Spending

When the economic headwinds began to pick up in earnest in 2008, politicians and economists reflexively looked for a means to get consumers to spend even more and save even less. They have it backward. Spending for its own sake means nothing. What if you spent $1 million, but bought nothing but air? How would this benefit society? It would surely benefit the person who sold you the air. He would get the million dollars formerly belonging to you. Using our modem methods of economic accounting, such as the measurement of gross domestic product (GDP), such a transaction would certainly look like genuine activity. It would be counted as $1 million worth of growth.

But the act of buying air does not improve the economy as a whole. The air was always there. Something has to be produced to give the spending any value.

Spending is merely the yardstick that we use to measure production. Since everything that is produced will eventually be consumed, why does spending really matter? Even the stuff that no one really wants will be consumed if the price falls far enough. But nothing can be consumed until it is produced. It's production that adds the value.

Saving creates the capital that allows for the expansion of production. As a result, a dollar saved makes more of a positive economic impact than a dollar spent, just don't try to explain this to an economist or a politician.

— Peter Schiff; How an Economy Grows and Why It Crashes

Modern economists mistakenly assume that spending drives growth, and that when deflation is present, people tend to defer purchases (to allow prices to fall); and when they do spend, the diminished price makes less of an economic impact. This is absurd.

As we've said before, it's not the spending that means anything. It's the production that counts!

People do not need to he persuaded to spend. Given that human demand is essentially endless, if people don't want something there is likely a good reason. Either the product is no good or the consumer simply cannot afford to buy it. Either way, the act of deferring a purchase, or saving instead of spending, is made for rational reasons and tends to benefit the economy as a whole.

In fact, if consumers are not spending, the best way to spur demand is to allow prices to fall to more affordable levels. Sam Walton made billions with this simple concept.

— Peter Schiff; How an Economy Grows and Why It Crashes