Posted by
Andrews on Wednesday, August 06, 2008 4:32:39 PM
I was reading
an interesting essay on the negligible impact of one time "rebate" checks, about which I will write more later, when I was struck by a completely arbitrary distinction very common in today's neo-Keynesian circles. Not just there, either, but among almost all politicians and the lapdog economists who write theory to justify their practices.
This distinction is the obsession with consumer spending and dismissing of savings. (Or the reverse error of focusing entirely on savings and ignoring consumption.)
Let us make this simple. There is no real difference between consumer spending and spending on "producer's goods". Does it matter to you if you manufacture blue jeans or tractors? Work is work. And a new factory is economic expansion whether it makes cinder blocks of tickle me Elmo dolls. Why do we think that "consumer spending" and "investment in production" are in any way distinct, and that one helps the economy more than the other?
Here is another simple truth. If I spend $100 it is $100 of spending. If I save half, it is bundled with a lot of other money and loaned out, and then the borrower spends it. So there is no "unspent money", unless I hide it under my mattress. Even Keynes recognized this, though he later contradicted himself, and his followers chose to believe there was some possible disparity between savings and investment.
But the truth is, excepting when there is monetary inflation or deflation, savings and investment are always equal, or very close to equal, allowing for some small unsupported expansion of credit, or money offered but not yet borrowed. Money doe snot sit in some mysterious pool of "savings", it goes to work as loans. So, the idea that only "consumer spending" drives an economy is just foolish.
Well, as I said, more on this later. I just cannot believe that such an absurd belief is still held by supposed educated economists.