January 3, 2014
In early December, President Obama gave a speech on the economy. He blamed “the rich” for slowing economic growth by concentrating their wealth in savings and investment rather than spending it on consumption.
Heritage Foundation economist Salim Furth explains why the President’s claim is misguided:
The President apparently believes that consumer spending, rather than savings and investment, drives economic growth. But, as this chart shows, personal consumption is at a post-war high as a share of national expenditure. If consumer spending really did drive the economy, it would be booming.
All that consumption comes at the expense of net investment, which shows a clear downward trend since the 1950s. Net savings tracks investment closely.
The President also blames income inequality for the decline in growth, but Furth concludes based on the literature that “there are much stronger forces in the economy. The President’s theory does not account for the basic macroeconomic facts.”
What is proven to contribute to a healthy economy is fairer, more open, and more dynamic competition in the American economy. The new edition of Heritage’s new Index of Economic Freedom, to be released later this month, will show how America stacks up against the rest of the world on this front.
Do you think it’s important to encourage economic freedom about consumerism?