In Search Of Consumer Spending

I just happened across a headline in a respected financial publication offering a bit of guarded cheer on the economy. It said that recent gains in the stock market might help boost consumer spending, but cautioned that the effect may be mostly limited to the wealthy.

Folks, this kind of Keynesian claptrap might have made sense in 2009, but where’s the case demand-side economics is what’s needed in 2022? How in the world would more consumer spending help what ails the economy now? Even the most casual observer taking an occasional peek out of his cave can’t have missed the news about supply chain constraints, let alone supposedly professional financial journalists. It’s impossible to have covered the inflation story over the past year without having encountered its connection with historically robust demand for everything from consumer goods and services to workers. Demand for housing, used cars, durable goods, discretionary … none in deficit. The Federal Reserve has even cited excess demand as a transmission mechanism for the inflation that bedevils America.

There may be a lot of things ailing this economy, but lack of consumer spending isn’t one of them.

5 thoughts on “In Search Of Consumer Spending

    1. Finster says:

      Hahaha!!! Oh yes. You might remember my advocating something like that back in 2008-2009 … creating money and distributing it by sending everybody checks (as opposed to pumping it into the financial system). But that was when the bogeyman was deflation, right?

      We finally did it in 2020 when we had another deflationary crash. And it worked. Trouble is we kept administering the cure long after the disease was eradicated. It was as if you had an attack of appendicitis and the surgeon removed your appendix every week for two years.

      Not to mention that even more money was pumped into the financial system, with the Fed buying MBS, going full retard on forward guidance (ZIRP forever), buying corporate bonds … and all the “targeted” fiscal largesse (read: money going to special interests) … well, we could write a book …

      1. Finster says:

        In general the whole paradigm that consumption is what makes the economy tick is flawed. Various formulations of Say’s Law apply. Real demand – human wants and needs – is unlimited … people never lack desire for better health, homes, communications, transportation, art … they’re only limited by supply. Production is the ultimate prosperity variable … in order for something to be consumed it must first be produced.

  1. shiny! says:

    https://www.federalreserve.gov/releases/g19/current/default.htm
    “Consumer credit increased at a seasonally adjusted annual rate of 8.7 percent during the second quarter. Revolving credit increased at an annual rate of 14.6 percent, while nonrevolving credit increased at an annual rate of 6.9 percent. In June, consumer credit increased at an annual rate of 10.5 percent.”

    Consumer credit spending going UP even while interest rates are rising signals desperation. People are maxing out their credit cards to buy formula and diapers at Walmart. The misery index is high and worsening amongst the people the Fed doesn’t care about.

    1. Finster says:

      Thanks for calling that to our attention Shiny! It – along with the recent surge in stock prices – also seems to suggest that the Fed has more work to do. Indeed taken together they indicate the asset owning class is doing fine while the working class suffers. Its rhetoric suggests the Fed isn’t happy with this direction … it remains to be seen whether it will back that up with firm action. The results of the last couple of meetings are encouraging … markets appear divided on whether that progress will be sustained.

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