"Virtuous confidence"

Like many of my esteemed colleagues here, I’m fed up with the conventional wisdom that consumer spending is what “drives our economy” and “makes America great.” I’m tired of hearing exhortations from establishment media that we should get out and buy stuff with money we don’t have because that’s what’ll “get the economy moving again.”

So I think to myself, what I would have given to be around in the 1950s. Sure, Keynesianism ruled the day in government and academia, but at least compared to today there was a basic common-sense recognition by the public that savings and capital formation are the driving forces behind good economic health.

Or was there? Perhaps I’m imagining a mindset that did not exist.

I got to thinking about this during Christmas week as I dived into David Michaelis’s exhaustive (at times exhausting) biography of Peanuts creator Charles Schulz. In the course of mentioning his first wife’s tendency to acquire all the latest and greatest appliances in the late 1950s, Michaelis discusses a consumer-driven zeitgeist of that era.

With the nation’s gross national product doubling between 1940 and
1960, it was, as American advertising reminded everyone, a time to
“buy, buy, buy.” And not just for oneself, but for the general good:
a depression-seared society, deeply afraid for years after the war
that any drop in public demand would cave in the economy — hence the
emphasis upon what cold war spending was doing to nail prosperity in
place — saw investment in consumer goods as virtuous confidence.

Readers who actually lived through that era might not find any of this too surprising. But even to me (an older Gen-Xer), this is something of a revelation. Sure I was aware of the theory that the end of World War II would plunge the United States back into depression. Woolworth’s based its postwar business plan on that theory; it’s one reason we don’t shop at Woolworth’s these days.

But here in Michaelis’s account we see again this notion of consumer spending as civic duty, going back decades before George W. Bush encouraged us to go shopping and visit Disney World after 9/11. And as if that weren’t bad enough, it was augmented by the notion that government spending in the form of our new national security state — which at that time ate up something like 10% of GDP — also paved the road to prosperity.

All of which goes to demonstrate what a flawed measure GDP is. GDP is made up of four components; chances are you already know consumer spending is the one that makes up more than two-thirds of the figure. The other three are government spending, business investment, and exports.

So what would be a more accurate measure of economic vitality?