Businesses fight consumers every day for access to precious capital. Yes, you read that right. The businesses economists tell us are reliant on consumption are in a battle for capital that would otherwise be consumed. Which is not so hard to grasp when you think about it, particularly when it’s remembered that production is an expression of a desire to get.
What that means for businesses reliant on people walking in the door and opening their wallets is that so long as people are producing, abundant consumption will take care of itself. Put another way, consumption is the easy part. It’s why we produce in the first place.
After which, rising production is a function of individuals and businesses being matched with capital. The more people save the more investment there is, and the more investment there is the more production there is.
Keep all of this in mind as news sources claim that President Trump spooked the markets earlier this week with his suggestion that a recession might loom in the near future. Such thinking ignores how economies work.
This implies that if people fear a recession, that they’ll stop consuming on the way to a self-fulfilling prophecy. It’s a lot of nonsense. See above.
Economic growth is an effect of savings and investment. What people don’t consume doesn’t wind up in a coffee can, which means it also doesn’t shrink consumption. Either it’s shifted to others with near-term consumptive desires, or it finds its way to individuals and businesses very much reliant on capital in order to hire more workers, invest in those same workers, or both. In other words, rhetoric said to cause angst in the U.S. would logically have a paradoxically positive impact on economic growth exactly because it might tilt Americans in favor of a bit more saving over consumption.
Furthermore, stop and think about the meaning of the savings. Far from shrinking consumption, they actually enable it, albeit on consumption of labor and equipment additions meant to enhance the very production that enables all consumption in the first place.
Which is but a reminder that if you’re at all thinking about consumption when contemplating economic growth, or you imagine the way to divine the level of economic growth is via a statistic meant to measure consumption (think the worthless number that is GDP), it’s safe to say that your mind is wandering. In the wrong direction, and down a path of misunderstanding.
Production is the only driver of consumption, savings are what power enhanced production, which means talk of “recession” that sparks fear within us has nothing to do with recessions. If anything, the belief that a country can be talked into a recession wholly mistakes what recession are.
A true recession is a sign of an economy poised to soar. That is so precisely because real recessions are a signal of individuals and businesses correcting what they’re doing wrong, including making redundant individuals who are producing sub-optimally. Which is a sign that the recession is the cure as errors are fixed, and the people so instrumental to progress are freedom from work that dims their capacity to produce.
Applied to the present, those who “forecast” the economy and claim to know whether it will grow, or shrink are lying. They have no clue.
We can neither be talked into recession, nor can they be forecast. What’s healthy is a natural occurrence, which means it, like all other economic activities, cannot be charted or predicted.
