Kent C. DeForrest: Demand is necessary to stimulate economic growth, but not
sufficient to achieve it. We humans always want more--not always more stuff, but
certainly more time, more choices, more pleasure, all of which requires more
capital. Productivity is required to meet those demands. When more choices, more
products (more supply)become available, the demands that people have--and even
some they may not have even known they had--are able to be met. And the economy
grows. But the economy did not grow due to increased consumption, rather,
consumption happened *because the economy grew*.
@SEY You're jesting with me of course. I didn't see it at
first. The Federal Reserve assuring price stability!!?? The exact opposite
has occurred as anyone knows. How much was a dollar worth in 1913? How much
did a new home cost? An automobile? Mass production actually
greatly lowered the cost of manufactured products until luxuries came within the
reach of even the poorest worker. Business boomed. The inflation
(not stability) of the money supply care of the Reserve still managed, over
time, to vastly increase (not stabilize) costs and prices, cheating the working
man of the value of his labor, until eventually his wife had to go to work and
he had to reduce the size of his family, and buy a home of wafer boards and
cheap shingles.We stumbled from one crisis to another, one recession
to another. We got into endless wars and one part of the world destroyed the
wealth of the other part. Our factories became, not the means of production,
but the means of destruction.
We're losing literacy, let alone economic literacy.
But Gildas, we can't have prices fall, can we? The Federal Reserve exists
to maintain price stability. Won't falling prices put people out of work?
Who cares if falling prices makes goods more affordable?? A reduction in demand
will throw us into a recession or depression, won't it?
Actually, what you're describing are 'economic models,' and
they're not terribly difficult to understand. And it doesn't take
much research to learn which models work, which ones have an accurate predictive
track record. 'Trickle-down' economics fails at every level. And we
have 80 years positive history with Keynes.
If you save a part of your income you can then purchase big ticket items for
cash, and ultimately have much more disposable income because none is going to
credit charges.If less people were rushing out to purchase on
credit, there would be a commensurate reduction in demand and with it a decrease
in prices.Who says we live to benefit big corporations and money
Is not the economic system of choice in our nation capitalism? I think maybe we
have an oxymoron here.
CLM:The problem with your second assertion is that producer goods
will not be produced if there is insufficient demand for consumer goods. This
has been the problem for the past four years. We have had a lot of investment
money lying around, earning virtually nothing (and in some cases, earning
negative returns) because there has been a lack of demand. This is the fallacy
of supply-side economics. Supply doesn't drive the economy. Demand does.
Where do you think savings go? Very few people remove their savings dollars from
the economy, they invest it in business through stocks and bonds or put it in
the bank where the money is used to make loans to businesses, either directly or
indirectly. In other words, all savings are spent!Further, when
people postpone a portion of their consumption and put their discretionary
dollars into savings, more resources would be freed up from the production of
consumer goods and diverted into making producer goods (such as tools and
equipment), which create sustainable growth.
When we ride the convenience, we expect the driver, engineer, pilot, or whatever
to do what he does without a lot of direction and control by the passengers. We
really don’t have to know a lot about the dials, switches, levers and
wheels. Our government is our driver.
...and yet with all the evidence there are still those touting
"trickledown" as a successful model.
"How else to explain such counterintuitive notions like 'spending
creates wealth,' or 'saving is a drag on the economy?'"This is absolutely NOT counterintuitive. If everyone is saving all their money
and nobody is buying goods and services, then all of those people whose jobs
relate to providing those goods and services will no longer have jobs because
those businesses that employ those workers will be out of business due to not
having any customers.It's actually basic common sense.
Curbing your spending and saving more is excellent advice to any individual. If
everyone in society does it at the same time, however, it means that business
plummets and the country goes into a severe recession.