Production, not consumption drives economies

It is often said that we live in a consumer-driven economy, with the implication being that not only does the economy primarily serve the consumer, but there seems to be an implicit corollary to this statement that since consumer activity (or consumption) directs the economy, that a reliable method to increase the size of an economy is to increase the consumer activity of consumption.  This incorrect belief assumes that the correlation between an increase in a society's wealth and the increase in consumption of that wealth means that the consumption of that wealth is what created the wealth in the first place¹.

To enrich the members of our society we have to produce more wealth for them to be able to consume.  While being able to consume wealth may be the motivation for its production, but consumption itself does not create more wealth any more than consuming a bowl of oatmeal causes more of it to appear in your pantry.

People consume goods and services, and not money, so wealth is definable as the quantity of goods and services available, and this is the measure of an economy.  The only possible way an economy is grown is by increasing the production of wealth. I say only possible way, but it's simpler than that - since a growing economy is defined as one where wealth is increasing, the only real way to increase wealth is to increase the rate of its production, unless, of course, one believes that wealth may be increased by use of either magic or pixie dust.

• This requires capital investment in either new (higher output) equipment or research and development into more efficient methods of production.  
• Only those people who have been able to amass and manage large amounts of capital are able to afford to both make those investments and support themselves comfortably.
• Only if there is the possibility of reward will they risk the sure thing of keeping their money with the possibility of losing it on an investment that can go bad.  
• Only the threat of losing their investment will incentivize them to do the necessary work to be determine that their money and the resources that will be consumed by it's spending will actually produce more wealth than is consumed.

Getting more money into the hands of consumers by allowing them to earn the money through their production of wealth will improve the economy.  But the increase in consumer spending is an effect, not a cause of increased prosperity.  When more wealth is produced it follows that more can (and will) be consumed and not the other way around.

I admit that this may sound about as ridiculous a point to argue as arguing that the earth is a sphere or that 2+2 really is 4, but I keep hearing people arguing, in effect, that 2+2 may equal 5 for sufficiently large values of 2.  The explanations are always long and involved, but they amount to nothing more than hand waving to distract from their hollowness.

I therefore assert that when people start talking about how getting more money into the hands of consumers will help the economy, and when they propose that it be done by either first taking that money from others or by just printing it, then either they are ignorant or they are lying.  I suspect that either explanation is equally probable for the current political class today.

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Notes

1. ^For the purposes of my explanation of why this is a stupid idea, I am assuming the impossibility of time travel, the existence of which I am willing to concede would be a possible means for goods and serviced could be utilized prior to their creation.  Of course if you want to debate this point with me you should first debunk Hawking's chronology protection conjecture.

"blind faith in the market"

Sayeth Barak Obama (peace be upon him):

The basic idea is that if we put our blind faith in the market and we let corporations do whatever they want and we leave everybody else to fend for themselves, then America somehow automatically is going to grow and prosper.

I'd like to respond to this sentiment of our President:

His basic idea is that if we put our blind faith in the government and we let the politicians and bureaucrats do whatever they want and we leave everybody else to fend for themselves, then America somehow automatically is going to grow and prosper.

Given that more Americans are organized in corporations than in government bureaucracies, even the moral fallacy of being for the "greater good" being defined as benefiting the most people fails to support His radical views.  On the practical front, I challenge anyone to find a place on this planet where a centrally planned (i.e. government run) economy has ever lead to prolonged prosperity for the citizens of that nation.

"a deep observation about" useful idiots

Chris Matthews

But how would those miners have survived, the 33 of them, and their loved ones living above if they`d behave like that with the attitude of every man for himself. This is above all, and deep down they`re in the mine about being in all there together. It`s about mutual reliance and relying on others.

He further implies that the message coming from those opposed to the increased intrusiveness of the government is "a statement that we're not all in this together."

First, I would like to assert that it is human nature to project ones own personality and motives onto those around us.  When a person assigns a likely motivation to someone else based upon no evidence, but just "common sense" I think that says more about the person talking than the subject of the talk.
I would like to divide humans into two camps for the purposes of the observation I would like to make:

1. Those who believe that voluntary co-operation of self-interested individuals is the best way to supply the needs of the community as a whole.
2. Those who believe that physical coercion is the best way to supply the needs of the community.

Any activity mandated by the state is, by it's nature, physical coercion, because at some point continued non-adherence to the dictates of the state must lead to violent action against those resisting. Admittedly on a few rare occasions the state may blink in the face of popular resistance, but I believe that history shows this to be the rare exception and not the rule.

Some comments about these two groups:

• It is not that the people in group 1 will not organize to fulfill the needs of their community, they will just not force the participation of others into their endeavors.  I think this seems like the natural solution to them because they themselves are willing to voluntarily act for the communal good.
• By contrast, I can only assume that people in group 2 feel that force is needed to meet community needs because they would only act against their self-interest for the communal good under duress, and they assume that most people are like them.  I assume this because I am assuming that these people project their motives the same way I project my motives.

And this is the basic reason I believe that those in group 1 are more likely to act in a moral manner than those in group 2.

Of course, what defines the "communal good" is not always obvious, and good people may disagree on this depending on their values, perspective, and specific local knowledge. This is the functional reason why the people in group 1 are more likely to act in a correct manner than those in group 2

Then, to illustrate the idiocy of asserting that self-interested capitalist attitudes would have lead to the deaths of the miners, Daniel Henninger has an interesting write-up in the Wall Street Journal. (the basic gist of it is that without the innovation of a special drill bit by a "greedy capitalist" none of the miners could have been rescued alive.

Down with Capitalism!

So, down with capitalism, eh?

If a man is unable to provide for his needs all by himself (and aside from a few survivalists living off the land in the middle of nowhere this is all of us) then he must secure to cooperative effort of his fellow men to provide for his needs or he will die. If capitalism (the free and voluntary exchange of goods and services, possibly, though not necessarily aided by the abstraction of work effort called money) is off the table, then what means is available to secure this cooperation?
So we may pass a law stating that one man must give his property (goods/services) to another man. What if the first man refuses, then what? We must then come to take his property from him by force or the law will not accomplish it's aim. What if he resists our force with his own? We would then have to escalate our force to surpass his until either he acquiesces or he dies.
Given this set of incentives, what rational person would ever produce any goods or supply any service? If no man voluntarily produced goods or services, then our survival would depend on the use of force (which, in order to function, would require a willingness to kill the objects of that force) to compel men to work to supply us with the goods and services we require. I wonder, has such a system ever existed in the past, and if so, what name would men have given it?

Of course, none of the men who are now advocating an end to capitalism would ever admit that the only other social structure that has ever existed is slavery under one name or another. Feudalism, fascism, communism, socialism, national socialism (which, as a matter of record, was originally defined as any socialist movement not loyal to the global socialist movement headquartered in Moscow) - they all require slavery in their implementation to function. This is what when politicians espouse their lofty goals of public charity and social justice, they always speak of the ends and never of the means that must be employed to reach those ends. The devil is always visible in the details, but he is present (though hidden) in the rhetoric.