Consumption results from production, not the other way around

I recommend reading this column from Steve Horowitz.  It reminds me of this post of mine on wealth and where it comes from.

Here are some key sentences from Horowitz’s article:

One of the most pernicious and widespread economic fallacies is the belief that consumption is the key to a healthy economy.

…we only have the power to consume if we have produced and sold something in order to acquire the means to engage in consumption. Starting the analysis with consumption assumes one has already acquired means.  Contrary to that analysis, wealth is created through acts of production that rearrange resources in ways people value more than alternative arrangements. These acts are financed with savings that come from households refraining from consumption.

Folks often skip right past the true source of consumption and skip right to the consumption. They mistake consumption for wealth. Wealth first had to be created somewhere.

Even the wealth acquired by rent-seeking bureaucrat was created somewhere merit-worthy before being directed into his pocket.

The health of the economy isn’t economic activity, rather it’s value creation. There’s an old saying   that what matters most can’t be measured, but what can be measured will be managed. We measure economic activity with GDP. That’s not value creation. Much damage has been caused trying to manage GDP.


Follow-up questions for “The Price of Everything”

I recommended reading Russ Roberts’ book The Price of Everything here.  Today, Russ Roberts posted a set of study questions used by Steven Horwitz in his class.

I’m keeping a set handy to spur a discussion for those who I get to read the book.  The questions are below the fold. Continue reading

Anti-Poverty and the Education Monopoly

Thanks to the Amateur Economist blog for these two excellent pieces.

First, is Steven Horwitz’s column in The Freeman, A Libertarian Anti-Poverty Agenda.  In it, Horwitz disputes the claim by one of his readers that he “hates poor people” and provides three libertarian recommendations for reducing poverty by removing some of the structural barriers that keeps poverty around.  I wonder if his readers will be able to respond to those recommendations without resorting to ad hominems.

Second, is this quote from the Jennifer Grossman:

[A]ny provider that commands 90 percent of the market — whether we’re talking about software, phone service, or heating oil — is, by definition, a monopoly. Our government employs thousands of bureaucrats to track down and break up monopolies on the grounds that monopolies stifle competition and thereby produce bad products at high prices. Doesn’t it strike anyone as strange that the same government protects its own monopoly in education? And stranger still, that nearly everyone accepts this state of affairs as normal — as something that has always been and must always be? … [C]ompetition forces public schools into making long-overdue repairs. And it offers poor parents the choices they desperately desire.”
— Jennifer A. Grossman, Source: How Philanthropy Is Revolutionizing Education

I have a thing for such clear and obvious insights.  Grossman’s insight exposes an inconsistency in thinking that can cause people who hold it to give more serious consideration to their positions.

I predict that one reaction could be, I trust the government because it is held accountable to voters, but I don’t trust private enterprise.  To that I’d recommend the people evaluate the effectiveness of political voting vs. economic voting.  And, I’d offer the education system as a prime example of the relatively less effective political voting.

By the way, Horwitz’s second poverty reducing recommendation lines up with Grossman’s.