I keep hearing a statistic being thrown around on the business shows and now in print. Here is an example where the concept appears twice in one article:
What does it mean to say that “two-thirds of the American economy” is based on “consumer spending”?
According to preliminary figures released by ShopperTrak RCT , a research firm that tracks total retail sales at more than 50,000 outlets, sales over the Thanksgiving weekend rose only modestly. Investors are worried that this portends a disastrous holiday season, which would be troubling not only for retailers, but for an economy that depends on consumers for more than two-thirds of its growth.
..."Unfortunately, two-thirds of the American economy is based on the spending of the American consumer," said Mike Stanfield, chief executive of VSR Financial Services. "When the consumer pulls back, it's very hard for the economy to gain much traction."
How does the act of “consuming” lead to “growth” at least in real terms? What is “growth” in this context? If I buy a pet rock, does that “grow” the economy or does it just get me a rock and the guy who sold it to me some money which he will probably use to find more rocks? If a lot of people buy pet rocks will it grow the economy? Would if they buy them really fast? Will this lead to even faster growth?
If a bunch of cavemen 10,000 years ago used dirt as money and traded it with one another for such items as leaves, rocks, and bark - would that have helped to “grow” their economy? On the other hand, what if one of the cavemen discovered fire, or invented the wheel, the spear, or the gun? As a result of these inventions, wouldn't other cavemen have more time to invent more things rather than wasting time trying to kill squirrels with bark or rocks? Would such productivity truly grow their economy and improve their lives?
Therefore, what is more important to an economy: "consumer spending" or saving, capital investment, and productivity?