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Sunday November 20, 2011 | 12:00 AM

With the high holidays of consumption beginning this week, it’s a good time to examine a couple of commonly held beliefs that seem to encourage opening our wallets as an exercise in patriotism.

First up is the seemingly unavoidable statement that “consumer spending is about 70 percent of the U.S. economy.” Unless stripped out by editors — I try my hardest — you will read something like this is in nearly every national story about retail sales, gross domestic product or other of the myriad reports that pour out of Washington weekly. Is it true?

No, says Michael Mandel, Chief Economic Strategist for the Progressive Policy Institute and former chief economist for Business Week magazine. He points out that the outlays that go into government estimates of consumer spending include lots of stuff that isn’t, such as Medicare and Medicaid, which are in fact government spending, or money spent by nonprofit organizations and political campaigns.

Does it matter?

“This is not harmless,” Mandel told me this week, because, “This leads to thinking about the economy the wrong way.”

And that leads to what Mandel contends is a myth: “You cannot have growth unless the consumer is spending.”

The kind of spending matters, too, Mandel believes. When you carry that new television out of Best Buy this weekend, you will have supported the domestic economy to the extent that some of the profit is converted to the salary of the helpful salesperson; he or she will take that money and perhaps spend some on lunch. If enough people do that, the restaurant may be able to hire additional wait staff, and their spending may help the local jeweler. And on and on.

That’s great, but what about the money Best Buy pays to the overseas manufacturer? That, Mandel contends, is lost to our economy, even though the entire purchase price is counted in GDP.

Strip out the items that don’t belong in the category and adjust for imported goods and Mandel says consumer spending comes in at around 40 percent of the economy, a figure that is consistent with what other 70-percent skeptics say, and more in line with other developed nations.

So if indiscriminate spending won’t drive the economy, what will? Mandel says production, an area that has been getting far too little attention, possibly because there’s such a focus on goosing spending. “What we want to do is spend on things that add to production,” he said, and that’s not limited to factories.

Research and development and education, which he terms an investment in future earnings, fit the category. A barber cutting hair is production; building a shopping mall that sells largely imported goods is not.

Mandel goes one step further, and what he says rings true to my post-World War II ears; “People have to start thinking of their primary role as producers” rather than consumers. That’s what I grew up with, and if I didn’t get the message from my Depression-era parents it rang through loud and clear in President John F. Kennedy’s challenge to “ask not what your country can do for you” exhortation.

Does this mean we’d be better off as a nation of misers? Or course not, but when your heart begins to race at the thought of that big screen hanging on your living room wall, it might be wise to make sure buying it doesn’t put you in the hole.

Borrowing the money we spend is a formula that will bring ruin in record time, and already has for too many Americans.


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