We begin by explaining something about a real economy, not a creation of the Keynesian textbooks.
An economy is not a “blob” into which people pour money, the Keynesian view. It is an intricate combination of factors of production which individuals harness to meet the real needs of real people. It is a process constrained by the law of scarcity, which means that the workings of an economy – if individuals are permitted the freedom necessary to make it work – are going to be directed toward individual needs.
Factors used for one purpose cannot simultaneously be used for something else, and it matters that these scarce factors be directed properly. Unfortunately, the dominant thinking among professional and academic economists is that the economy is an empty tank into which one pours the fuel of money and magically it “creates jobs” and goods.
What is needed for recovery, in large part, is for entrepreneurs to readjust their production structures to reflect the true demands of consumers; not the distorted, unsustainable “demands” temporarily inflated by the Federal Reserve’s easy money and and government policies. Government policies being employed such as cash for clunkers and the home-buyer tax credit are efforts to re-inflate burst bubbles. Such actions will only serve to further delay recovery, and the massive government debt that will have to be repaid (most likely largely through inflation) will be a millstone around the economy’s neck for generations to come.