Tuesday, July 05, 2016

Fallacy: Economic prosperity doesn't come from encouraging consumption

Nor should advocating for free(er) markets be conflated with arguing for more consumption (FEE.org):

The great irony is that leftists frequently argue that capitalism equals “consumerism.” They think defenders of free markets believe that more consumption promotes economic growth; thus we are charged with providing the ideological cover that justifies the consumerism they see as deadening lives and wasting resources. What the leftist critics miss is that economists never saw consumption as the driving force of economic growth and prosperity until the Keynesian criticisms of free markets became ascendant.

Thanks to Keynesianism, manipulating the elements of total income (consumption, investment, and government spending) became the focus of macroeconomic policy and economic development. It was the Keynesians’ theoretical framework that led to the development of the relevant national income statistics and that implicitly informs the popular arguments for more consumption.

For over 150 years defenders of free markets saw consumption as destroying wealth, and saving and production as creating it. They never argued that “stimulating consumption” was the path toward prosperity. Therefore they cannot be charged with justifying the “consumer culture.” And the same is true of twentieth-century defenders of free markets such as Mises and Hayek.

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