You Nailed It! Chicago Economist Gets It: Bull Market on Wall Street Driven by Entrepreneurs, not Consumers

The news is out: U.S. shoppers went on a buying frenzy over the Thanksgiving weekend. Online purchases hit a record high, up 14% from last year, and even retail store sales rose 4.2%.

The Wall Street Journal immediately reported that consumers are keeping the economy alive. “U.S. shoppers have been the economy’s driving force over the past two quarters as business investment declined.”

But wait! The media bemoaned the fact that holiday buying season is short this year due to Thanksgiving coming a week late.

Fortunately, some financial economists know better. One is Brian Wesbury, chief economist at First Trust Chicago, who wrote earlier this week a great column, “Don’t Worry about the U.S. Consumer.”

Wesbury uses my gross output (GO) statistic to discuss the holiday robust sales and to refute the myth that consumer spending drives the economy. It’s a beautifully written article on how business is a far more important catalyst for economic growth than consumer spending (Say’s Law).

As he states, “it’s important not to let all the media attention on consumer spending distort the view of the way the economy really works. People can’t consume something until it’s been produced.

“Yes, according to conventional statistics consumer spending is 68% of gross domestic product (GDP). But GDP doesn’t count all economic activity; it uses the sales value of all [finished] goods and services (consumption and investment) to estimate production.

“By contrast, economy-wide ‘gross output’ includes not only business-to-consumer sales and investment but also what is not included in GDP, which is intermediate business-to-business sales, as well. Consumer spending is only 38% of economy-wide gross output. In other words, consumer spending is a much smaller part of total economic activity than GDP suggests.

“That’s why, as much as we like to see solid numbers on consumer spending, we see this as an effect, not a cause, of our bounty. The primary cause is the innovation and risk-taking of entrepreneurs. Which is why, if you want to know when the next recession is going to start, you need to pay careful attention to the environment for innovation and risk-taking, not how much people are spending.”

You can read it here:

https://www.ftportfolios.com/Commentary/EconomicResearch/2019/12/2/dont-worry-about-the-us-consumer

As Steve Forbes wrote me, “Your disciples are growing. Go GO!”

I should add that the latest second-quarter GO data show that the economy is recovering. To see my latest press release, go to https://www.grossoutput.com/2019/10/29/u-s-enjoys-a-modest-recovery-no-recession-in-sight/.

Mark Skousen

Mark Skousen, Ph. D., is a professional economist, investment expert, university professor, and author of more than 25 books. He earned his Ph. D. in monetary economics at George Washington University in 1977. He has taught economics and finance at Columbia Business School, Columbia University, Grantham University, Barnard College, Mercy College, Rollins College, and is a Presidential Fellow at Chapman University. He also has been a consultant to IBM, Hutchinson Technology, and other Fortune 500 companies. Since 1980, Skousen has been editor in chief of Forecasts & Strategies, a popular award-winning investment newsletter. He also is editor of four trading services, Skousen TNT Trader, Skousen Five Star Trader, Skousen Home Run Trader, and Skousen Fast Money Alert. He is a former analyst for the Central Intelligence Agency, a columnist to Forbes magazine (1997-2001), and past president of the Foundation for Economic Education (FEE) in New York. He has written articles for The Wall Street Journal, Liberty, Reason, Human Events, the Daily Caller, Christian Science Monitor, and The Journal of Economic Perspectives. He has appeared on ABC News, CNBC Power Lunch, CNN, Fox News, and C-SPAN Book TV. In 2008-09, he was a regular contributor to Larry Kudlow & Co. on CNBC. His economic bestsellers include “Economics on Trial” (Irwin, 1991), “Puzzles and Paradoxes on Economics” (Edward Elgar, 1997), “The Making of Modern Economics” (M. E. Sharpe, 2001, 2009), “The Big Three in Economics” (M. E. Sharpe, 2007), “EconoPower” (Wiley, 2008), and “Economic Logic” (2000, 2010). In 2009, “The Making of Modern Economics” won the Choice Book Award for Outstanding Academic Title. His financial bestsellers include “The Complete Guide to Financial Privacy” (Simon & Schuster, 1983), “High Finance on a Low Budget” (Bantam, 1981), co-authored with his wife Jo Ann, “Scrooge Investing” (Little Brown, 1995; McGraw Hill, 1999), and “Investing in One Lesson” (Regnery, 2007). In honor of his work in economics, finance, and management, Grantham University renamed its business school “The Mark Skousen School of Business.” Dr. Skousen has lived in eight nations, and has traveled and lectured throughout the United States and 70 countries. He grew up in Portland, Ore. He and his wife, Jo Ann, and five children have lived in Washington, D.C.; Nassau, the Bahamas; London, England; Orlando, Fla.; and New York. For more information about Mark’s services, go to http://www.markskousen.com/