Should Consumption be the Engine of the Economy?

In our previous post (Environment or Jobs: Straw Man or Real Dilemma?) we made reference to the fact that about 70 percent of U.S. GDP relates to consumption expenditures. Over at the Harvard Business Review blog, Chris Meyer asks: “Does the US Really Need More Consumption? Meyer argues that countries need to be careful in balancing consumption and investment spending—though there is certainly no blueprint for what a “proper” balance is at a given moment in a country’s economic history.

Meyer contrasts the U.S. consumption share of GDP with that of other countries like Sweden (47%), France and Germany (57%), Brazil (61%), and India (65%).  He notes that the global average is 61 percent.  At 35 percent, China, meanwhile, is all about investment (and exports) and very little about consumption. There is little doubt that the United States under-invests (see our earlier blog piece that talked about the sorry state of transportation infrastructure, for example). The share of GDP devoted to investment is 15 percent, says Meyer, compared with 42 percent in both China and Vietnam, 22 percent in France, and 18 percent in Germany.

These may seem like abstract percentages, but they translate into how well a country manages to create jobs and provide critical infrastructure—structural aspects that have massive impact on individuals’ life choices and experiences. Higher rates of consumption may be good for instant gratification, but may undermine the prospects for longer-term wellbeing.

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