Monday, 18 February 2008

It's saving, stupid

How many times have you seen stories telling us: "Stockmarkets surged on the back of a rise in consumer spending."  Or, more recently, "The Dow and Nasdaq slipped on Friday on concerns about consumer spending ."

What the headlines describe is sheer foolishness, but nowhere near as scary as headlines announcing "President George W. Bush has signed the two-year, $168 billion economic stimulus package, hoping to pump spending money into the ailing American economy."

No wonder the American economy is ailing when it's 'conventional wisdom' such as this that guides those who like to meddle with it.  The conventional wisdom that consumer activity is all good is not just all wrong, it's destructively and provably and always wrong.  What drives economic growth is not consumption, it's saving -- as George Reisman explains here.  It's long, but until you understand his point you're not qualified either to meddle or to comment intelligently on the meddlers.

1 comment:

  1. Yes, but what stimulus packages are intended to do is provide the (relatively) quick fix of boosting activity. The fact that it may not lead on to higher savings and hence improved investment (and thence longer term growth) is usually put in the pollies' "too hard" basket. Why attempt to change ingrained behaviour when there are easier dinner bells to ring?


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