Does Consumer Spending Tell the Whole Story?

Consumer purchases such as going to the movies, going out for Chinese food or buying a big screen HDTV will do very little for increasing a person's ability to be more efficient, be more productive or make more goods. Tools like computers, tractors, power drills and education can have a profound impact. Now as any college student knows, a computer can be used to for playing games and doing research, so the lines can be blurred. And there is nothing wrong with enjoying life a little or seeing a movie. If a new car allows you to better serve clients or deliver goods to customers, it becomes a powerful capital asset, but many times they are not used in this way.

Ultimately, investments in our future need to made to make us more effective and more productive. If we fail to make those investments, it can have a negative effective on our future lifestyles and those of the next generation. Each year, society has only a limited amount of time, money and resources; we can spend them on consumable products like vacations that have a limited return or invest them in long-term assets like roads, equipment, computer software and training that will allow us to be more efficient and productive in the future. While consumer spending is a big indicator of how people feel about the economy, the alternative of saving and investing for the future is really critical and often ignored.

Some seem to think that if everyone trimmed back on their expenditures and saved money it would cause a collapse of the economy. While bankers may see deposits rise, they would in turn loan that money out. Certainly it would cause some changes, but the economy would be transformed from one of consumer spending to investing. People could be focused on stock portfolios' productivity, building up the tools in their garage workshop or educating themselves in the latest computer software. Building better roads will cut down on congestion, building more houses will help the homeless and educating people will be a benefit to society overall. Investing takes denial of pleasure today in hopes of a greater pleasure tomorrow, and that is something that an instant gratification society finds difficult.