This gets my vote as the most misleading "fact" of the year. Every newscaster, journalist, tv reporter, politician and economic analyst says it, almost daily. Here it is:
Consumer spending accounts for two-thirds (sometimes they say 70%) of economic activity.
The implication, which immediately follows the statement- either implicity or often explicitly- is that consumer spending is the most important activity driving the economy. Which is totally wrong.
We've been saying here that business spending is the most important activity driving the economy. While consumers have been spending too much; the bigger problem is that business has not been spending enough. Business has not been investing in the future. And that's why there's an economic problem, recession or no. Instead of buying software, technology, spending on research and development, new ventures, and raising salaries, business has instead hoarded its money in reserves, stock dividends, and high corporate salaries.
Yesterday, Paul Krugman confirmed the lack of business spending yet again (NYT did a whole series on it last year). He also said, in a terrific interview On Point, that government is now spending/investing because business is not spending/investing. The only way consumers can resume spending in any responsible manner is for workers to get jobs, contracts and pay raises- - all of which stem from business investing again. Photo: Brian Williams of NBC/MSNBC
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