GDP and a Culture of Consumption

Many have the misconception that a true advocate of the free market (a condition where individuals are free to exchange, invest, and economize without coercion) is necessarily an advocate of our consumer culture.  Nothing could be further from the truth.

Gross Domestic Product, or GDP, as it is commonly known, measures three indicators: consumption, investment, and government spending.  GDP is the most commonly used indicator of economic strength among the mainstream.  As consumption is a presumed sign of economic strength, governments around the world perpetually create schemes and concoct incentives to try and boost consumption, for according to this measurement system (which I strongly disagree with), as consumption increases, so does the overall economic health of the nation.

Our culture of consumption is not a product of the unfettered free market, but is largely a result of state interventionism, including unholy alliances between governments and businesses of all stripes.  This is nothing new: the Austrian School of Economics has been preaching this for decades.  Economists of various flavors have been preaching this for centuries, if not millenia.

I clearly do not support increased government spending as a measure of economic strength.  Quite the opposite.  Investment alone (this would include what we call “saving”) is the prime indicator of economic health, in my mind.  As the government can do nothing constructive to assist this (except to protect individuals from acts of aggression), there is really no constructive purpose to measuring GDP.

One argument against measuring investment alone is that investment is bad for the economy in the short-term.  In a sense, this is true.  A consumption-oriented culture and economic system has a capital structure centered around perpetual consumption.  When that ceases, it is true that jobs are lost and companies go under as the capital structure is modified.

As opposed to consumption, investment is a long-term, rather than a short-term objective.  In the long-term, investment leads to stable growth.

Money saved now (and not consumed) will one day be invested in some capital expenditure of value and benefit to society: a car, a house, an education, etc.  Unfortunately, our consumption-oriented corporatist culture diverts resources from where they are most useful (i.e. investment) and puts them in an area where they have short-term gains at the cost of long-term rewards.  That money is diverted from its proper use to purchase some expendable and often non-essential good.  (When such purchases are made on credit, the consequences are even worse.)

Would consumption exist in a country with a small government and no measurement of GDP?  Of course: people still need to eat, shower, brush their teeth, and enjoy recreation.  But there would be less frequent frivolous purchases and more long-term planning and saving.

In short, capitalism gets a bad rap for our government-encouraged corporatist, consumer-driven culture.  My advice: stop measuring GDP, get government out of the business of business, and let the market go to work. In other words, stop interfering with every transaction between individuals: and let them economize and exchange freely, rather than being bound and fettered by onerous regulation, heavy taxation, and myopic incentives.

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1 Comment

Filed under Austrian Economics, fiscal policy, Libertarian, Personal, politics, recession, role of government, Social Commentary

One response to “GDP and a Culture of Consumption

  1. mormonpaleo

    Great article, brother. Flips preconceived notions of where blame belongs in a material world on its head.

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