“Consumer spending represents about two-thirds of the U.S. economy.” — Mitch Zacks, Zacks Financial Services (August)
Financial guru Mitch Zacks, president of the popular financial site, opined this week that there was nothing to worry about in the stock market. Never mind that the economy is slowing dramatically in China and the Chinese stock market has collapsed (down 6% yesterday). Never mind that business spending (B2B) is falling in 2015, a precursor to trouble ahead.
Do not worry, says Zacks. Retail sales are strong in the United States, and that’s all that matters. After all, “consumer spending represents about two-thirds of the U.S. economy.”
Wrong! Like a virus, the consumer spending myth never seems to disappear, even after years of efforts on my part and others’ to dispel this myth.
I spoke last Friday at a luncheon in Portland, Oregon, sponsored by the Cascade Policy Institute on “What Really Drives the Economy.” It turns out that business spending is almost twice the size of consumer spending. Consumption represents only about a third of the U.S. economy, when you measure spending at all stages of production, and not just final output, which is measured by gross domestic product (GDP).
Saving, capital investment, productivity and entrepreneurship — the supply side of the economy — are far more important than consumer spending, or government stimulus — the demand side. Say’s law (supply creates demand) rules!
Your editor with Steve Buckstein, president and founder of the Cascade Policy Institute, in Portland, Oregon.
In my talk, which is now available online, I noted that 50 years ago, the Oregon Ducks football team was almost always ranked among the lowest in the Pac-12 conference. Now, the team is ranked near the top. Why? Not because Oregon fans demanded it, but because Phil Knight and the giant Nike company (based in Beaverton) he leads supplied it! My main message is that the key to economic growth is on the supply side — the creative entrepreneurship of businesses like Nike (and to the north in Seattle, such companies as Boeing, Microsoft, Amazon and Starbucks). Consumer spending is the effect, not the cause, of prosperity.
For the latest data on business spending in the economy, read my recent column.
And right now, the supply side is stumbling — and that’s why the stock market is in retreat and gold is rallying as fear of another crisis mounts.
You Blew It! John Stockton and Michael Jordan Were Cut
“If someone else was coaching, you might have made this team. However, if someone else was coaching, you might not have made it this far.”
— Bobby Knight, coach for the 1984 Olympic Basketball Team
During the weekend, I bought a copy of “Assisted,” the autobiography of John Stockton, the famed guard and teammate of Karl Malone on the Utah Jazz. I’ve always been a fan of this duo, known for perfecting the pick and roll. They made it twice to the NBA championship series but never earned a ring because of Michael Jordan, Scottie Pippen and their teammates on the Chicago Bulls (1997-98).
John Stockton and Michael Jordan have something else in common: each was cut from teams they tried to make before they entered the NBA. Jordan was cut by his high school basketball coach. Stockton made it all the way to the final cut for the 1984 Olympic basketball team, but ultimately coach Bobby Knight chose his own Indiana University player, Steve Alford. (Knight also cut Charles Barkley!!) The U.S. team nonetheless won the gold medal at the Los Angeles Olympics that year but the competition did not include the Soviet Union, which boycotted the games.
Life is full of mistakes, and choosing Alford over Stockton was one of them. Alford played four lackluster years in the NBA and is now the coach of the UCLA men’s basketball team. Stockton became an 18-year veteran with the Jazz and now holds the lifetime records for assists and steals in the NBA.
Being cut was a good thing in the long run. It spurred Michael Jordan, John Stockton and Charles Barkley to work harder to achieve their goals. They didn’t give up.
I’ve experienced something similar. After only a year, I was let go as president of the Foundation for Economic Education (FEE). It was hard to take when it happened. But then I went on to organize the world’s largest annual libertarian conference, FreedomFest. I’m glad it happened the way it did.
In case you missed it, I encourage you to read my e-letter column from last week on Eagle Daily Investor about the sorry state of American infrastructure. I also invite you to comment in the space provided below my commentary.
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