When Nancy Pelosi and other Democrats describe unemployment insurance and other government handouts as more important than tax cuts, they reveal a lot about how they think our economy works.

Americans do spend a lot of money on things. But our economy's health is judged by how much we produce, not by how much we buy. 

We talk about the gross domestic product; not gross domestic consumption. The more Americans work and produce, the stronger our economy grows. And that's what gives us the wealth to buy and consume. So we need economic policy that encourages work and production much more than we need policies meant to encourage consumption. 

That's why any tax increase is insanity right now. If you want to put more people to work, you want to make it easier for companies to produce, by lowering their cost of production.

A tax increase on the job producers is exactly the wrong way to go. Nancy Pelosi doesn't get that. But most Americans do.

And apparently so now does the president.

He finally appears to recognize that tax increases will slow down an already anemic economy. Here he is speaking about his deal with Republicans to prevent a tax increase: “You've just had economists over the last 24, 48 hours examine this and say this is going to boost the economy, it is going to grow the economy, it is going to increase the likelihood that we can drive down the unemployment rate."

We still don't think that the president's giving up his big government agenda…his whole life has been devoted to that. But at least he gets something that Pelosi and other Democrats do not: that incentives matter. With unemployment stuck at the horrendous rate of 10%, you don't do anything to hurt the incentives that create job growth. Increasing production is the key. Pelosi and other Democrats are putting the cart before the horse by focusing on consumption before they focus on production.

Still it seems Pelosi wants to go down in flames. After getting slapped around by the president in the past couple of days, she slapped back today, getting House Democrats to vote down the President’s tax deal with Republicans.

Our colleagues at Marketwatch today described Democrats as "acting like angry drunks at the bar." That sounds about right to us.

David Asman joined FOX News Channel (FNC) in 1997 and currently serves as host of "Forbes on FOX," a weekend half-hour program that offers an informative look at the business week (Saturday from 11:00-11:30 AM/ET). Asman is also an anchor on FOX Business Network, where he co-hosts "After the Bell" (4-5 PM/ET) with anchor Liz Claman. Click here for more information on David Asman