08/04/2011 11:41 am ET Updated Oct 04, 2011

Investors Prefer Fact-Based to Faith-Based Economics

So, President Obama signs the terms of surrender -- his, progressivism's, the Democratic party's and that of common sense -- capitulating to the extremists of the Tea Party who held the economy and the nation's full faith and credit hostage. And what happens? The stock market takes a nose dive.

It appears that investors know that the endlessly repeated catechism of the faith-based Marketists, "When the American people have to tighten their belts, the government should do the same" is the opposite of the truth. The fact is that when potential consumers tighten their belts under recessionary conditions, the government must do the opposite to make up for the decline in demand.

The "compromise" to which the President and many Democrats caved under the irresponsible threats of the extreme right is exactly the wrong policy in a major recession, and investors appear to realize this fact, even if the regressive (not at all "conservative" ) ideologues don't.

Robert S. McElvaine is Elizabeth Chisholm professor of arts & letters and Professor of History at Millsaps College, in Jackson, Miss. His books include The Great Depression: America, 1929-1941. He is now writing "OH, Freedom! -- The Young ' 60s."