I see headlines and articles discussing how consumer spending is driving, or of late, possibly slowing, the economy. But if not for people buying non-essential products and services, what else would drive the economy? Everyone needs food, shelter, and clothing. Many need cars, depending on their location. But I take it that spending on necessities is not enough, especially non-consumable or long lasting things like houses and cars.
In: Economics
In a country as wealthy as the US, it’s hard to imagine anything else as the primary driver of the economy. But in other countries or times it might be:
* Business investment
* exports (think about poor countries that have lots of manufacturing that we buy)
* government spending (such as North Korea with its massive military)
We have all of these, of course, but what if we had more of them, or people had less money? You might see a much heavier emphasis on exports or dependence on government spending for example.
The dominant economic driver has changed many times in human history. Guessing what the next driver will be is tricky and complex as it is tied to both technology in the traditional sense and “economic” technology. If we could accurately predict those, we would be called visionary because it is so hard to predict and requires so many things to line up to achieve.
Let’s offer a wild technology option: humans hook up full time to VR (a la the Matrix) thereby drastically reducing their physical needs and resource consumption. The economy is now driven largely by virtual goods and computing power. But since virtual goods are essentially free to copy, what shape does the economy take? What drives it?
And here’s an “economic technology” future: widespread universal basic income. As AI and automation reduce job availability for all, how do people even find work to get money to buy things? Maybe they don’t. Maybe the government taps the wealth of whatever economic driver is dominant and just redistributes large parts of it to the people.
Canada, for example, has huge natural resource sectors – oil, timber, minerals, etc. If oil prices drop, provinces like Alberta suffer. It’s not nationwide, but it makes a big dent in things like government revenue, employment numbers etc.
Small European nations might have massive banking sectors, or tourism, or cheese-making, or whatever. If that crashes, it could immediately make 100 000 people unemployed.
The problem in America is it’s too big, too rich, and too diverse. Detroit died because the car industry imploded, but that had very little impact on California. Florida will be destroyed by rising sea levels, but Montana will be fine. Some places with a huge military base would be gutted if that base were closed, or farm country if they can’t get workers, or whatever.
The one thing most places have in common across the country is consumer spending. So that’s the huge one that you can point to.
This is why it makes sense to have subregions within a country. Consumer spending is important, but there are 100 regions within America (or more) that have different needs and policy needs to be tailored to them. You could make a MUCH bigger dent in the economy by making local changes that help farmers or enable manufacturers or address infrastructure concerns when you can focus on a small area.
Realistically? Nothing. The US is the world reserve currency. Meaning when other countries have too much money, they buy USD to take their currency out of circulation. It decreases supply of their currency, raising value, while increasing demand for USD, raising its value.
The net result is that the US has an economy that is heavily reliant on foreign trade and domestic consumption.
The US is designed around having millions and millions of people buying things all the time produced by and sold at corporations that continuously charge as much as possible while paying as little as possible and regularly performing layoffs without replacing headcount to meet quarter over quarter profit goals.
Nothing about the system is sustainable. The richest FOUR PEOPLE in the country have more wealth than the bottom FIFTY PERCENT.
Relevant subjects: Triffin’s Dilemma, Smedly Butler and the business plot, and Peruvian Bull’s Dollar Endgame.
Infrastructure investment – tax dollars being reinvested in capital improvement projects to the country’s infrastructure. People get paid to do the work, the new infrastructure is more cost-effective in the future, the upgrades add value in the present, it’s a win win. Bridges, drinking water systems, train tracks, broadband installation – these are all ways a country can invest in its future and increase the workforce and the GDP all at the same time.
I’m surprised by the first answers. Isn’t USA on the top of technology? Many of the major TI companies (Apple, Microsoft, Amazon, Alphabet and Meta) are American, so they drive TI evolution, in a sense. I guess that would be the major economy’s engine.
Apple still relies much on “consumer spending” but most of these companies profit on virtual services.
Ummm, military spending?
We’re a post scarcity industrial society. We don’t all need to work in order to produce enough for everyone. I think Right now, about 40% of labor is actually necessary, even with our high standards of living. The exact proportion doesn’t really matter, only that it is decreasing as technology gets better.
infinite retail/service craziness is one way of finding enough work to let everyone have jobs. Consumer culture is a bad side effect of this, but it’s a lot better than some of the alternatives.
An UBI would be another way to let everyone have resources without running into a “too many cooks” situation. I don’t think we’re quite there yet: out gdp/capita is 76k, and the poverty line is like 15k. I think the ratio has to get up around 10:1 before an UBI starts to becomes viable.
It’s structural.
The $ is still the most held reserve currency in the world.
Triffen dilemma means US is a net exporter of dollars and net importer of goods.
That structural role of the $ what really drives US economy.
Consumer spending is the by-product of that.
These answers are all quite bad. Your question is confusing people and they are trying to answer from a mistaken premise. All economies need people to spend money. There is no economy that survives if people stop buying things. It’s like asking how a heart beats without blood. People are coming up with imaginary answers.
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