The article in Barrons, Needed: Better GDP Growth, starts off well.

THE GDP REPORT MAY EASE some fears that the U.S. is heading for a double-dip recession….But it also confirms widespread concerns about a sharp economic slowdown, commented The Wall Street Journal.

That news item could have been responding to Friday’s report on GDP growth in this year’s second quarter. But it actually appeared in early February 2003. Widespread concerns about an economic slowdown seemed even more warranted at the time, because growth in gross domestic product had been running much slower. We know now that the sharp economic slowdown then expected turned out to be a sharp acceleration by the second half of 2003.

The point is not that a sharp acceleration will necessarily occur in the second half of 2010. But quarterly GDP growth is littered with examples of slowdowns — and speed-ups — that turn out to be short-lived, while often inspiring economic commentators to regard them as long-lived.

However, at the very end the article had this ignorant statement:

Revisions to consumer spending reaffirmed the ineffectiveness of fiscal stimulus to boost consumption. In response to both the cash-rebate program under Bush in 2008 and the stimulus package under Obama in 2009, consumers perversely cut consumption. And personal savings rates were revised up, thus underscoring that consumers squirreled away the government-bestowed cash, possibly out of concern that the deficits could mean higher taxes later on.

Cash rebates and other forms of tax cuts were well known at the time to be ineffective as economic stimuli to boost consumption.  Their purpose was to give people some help with their budgets that were under stress.  Just because Congress found it convenient to put the tax cuts  in the same Congressional bill with actual fiscal stimuli, there is no reason to say that these items were targeted to be the fiscal stimulus part of the bill.

Consumers were cutting consumption because one of their supplies of credit, real-estate price growth, had disappeared.  This cut in consumption was neither perverse, nor a reaction to fiscal stimulus.  Given how absurdly low and unwise was the personal savings rate during the housing bubble, the subsequent rise in personal savings rate was much desired by and for individuals.  Moreover, I bet the extra savings had nothing to do with fears of higher tax rates later on.

The Keynesian insight into affect on the economy of this attempt to increase the savings rate is called a paradox.  The paradox is that the attempt by almost everyone to increase their savings rate at the same time causes a slowdown in the economy which makes it impossible for many (but not all) to actually accomplish an increase in savings.  When you lose your job and your mortgage is foreclosed due to the shrinkage of the economy, you cannot increase your savings rate even though you desire to do so.

Because of this well known paradox, unbiased economists prefer fiscal stimulus by the government that involves direct spending such as the purchase of goods and services. This is why shovel ready infrastructure  projects were preferred as part of the stimulus. This is how consumption is boosted by fiscal stimulus.

The paradox in this article is that someone who could have such reasonable insights into the current over-reaction to the slowdown in the second quarter could have such seemingly poor understanding on how a fiscal stimulus should operate.  He also seems to have a perverse misunderstanding about what was cause and what was affect if he thinks that people’s increase in savings was a perverse response to tax cuts.