Producing in order to consume

Writing in the latest Forbes magazine, RealClearMarkets.com editor John Tamny contends “economic growth is easy.” The full article is not yet posted online, but you’ll get the sense of Tamny’s simple prescription from the following excerpt.

Most would argue that the U.S. economy presently lacks aggregate demand, so the answer is for our federal government to spend with abandon in order to perk up that which is lifeless. The thinking here is backward.

John Stuart Mill long ago observed that we trade “products for products,” so if the desire is for increased consumption, we must stimulate the supply side of the economy. Specifically, we must remove the tax, regulatory, trade and monetary barriers to productivity. For individuals to consume, they must produce first.

Tamny’s argument echoes Mount Olive College economist Paul Cwik’s restatement of Say’s Law: “We produce in order to consume.”

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