Thomas Aquinas warned against homo unius libri — the “man of one book.” Harvard president Edward Everett followed that up, warning against “not only to the man of one book, but also to the man of one idea, in whom the sense of proportion is lacking, and who sees only that for which he looks.”
God defend us from man of one datum, particularly if that man is an economist, and particularly if the datum is wrong.
Exhibit A is the constantly repeated but entirely untrue statement that consumer spending represents 70 percent of the U.S. economy, and that it is therefore imperative that we give consumers some stimulus, in the form of tax rebates, more generous unemployment checks, or cocaine-monkey research grants, in order to put some schmundo in Joe Consumer’s hip pocket, the better for him to carry that seven-tenths of the economy he allegedly holds upon his shoulders like some debt-ridden Atlas chained to Mount Wal-Mart, his liver pecked by a winged and deathless Visa bill.
Who is guilty of repeating this? My occasional sparring partner Robert Reich, for one, who recently sent my head spinning all the way around by writing: “The problem is consumers, who are 70 percent of the economy. They can’t and won’t buy.” This is a problem, Reich argued, because Americans need to be driven further into debt: “Without consumers, businesses have no reason to borrow more. Except to speculate by buying back their own stock and doing mergers and acquisitions, which is exactly what they’re doing.”
The New York Times repeated the same idea in Sunday’s editorial denouncing the Republicans’ new Pledge. The Times’ editorialists probably heard it from Robert Reich, and they framed their argument similarly: “The pledge asserts that letting the high-end tax cuts expire would kill job creation. With the economy weak, letting all the tax cuts expire would be a big hit to consumer spending and, by extension, job growth. But richer Americans tend to save, not spend, their tax cuts.”
Reuters repeats this canard. Martin Crutsinger, the clueless economy reporter for the Associated Press, publishes it all the time. Fareed Zakaria and Pauly K. sing from this hymnal. Practically everybody saying the stimulus should have been bigger (and, for those of you outside New York and Washington: yes, such creatures walk among us) cites that datum.
It is not true.
As Michael Mandel documents copiously in his Bloomberg Businessweek column, what government statistics call “consumer spending” is not — get this! — consumer spending. Most of it isn’t, anyway. Lots of that so-called consumer spending is in fact government spending; Medicare and Medicaid, for instance, are lumped in there, as is most health-care spending, which amounts to, oh, $2 trillion a year, which might tend to throw the consumer-spending numbers off a bit. Health-care spending isn’t really driven by consumers (which is why our health-care market is so messed up, incidentally!), but by insurance companies, government, and other non-consumer enterprises. Something on the order of 15 percent of health-care spending actually comes out of consumers’ pockets. Chickenfeed, in the vulgate.
All sorts of other stuff is dumped into that category: the money spent by nonprofits, for instance, along with political parties and campaigns. Never mind, for the moment, that a big chunk of that actual consumer spending goes to things like clothes and electronics and shoes made abroad (and the consumption of which therefore has little direct impact on domestic economic activity), the truth is that consumer spending, in reality, represents less than half of U.S. economic activity, probably around 40 percent.
That’s a specific kind of error to make. But let’s take a step back from the specific to the categorical: Whatever fraction of our economy is represented by household consumption, 100 percent of our economy — and every economy — is represented by production. We cannot consume that which has not been produced. Consumption is not really the problem: People like to consume. Americans consume eagerly, even to excess. In fact, when the economy is good, these same liberal scolds fretting at present about our momentarily lean consumption will lecture us about the evils of over-consumption, which makes Americans obesely face-stuffing SUV-ridden despoilers of pristine rainforests and Makes Them Hate Us, etc.
The problem of economic policy is not getting people to consume. It is getting them to produce. You can train a monkey to consume. (In fact, he requires no training, especially once you get him coked up on the taxpayers’ dime.) Americans are extraordinarily productive people, but our economy has taken a hit because we have a couple of trillion dollars’ worth of capital locked up in dead real estate, dead securities, and the swelling sovereign debt upon which our pet Leviathan battens. If you have a trillion dollars locked up in residential real estate that still is over-valued — its inflated price being sustained by hook and by crook by the geniuses in Washington — that capital can’t be put to real productive uses. (Also, people who could otherwise buy or rent cheap real estate will be paying too much for housing, taking yet more potentially productive capital out of the markets.)
It’s worth revisiting the sage words of the New York Times and its horror of the fact that “richer Americans tend to save, not spend, their tax cuts.” But jobs don’t come from consumption; jobs come from production. People have jobs because they make useful things and provide useful services, which people want, in any event (but not at any price). You want people to produce, you need capital. You need investments.
And you know where investment capital comes from? Savings, geniuses. Real savings, i.e. the savings that come from consuming less than you produce. Reich, the Times, Krugman, and every stimulus-happy pundit on the Democratic side of the aisle is arguing for an economic policy specifically and particularly designed to discourage saving and discourage investment, while encouraging consumption and encouraging borrowing. That’s the ultimate in magical thinking: We’ll just borrow another few trillion dollars and consume our way out of what ails us! You want fries with that?
I’ve got some bad news for you, Sunshine, some ancient and unalterable and inescapable bad news: As ye sow, so shall ye reap. We’re presently sowing jack, and the Obama administration, the Pelosi-Reid Congress, the Krugmans and Reichs of the world are working hard to make sure that we sow even less. Real prosperity only comes from real productivity, which means real savings and real investment. Everything else is a Beltway full-employment program for social engineers, unicorn wranglers, and fairie-dust sprinklers.
I might point out that Robert Reich was secretary of labor, is presently a chancellor’s professor at Berkeley’s Goldman School of Public Policy, is a former Harvard professor, and a former Brandeis professor, and apparently does not know what is in the U.S. Bureau of Economic Analysis data. But he wants a government composed of wise men such as himself to spend your money on your behalf, because you are too stupid to invest it yourself. Hell, a rube like you — you might even save it, much to the horror of the New York Times.
– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.