Economists are naturally fearful of ill economic feelings. That is so because they’re near monolithically Keynesian, or what they imagine Keynes to have been. According to economists, bad feelings or pessimism will cause people to consume less, thus tipping the U.S. economy into “recession.”
Yes, economists are fearful of a “Vibecession” leading to the real thing. Actually, bad vibes are the friend of economic growth.
What blinds economists to the above truth is their odd focus on consumption. Economists imagine the latter is the driver of economic growth, which is backwards. Consumption is a consequence of growth, not the instigator. That it is shows why, assuming “Vibecession” is a real thing, it’s very bullish.
To understand why optimism is warranted amid allegedly ill economic feelings, it has to be remembered that economies aren’t blobs, they’re just individuals. And when we break the economy down to the individual, it’s then easy to see that what worries economists shouldn’t worry the rest of us. Seriously, how could more savings ever hurt the individual? How indeed.
Of course, Keynesians will respond that a desire by the individual to spend less will ripple through the economy, to its shrinking detriment. Such a view is shortsighted, but also incorrect. That’s the case simply because saving doesn’t shrink demand, rather it shifts demand to other hands. Think about it.
Banks don’t rent savings from customers so that they can stare lovingly at the dollars. Instead, banks and all financial intermediaries pay for savings so that they can lend, and frequently invest those dollars. The simple truth is that all production is by definition consumption, savings merely the shifting of consumptive power to others.
Importantly, when savings find their way to others for a variety of reasons (including bad economic vibes), there’s frequently the chance that those it’s shifted to are businesses or entrepreneurs in need of capital to introduce or enhance production. Which is a quick way of saying that there are quite simply no entrepreneurs, there’s no business expansion, and there are no jobs without capital.
It’s a reminder that while the act of saving doesn’t deter consumption, it does change the nature of consumption. Entrepreneurs and businesses require capital in order to consume it, albeit on labor, machines, and other advances that will once again enhance production. Which is a crucial distinction.
The distinction requires a repeat of the previous assertion that all production is by definition consumption. No economic school of thought can evade this truth.
Which explains why economists and their Keynesian models have it backwards. Naively focused on consumption, they ignore that consumption is the easy part that always and everywhere follows production. Always. And since consumption is what happens after we produce, it’s only logical that savings would be the ultimate instigator of consumption precisely because they’re what enable ever higher levels of production to begin with.
Which is a way of saying yet again that no one need fear bad vibes, or a “vibecession.” Whatever informs a greater propensity to save will as a rule enable soaring production without which there is no production. In short, and assuming “Vibecession” is a real thing, it’s once again quite bullish.
Republished from RealClear Markets
