That the US economy is running into problems is becoming clearer by the day. It is equally clear that America's economic commentariat is still wedded to the fallacy that consumption drives economies. Time after time I keep reading that consumer spending is more than 70 per cent of GDP which means that if consumer spending falls the economy will slide into recession. What matters, however, is total spending, of which business spending is the most important component. The problem here is that the commentariat has unthinkingly swallowed the fallacy that including spending between stages of production would be a case of double-counting.
If this were so then eliminating spending on intermediate goods would have no effect on production. Yet we know that if this were to occur the economy would collapse. Fortunately some government economists seem to have seen the light. The Bureau of Economic Analysis calculated that though GDP for 2000 was about $13 trillion actual spending came in at nearly $23 trillion. Although I think this is an underestimate it nevertheless reveals a fundamental and vitally important fact. And that is that business spending is what really drives the economy. We can therefore deduce that business spending is where we should first look for danger signs of an impending recession.
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I understand that you are trying to demonstrate how business spending and saving patterns impact the economy. That is important to demonstrate. You should not discredit the importance of household and government savings and the lack of savings in these areas as adversly impacting the economy. Over the last thirty years plus, the business sector has been largely responsible for lessening the impact of reduced household and government savings. If only individuals and the government could save more, our deficit may not be as large this next year.
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