Economists don’t know economic growth. See New York Times columnist and economist Rebecca Patterson.
In “Watch Out, It’s the Jenga Economy,” Patterson expresses worry that “Without income from jobs, consumers pull back on spending.”
Except that no non-PhD would ever think about consumption. That’s because consumption is a certain effect of what truly matters: production. Yet Patterson has no evident interest in the production without which there is literally none of the consumption she so values.
Which means Patterson’s interest in effects over causes unwittingly takes her to the next fallacy in a piece stalked by them. She fears a “pull back on spending,” except that no non-PhD would ever worry about spending pull backs simply because there’s no such thing. What’s not spent is, unless stored in a coffee can, shifted to another set of consumptive hands. Patterson knows this from her time at J.P. Morgan.
She saw that banks don’t just stare lovingly at the savings that customers entrust to them, rather they rent savings from customers for a little or a lot and subsequently lend them out to those who have near-term consumptive desires. If banks didn’t quickly lend the dollars entrusted to them, they would soon be insolvent.
The above requires stress as a reminder that no act of saving ever subtracts from consumption. Translated, production always, always, always boosts consumption even if the producers are thrifty. Short of hiding their money under the mattress, the consumptive power that it represents will be shifted to others with near-term needs.
It’s important to remember this as Patterson claims that “the range of households willing and able to spend is shrinking, with consumption increasingly dependent on the country’s wealthiest households.” Ok, but what the rich don’t spend is consumed, always.
Next, savings boost the individual, no? Economies are people, not blobs, and people are elevated by prudence.
As for the rich, the genius of them not spending can be found not just in the statement of the obvious that what they don’t spend will be spent by someone else, but also in the essential truth that jobs are an effect of the unspent wealth that the rich, by virtue of being rich, are most capable of providing. Better yet, that same unspent wealth invariably finds its way to production enhancements that boost the productivity of workers on the way to even higher pay.
Patterson unwittingly touches on all this with her lament-dripping assertion that “the top 10 percent of American households by wealth owned more than 87 percent of the country’s corporate equities and mutual funds.” Except that far from something to lament, a non-PhD would cheer the synergistic truth that the rich get richer by supplying their savings to businesses to the betterment of the typical worker through rising amounts of job opportunity in a range of industries only limited in range by – yes – investment.
Which means Patterson’s “Jenga” example is more evidence of how the consensus among economists is backwards. Far from an effect of people living paycheck to paycheck to their near and long-term detriment, economic growth is the remuneration of abstinence whereby those capable of spending choose to save more.
There are no companies, no startups and no new jobs without savings, and the rich provide it to all our betterment. In short, the true “Jenga economy” that Patterson fears would be an unfortunate effect of her obsession with consumption.
Originally posted to Real Clear Markets.
