Digression: Thrift versus Spendthrift

Merely transferring money into the wages channel, increasing the spending power of consumers without forcing them to borrow, is of course not enough; the spending power must be translated into effective demand, with increased spending and consumption actually taking place – the more the better.

The resulting increase in the throughput of goods and services increases employment and also increases the rate of wealth depletion, bringing it closer to, or pushing it further ahead of (varying from one wealth form to another), the renewal rate.

Maximising consumption and its rate of increase have become the global economic religion since Keynes’ time, with the old virtue, thrift, becoming a vice. Governments, and business through intensive advertising, have promoted the new creed as being good all round – higher profits, higher taxes, permanent full employment, everybody always getting “richer” (i.e. more perfluent).

Of course it would be good for all forever if we lived on a flat earth extending indefinitely in all directions. For most of history this concept would have been a good enough approximation to the actual round, limited earth we live on. But it is no longer good enough in the age of technological humanity, dominating the planet.

In fact, ever-increasing consumption depleted more and more resources, eroding the whole basis of economic activity and setting up stresses, as described elsewhere, which push employment up again.

Thrift is necessary to use as little of a resource as possible and thus maximise the chances of having a sustainable economy that is in dynamic equilibrium with the world’s resources. Another name for this is the steady state economy.

But this kind of thrift, in the absence of other measures, would have left the unemployed of the Great Depression in that state all their lives.

So that is the dilemma – the maximised consumption that lifted the Great Depression and whose continuation appeared necessary to keep employment full have, through resource depletion and its secondary effects, caused economic problems that threaten to raise unemployment again to levels not seen since the Great Depression, and higher yet.

So what’s the answer? What should have been done in the 1930’s? what should be done now? The answer will be developed in the posts that follow.

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Posts in this Series

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