What constitutes real economic growth? Many say that spending and consumption are good for the economy, and they are right. Consumption and spending are absolutely necessary for an economy to do well. However, in order to spend and consume money, there must be products to spend it on, those things you consume. This is why production is so important. An economy that relies on consumption for growth loses its ability to produce.
While consumption refers to the money you spend on goods that you will "use up." In other words, you don't buy these goods in the hopes of gaining money off of them. You buy them because they are something that gives value to you in and of itself. You don't buy food, for instance, with the hopes of making money off of it. You buy it to eat it. And then its gone. Or even a boat, which you use for recreation and unless resold at a higher price (unlikely), you consume that too.
The misleading thing about consumption is that while it is statistically a component of GDP growth (Gross Domestic Product = Consumption + Investment + Government Spending + Exports - Imports), it does not provide for future growth.
This is where production comes in. Production refers to the amount of goods and services being produced by an economy. Consumption relies on production because a good must be produced before it is consumed. Production relies on consumption because consumers give money to producers and thus incentive to produce goods.
In order to sustain growth, an economy must produce more than it consumes. When an economy does so, it provides for its participants and exports the rest for more wealth. When an economy consumes more than it produces, it must import the difference from other country, bringing wealth out of the economy and sending it to another.
This is where the United States is today. We continue to borrow money and spend it on consumption, so we don't realize a problem since we're getting everything we need. But borrowed money is only supposed to be used on investment because investment assumes that over time, the project being invested in will produce more wealth than the initial loan was worth (so it assumes a way to pay it back). The only way it makes sense to borrow money is if you hope to gain even more money by doing so. When we borrow money, then consume the money we borrow, we are simply increasing the need to borrow more, digging ourselves into deeper and deeper debt, accumulating into what is now $17 Trillion in National Debt ($17,000,000,000,000.00).
As Americans, we need to realize the problem is there without having to feel the effects of it being there because by the time we feel the problem, it will be too late. We will have spent all our money consuming goods instead of saving and investing it, we will have lost the ability to produce goods, and we will have no one else there to give us another loan.
There is a way to fix this mess we're heading towards. And its not the government's job to do (the government has already shown that it cannot fix it). We need to change our way of thinking from one of consuming every dollar we make to one of saving and investing the money we make. The reason is, when we invest our money in the bank, it is lent to entrepreneurs and small businesses to start a businesses and begin production. When we invest in the stock market, the money is used by large corporations to acquire capital and mass-produce. Once we can start being the nation of production that we once were, we can have a truly sustainable economy where the producers produce and the consumers consume our goods. And even you make money because your savings and investments are paid back in full plus interest.
While quick-fixes and instant gratification are characteristic of our culture today, we need to realize the path down which we are heading before we are left with nothing and have to start over.
The consumption bubble is coming, and it's going to be worse than 2008.
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