By fighting for freedom in Washington, I’ve condemned myself to a life of frustration and aggravation. One of my many pet peeves is that so many people in DC believe that economic growth depends on consumer spending.
Back in the early days of this blog, I wrote the following.
Many people assume that consumer spending drives growth because it is roughly two thirds of the economy. But this puts the cart before the horse. Higher levels of consumer spending do not cause prosperity. Instead, more consumer spending is best understood as a symptom of prosperity.
So you can imagine how irritating it is for me to see news reports about how Black Friday spending will goose the economy.
This video debunks this notion, while also explaining that Keynesian economics is flawed because it misinterprets the role of consumer spending.
If you like this video, also check out this video on IRS complexity.
International Liberty 
[…] and foremost, they think spending drives the economy, whether consumer spending or government […]
[…] stated high levels of consumption don’t cause a strong economy. It’s the other way around. A strong economy enables high levels of […]
[…] All based on the flawed notion that consumer spending drives the economy (it’s actually the economy that drives consumer spending). […]
[…] disagree with that argument, but at least the folks making that case are being […]
[…] Way back in 2010, I shared this video explaining how “gross domestic product” and “gross domestic income” are basically the same number, but warning that the former leads to sloppy thinking (including the Keynesian myth that consumer spending drives the economy). […]
[…] premise. As economist Dan Mitchell explains, “More spending is a consequence of economic growth, not the trigger for economic growth.” But even if we generously pretend the Keynesian premise is true, the CARES […]
[…] premise. As economist Dan Mitchell explains, “More spending is a consequence of economic growth, not the trigger for economic growth.” But even if we generously pretend the Keynesian premise is true, the CARES […]
[…] premise. As economist Dan Mitchell explains, “More spending is a consequence of economic growth, not the trigger for economic growth.” But even if we generously pretend the Keynesian premise is true, the CARES […]
[…] keynesianas están equivocadas. Más gasto es una consecuencia del crecimiento económico, no el detonante del crecimiento […]
[…] that Keynesian policies are misguided. More spending is a consequence of economic growth, not the trigger for economic […]
[…] I don’t think consumer spending is an important variable, at least not in the sense of driving the […]
[…] that’s not the case. As I explained two years ago, consumer spending is a reflection of a strong economy, not the […]
[…] wouldn’t accrue for Keynesian reasons. Consumer spending is a symptom of a strong economy, not the cause of a strong […]
[…] un poco de suerte, habría aprendido a no poner el carro delante del caballo. El gasto de los consumidores y las empresas es consecuencia de una economía fuerte, no de un […]
[…] any luck, she would have learned not to put the cart before the horse. Spending by consumers and businesses is a consequence of a strong economy, not a […]
[…] real keys to growth (which is why I prefer GDI over GDP). Increased consumption, I explained, is a result of growth, not the cause of […]
[…] real keys to growth (which is why I prefer GDI over GDP). Increased consumption, I explained, is a result of growth, not the cause of […]
[…] this video ties everything together by debunking the Keynesian argument that politicians should focus on […]
[…] this video ties everything together by debunking the Keynesian argument that politicians should focus on […]
[…] I should have taken the opportunity to explain that consumer spending and consumer sentiments are symptoms of an improving economy rather than causes of an improving economy. The focus of policy should be on how to produce higher incomes, not on how existing income is […]
[…] if you want to dig further into the issue, you can click here for a video that explains why we might get better decisions if policy makers focused on how we earn income […]
[…] understandably partial to my video debunking Keynesian economics, and I think this Econ 101 video from the Center for Freedom and Prosperity does a great job of showing why consumer spending is a consequence of growth, not the […]
[…] understandably partial to my video debunking Keynesian economics, and I think this Econ 101 video from the Center for Freedom and Prosperity does a great job of showing why consumer spending is a consequence of growth, not the […]
Love the information. Don’t like the presentation. Needs to look more like “american idol” or a videogame commercial before folks are going to absorb it. Reality is boring and the current political system wants americans to be in denial as long as possible, so the pols can make maximum profits as they loot the economy.
[…] understandably partial to my video debunking Keynesian economics, and I think this Econ 101 video from the Center for Freedom and Prosperity does a great job of showing why consumer spending is a consequence of growth, not the […]
[…] understandably partial to my video debunking Keynesian economics, and I think this Econ 101 video from the Center for Freedom and Prosperity does a great job of showing why consumer spending is a consequence of growth, not the […]
Yeah, but what about the massive role of consumption in the Dixit-Stiglitz monopolistic competition framework? Also, demand drives the formation of the core, agglomerated areas in the economy. This isn’t Keynesianism, it’s micro theory that highlights the importance of consumer preferences.
Property + Capital –> Savings –> Growth
Thanks for speaking sanity in the insanity filled world of fiat money and artificial markets.