Economists Worship Consumption. Lebanon Mocks Their Religion.

Economists Worship Consumption. Lebanon Mocks Their Religion.
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“I’d rather be an owner of something besides money that can disappear at any time in the bank.” That’s what Robert T. recently communicated to Wall Street Journal reporters Dion Nissenbaum and Nazih Osseiran.

T. is a Beirut-based businessman who, according to Nissenbaum and Osseiran, recently “drained his family bank accounts to buy a ski chalet, an apartment in Dubai and two places in one of Beirut’s upscale neighborhoods.” With Beirut’s economy in serious trouble, its citizens are in the midst of a consumption binge.

Nissenbaum and Osseiran add that in a “desperate attempt to preserve their life savings amid the country’s financial crisis, many well-off Lebanese are now sinking money into Land Rovers, ski chalets, and expensive artwork.” In the real estate space alone, they report that the dollar value of property sales rose $1.8 billion in the first two months of 2020, which is apparently a 70% increase on the previous year.

At which point conventional economic thinkers are scratching their heads. Economists routinely argue that consumption drives economic growth, yet growth is collapsing in Lebanon amid frenzied consumption, particularly at “the very top end of the luxury market.” What explains this riddle?

The riddle is that economists to a man and woman have long been incorrect about what powers economic growth. Investment, not consumption is the source of growth. Consumption is a consequence of growth. In Lebanon, past growth made today’s frenzied consumption possible. Many Lebanese, desperate to “preserve their life savings” amassed during past periods of economic growth, are consuming hard assets with abandon to protect their wealth.

Call it a “flight to the real.” It’s what people do when they no longer trust money. They exchange it for hard assets, or wealth that already exists. They consume wealth as opposed to creating new wealth through investment.

Investment is what matters. Investment enables workers to produce exponentially more in less time. To use an easy example, it’s safe to say workers can get a lot more done more quickly with high-speed internet versus the dial-up that was the norm in the mid to late 1990s. Farmers can of course produce much more food when equipped with tractors and fertilizer than with shovels and their innate knowledge of when it’s best to plant. Looked at in terms of salesmen, GPS, Blue Tooth and the smartphones that operate with both enable quite a bit more client visits per day, more calls in between visits, and subsequently more sales. To be clear, investment is what powers the soaring productivity that makes consumption possible.

The challenge now for the Lebanese is that the Lebanese pound is in freefall. While its official exchange rate is 1,500/USD, Nissenbaum and Osseiran report that the actual black market price for the pound is well south of 1,500; the dollar presently purchasing 4,000 Lebanese pounds. This bit of reality exposes as simplistic a number of accepted views among economists.

For one, economists believe economic growth causes inflation. No, economic growth most associates with falling prices as investment in productivity enhancers enables more and more production alongside less and less effort. During periods of booming growth formerly out-of-reach goods become very reach-able, and the businesses that make them reach-able see their share prices soar. Rich Karlgaard at Forbes has long described this economic truism as the “Cheap Revolution.”

Inflation is a decline in the exchangeable value of money. The Lebanese pound is falling so fast that it’s really not even a currency anymore. The challenge for the Lebanese holders of the pound has been what to do with what’s losing value, and the obvious answer has been consumption of tangible assets. Inflation signals a lack of growth as investment in wealth that doesn’t yet exist declines in favor of consumption of wealth that does.

Readers should keep this in mind with the U.S. top of mind. Though the dollar is world’s healthier than the pound (more on this in a bit), tangible measures like gold signal a gradual weakening of the dollar since 2016. Worse, amid the tragic coronavirus lockdowns, housing markets in parts of the U.S. have started to heat up. Much the same happened in 9/11’s aftermath. Fearful in both instances about the future, people “stored” their wealth in property. They consumed existing wealth. This should be kept in mind because it’s not a healthy sign of growth. Investment once again drives progress, while consumption of wealth drives stasis.

Back to Lebanon, its collapsing pound is a reminder that devaluation never favors the devaluing country. When money loses value the wealth of the citizenry declines with it, only for investment to shrink on the way to a bleaker future. Devaluation only wrecks.

Precisely because the pound is no longer trusted, it’s disappeared in a sense. Currency exchanges are ultimately exchanges of real goods and services, so it’s often a fool’s errand to exchange tangible goods for currency that continues to summon fewer and fewer goods. Which explains why the dollar increasingly liquefies exchange in Beirut.

Though the dollar’s been weakening itself, it hasn’t declined at all in the way that the Lebanese pound has. That the dollar is Beirut’s currency of choice is yet another reminder of how superfluous the Fed is. There’s dollar “money supply” in Lebanon not because of Jerome Powell, but because there’s wealth there that owners are exchanging. Since there is, producers of wealth, or holders of wealth produced in the past, want to be able trade it for money that similarly commands goods, services, property, land, art. In short, the dollar in Lebanon is a tautology. Where there’s wealth there will always be “money supply” to move it around. Money is a consequence of growth, not a driver of it as so many errant economists believe.

So while it’s very sad to see the Paris of the Middle East suffering economically, hopefully what’s happening there will wake people up to just how debased the economics profession is. Economists worship at the altar of consumption. Lebanon’s collapse reminds us just how confused economists are.

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, and a senior economic adviser to Toreador Research and Trading ( His new book is titled They're Both Wrong: A Policy Guide for America's Frustrated Independent Thinkers. Other books by Tamny include The End of Work, about the exciting growth of jobs more and more of us love, Who Needs the Fed? and Popular Economics. He can be reached at  

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