Consumerism and Keynesianism

Steven Horwitz

I'm linking to my FreemanOnline column today as it deals with the issue of why consumption is not the key to economic growth and the point that it only became a fixation of economists since the Keynesian revolution.  Thus:

The great irony is that leftists frequently argue that capitalism equals “consumerism.”  They think defenders of free markets believe that more consumption promotes economic growth; thus we are charged with providing the ideological cover that justifies the consumerism they see as deadening lives and wasting resources.  What the leftist critics miss is that economists never saw consumption as the driving force of economic growth and prosperity until the Keynesian criticisms of free markets became ascendant.

Feel free to comment here or there.

Comments

[Daniel Kuehn]

Steve -
Thanks for the link. I actually recently blogged about the relationship between Keynesianism and consumption, and the confusion around Keynesianism as a "boost consumption" approach. That's here, in case you're interested:

http://factsandotherstubbornthings.blogspot.com/2010/12/keynesianism-and-consumption-keynesian.html

I'm concerned that my explanation might not be entirely clear, but it seems to relate to your piece here. I suppose I would say that I (1.) resent your insinuations, and (2.) agree with your implications :)

That this emerged after the Keynesian revolution when people confused "demand" or "expenditure" with "consumption" I think is exactly right. But I don't think that's the message of the Keynesian revolution itself.

[Student]

Would you be able to name *which* prominent economists in the past 50 years believed that the "key to economic growth" was consumption (i.e. not (i.e. economists outside Keynes' Cambridge Circus)?

I am scanning my memory and having a hard time thinking of any prominent economist that seriously argued that consumption led economic growth. In fact, it is hard thinking of many economists working in the 1950s/60s on economic growth at all.

And really, the most prominent paper on economic growth during that period was Solow's introduction of the neoclassical growth model (in *1956*), which argued key to sustained economic growth was on the "supply side" of the equation (improvements in total factor productivity). Solow, by the way, was a Keynesian.

[phil m]

I'm glad to see an expert confirm what I've been thinking all along. I suppose my question is what impact has Keynesian Economics had on the Mainstream Field since the Stagflation Era? I feel like Keynesian Economics is more like public policy recommendations than anything else.

[Troy Camplin]

Steve is not the first to argue this about Keynes. I discussed an article by Peter Smith, who makes the same argument about Keynesians. I talk about it here:

http://zatavu.blogspot.com/2010/10/is-macroeconomics-nonsese.html

and, more directly related to Steve's article, here:

http://zatavu.blogspot.com/2010/10/economies-are-driven-by-supply.html

[The_Orlonater]

I always felt leery of leftists who suddenly discovered Keynesianism.

[Gene Callahan]

"They think defenders of free markets believe that more consumption promotes economic growth..."

But Steve, I've been reading a few people such as Wendell Berry lately, and I don't see any of them making this sort of argument. Rather, the argument is that unfettered markets promote consumerism, e.g., by exalting commercial success above other virtues, through advertising promoting consumption, etc. Who argues that free marketers think consumption promotes growth? (I'm NOT saying no one does, but I haven't seen it myself, and would like to look at some examples.)

And, of course, production is for consumption, so if *eventually* we weren't going to see more consumption, no one would bother producing more. (Malthus recognized this aspect of growth quite clearly -- his "underconsumption" theory was NOT that merely spending more on consumer goods would lead to more production, but that increasing the marginal rate of substitution of consumption and saving versus leisure would lead to more growth.)

And did even Keynes think that consumption was the key to economic growth? As I understand him, his key idea here is that C + I rise and fall together, so you can boost *either* by boosting the other. Now, that view may be wrong, but it is not equivalent to "consumption is the key to growth."

[Gene Callahan]

Oh, and now, AFTER posting, I've reading Daniel Kuehn's post -- doh! -- and, "just so," I say -- it simply isn't the case that Keynes thought "consumption is the key to economic growth." (And neither did "underconsumptionists" such as Malthus and Sismondi.)

[Steve Horwitz]

Which is why I was very careful to say "Keynesian" and attempt to avoid the issue of whether Keynes himself was a "Keynesian."

[MIchaelM]

I'm sorry, but I'm going to have to push back at this post a little.

Steve, let's remember the importance of disaggregation here. Looking at large, complex aggregates as simple and easy to understand unities forces you to ignore or just miss a lot of important information, information without which you can't really understand the aggregate in question.

The aggregate you're concentrating on here is the political 'left'. You rightly point out the hypocrisy simultaneously holding the position that consumerism is bad but stimulus spending is good entails, but you ignore the fact that, a great deal of the time, the leftists holding the former position are NOT the same leftists holding the latter. While I'll admit that there certainly are lefties holding both positions, and thus open to your charge of hypocrisy, there are also many leftists who DON'T hold both.

So, in the interests of not seeing people simply as members of groups, I'll just say that you're being a little hasty with this generalization.