Consumption vs Production

I am frustrated with the silliness that passes for wisdom these days.  To much of what is said is based on simplistic assumptions and understandings, with solutions crafted for sound bites not reality. One recent example is the call for more Consumption.  The argument is that we are a consumer economy and that more consuming will by itself drive the economy forward and up.  This seems to be based on a simplistic interpretation of the meaning of what a consumer based economy is all about. 

 In the beginning the early mass production auto manufacturers had it right.  They paid their workers enough to buy the product that they were building.  The rationale was that they could buy the cars(or other products) which required labor and materials:  sheet steel, wood frames, rubber tires, copper wire, iron castings, etc, all of which required labor and materials from a lower level supplier.  Each time the money passed through it was 1) applied in as effective way as possible, 2) stimulated value added labor, 3) Brought more people 4) got people to think of ways to do the job more efficiently so they could capture more profit.  This was the Consumption based economy, an engine of progress. 

But if you think about it the productive effect of a dollar spent on different consumption has vastly different leverage, spend it in Defense to buy a new jet or missile and you get a huge leverage (mostly US parts, mostly special equipment and special designs, high value add.)  Spend it on a Twinkie and its smallish, a few low paid workers and raw materials.  Spend it on a hamburger and its even smaller, spend it on consumer electronics and most of the value goes to Asia.. 

The problem I see with today’s version of the consumer economy is that any consumption is good.  In an economy at full steam that may be true, an extra dollar would go into buying a car, RV or adding value to your home.  But in a down economy most of that next dollar goes to base consumption such as food or buying a DVD or video game only a small fraction of that money goes to drive some version of the cycle above, most of it vanishes into profits and raw materials with very little processing / value add.

Something I said the two paragraphs above is a key reason I think that our economy has not done worse than it has during the great recession (if that’s what it really is.)  Huge amounts of money have gone into buying military equipment over the last five years.  Ninety percent of this equipment has come from US producers and money has leveraged out through the economy.  Now war isn’t a very popular stimulus method but in my opinion it has buffered us from something that could have been vastly worse and has ensured that the money was spent reasonably effectively.

But with the war economy ramping down what comes next.  More Twinkies are not going to get us out of a recession.  We have to find something that has the excitement, mass and leverage to get the wheels of the economy back in line.  I have not seen it yet, but I see a lot of opportunities, which I will talk about in another post.

 I wish that it were some grand adventure like a drive into space, low-cost space access exploration for resources among the near Earth asteroids and the moon, the generation of power in orbit, missions to mars and beyond.  But I can see that as yet the ‘value proposition’  (value / costs) of space is too low to pull a big effort out of government / society which has lost its appetite for (or maybe its ability to sell) risks and long-term pay backs at least for now.

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