Investment, not consumption, made economic growth go flat. Keynes taught that consumer spending depends on national income not that income depends on consumer spending. On the contrary, Keynes understood that recessions are always caused by a collapse of business investment. After Keynes, Milton Friedman and Franco Modigliani received Nobel Prizes for demonstrating that consumption depends on long-term income and wealth, not ephemeral windfalls from rebates or a temporary cut in withholding. Since the rebate has no effect on permanent income, it can have no significant effect on consumption.
Nobody buys a new house or car because of a minuscule one-time windfall.
Business investment has been in trouble because companies have been reporting disappointing profits or losses. Over the past year, profit margins were pinched by rising costs of energy, labor, credit and taxes. Many of the world s largest corporations mainly sell to other firms. When consumers go shopping, they are unlikely to pick up something from Cisco, Nortel, Oracle or Sun Microsystems. Keynesian vulgarization has fostered the foolish habit of gauging the economic benefits of tax policy solely by the amount of money the government loses.