no where fast. 

It is a bit more complex for the Obama team.  What we have here are millions of Americans cutting their expenditures and holding tightly to what they have.  This stands in stark contrast to the Feds spending like sailors on shore leave and accumulating unprecedented levels of Federal debt.  While most people are paying down their debt and staying away from incurring more, we have a federal government still racking up tremendous debt. 

While it is good economics to pump consumption by either urging taking out more credit or government deficit spending, they are not good politics, at least not now.  The American people do not want to incur more debt, even though home mortgages and almost all other consumer loans are at record low costs (one of my credit card banks is now offering an interest payment of 1.9%).  They want to spend less, pay off their debts and hang on to what they have.  Thus it is politically unacceptable to either urge borrowing more or for the government to continue massive deficit spending. 

A corollary to this is that given their determination to hang on to what they have the American public is in no mood to pay higher taxes at any level or any kind.  Sure they want to soak the rich, but that would be a Pyrrhic victory, akin to killing the goose that lays the golden eggs.

While my economics reasoning is correct, as has been the case for most other economists, we  have been wrong for political reasons.  I admit my political mistake.  I believe the Obama team should also wake up and admit that it is out of step with the public.  Failure to do so will insure a Republican victory this year.