Production and Consumption

One thing I will often remind readers of this blog is that an economy grows by production. Just because the mainstream media and the Keynesian economists tell us that we need more consumer spending, it does not make it true. There is nothing wrong with consumption. But in order to have consumption, someone has to produce something first. We could try to stimulate consumer demand in Zimbabwe, but there isn't much to consume. Consumption is a reward that we get for previous production which comes about from capital investment and labor. If, in general, we are consuming more than we are producing, then eventually we will run out of things to consume. We will use up the wealth that had been created in the past. This sounds like a simplistic point, but if you understand this, then you are ahead of at least 95% of the population.

That is why we are likely to see rough economic times ahead. The key to growth in an economy is savings and capital investment. There is always some of that taking place, but as a whole, there is a lot less investment of capital now than there has been in the past. The government is taking so much money out of the private sector through taxation and debt, that it has to have serious negative effects at some point.