Quote of the Day: Conspicuous consumption should not be the goal of a prosperous society

Someone once said that the wealth of nations comes not from what we spend but from what we sow (actually, I wrote that several years ago). Like the farmer, a nation has to plant seeds in the spring to reap a good harvest in the fall, which is how Chauncey Gardiner, the fictional hero of Jerzy Kozinski's Being There, might have put it. For the rest of us, it's called investing in the future.

Just imagine if mom and dad, grams and gramps, doubled up on their holiday spending on toys and other tchotchkes for the kids. Spending would go up, GDP would go up, and toymakers would have to increase production to replenish their inventory. They might even hire a few new workers. The increased demand for toys would trickle down to suppliers, including manufacturers of plastics and other materials.

Then what? Tomorrow's growth is a function of what we invest today. It is investment in plants and equipment that expands productive capacity, increases efficiency, lowers prices, leads to higher real wages and enables the economy to expand at a faster rate in the future. There is no free lunch, but productivity growth is about as close as it gets.

So unless you think Barbie holds the key to a higher standard of living, conspicuous consumption—as it was known when Americans were being encouraged to save—should not be the goal of a prosperous society.

Consumer spending does send an important signal to producers as to how to best allocate scarce resources. Not that entrepreneurs are listening. Alexander Graham Bell didn't need consumer demand to encourage him to invent a piece of equipment that would transmit speech electrically. Nor did Steve Jobs wait for iPhone demand before creating Apple's incredibly popular smart phone. Entrepreneurs invent things because they anticipate a market for, and profit from, their product. If they change the world in the process, so be it. They don't need encouragement or validation—seed capital will suffice—before they create something the public didn't know it wanted or needed.

This is from former Bloomberg columnist Caroline Baum at the Economics21.org