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Consumption or Production? That Is the (Economic) Question

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Happily, in economics one can’t have Hamletian dilemmas, as they are either inconsistent with respect to economic logic, or completely unproductive beyond it. When it comes to economic policies, in those rare cases where these policies are not redistributive, there exist two options, according to the way in which the government chooses to support economic recovery: by stimulating consumption on one hand, or by stimulating production on the other hand. Especially in times of crisis and recession, what economic vision is chosen will make the difference, by establishing clear priorities and their persistent following. The Keynesian vision of stimulating the economy by increasing public spending is well known and it goes hand in hand with governmental activism. It has become almost proverbial: the state must spend more so that the economy is put (again) in motion. And when, because of various reasons, the state cannot spend more, it should at least support household consumption, as the increase in the (aggregate) demand will stimulate production and economic growth.

The economics of demand-led growth must leave room for the economics of supply-led growth, especially in the post-crisis period, but also as a general economic rule. Of course consumption is important, but consumption is rather the effect and not the cause of economic achievements.

 

Cosmin Marinescu