Tuesday, December 2, 2008

The Consumption Myth

You will hear economists with Keynesian sympathies, and just about every journalist in America, espouse the idea that we need to spend more money to get the economy going. John Tamny addresses this fallacy today at RealClearMarkets.

The notion that consumption is the economy’s driver is not new. We’re regularly told that consumption constitutes 70% of our economy; a notion that couldn’t be more mistaken. Indeed, how is that people consume without producing first? Don’t the two balance? By definition they have to.
At first glance this thinking makes sense; that is, until we take a micro view. Looked at from the perspective of an individual, we see that excess consumption can only impoverish. Indeed, imagine the health of the United States’ economy if every individual spent every dollar made?
The better answer is for individuals to act in their economic self-interest. In saving for a rainy day or even for a distant retirement, savers can help themselves all the while knowing that their savings will either support the consumption of others, or in many instances serve as seed capital for tomorrow’s entrepreneurial ventures.
So with Christmas and the economy in mind, individuals should do that which enhances their own economic outlook the most. If that means lots of work and lots of saving, those who do both should go forth with certain knowledge that they’re bringing the economy the greatest stimulus of all.

Good thoughts to ponder.

No comments: