The frenzy known as Black Friday, when consumers wait in long lines, push their fellow man and spend money they don’t have on many questionable items, is described by financial experts and economists as a day that is important to economic growth. It would be hard to dispute, especially considering reports that show the Black Friday weekend generated $59.1 billion in sales, while Walmart served 22 million people in its stores Thursday night.
Others argue, though, that it isn’t buying things that lead to growth in an economy, but rather it’s producing those exact items. Purchasing goods is the effect of production; however, a country cannot consume what it did not create in the first place.
This is what Peter Schiff, President of Euro Pacific Capital, has explained in his past books, such as “Crash Proof” and “How an Economy Grows and Why It Crashes,” and in a new video posted Friday from The Schiff Report.
Schiff first noted that Black Friday first got its name because it was originally thought that all retailers didn’t make a profit until between the first Friday after Thanksgiving and the last day of the year. He also was befuddled as to why Americans would wait until Cyber Monday to shop when they’re at work, look for even more things to purchase and use their boss’s time to do their shopping.
“The idea that this is good for the economy. The fact that so many Americans are out there shopping is somehow going to grow to the economy,” stated Schiff in the video. “The fact is that it’s not the buying of stuff that grows the economy. It’s the making of stuff. Buying is the result of production. You can’t consume what hasn’t been produced. What’s a strong economy is an economy that produces things and if you produce a lot the reward is you get to consume what you produce.”
The former Republican Senate candidate identified the other problems with consuming on Black Friday and Cyber Monday. When consumers have a shopping cart full of items, a lot of those goods are not produced in the United States. Instead, Americans are not only buying imported things they’re also putting it on the credit card.
“We’re importing all of this stuff and a lot of the Americans that were shopping they’re putting stuff on credit cards, they’re borrowing money,” added Schiff. “We’d be much better off if a lot of Americans stayed home on Black Friday and saved their money instead of buying more things they can’t afford.”
In the end, the establishment in the U.S. persists in both perpetuating and exacerbating the present situation: purchasing stuff with money you don’t have.
George Reisman of the Mises Institute iterated the same case in the 2009 in-depth article titled “Economic Recovery Requires Capital Accumulation, Not Government ‘Stimulus Packages.’” It was written in response to President Barack Obama’s near $800 billion stimulus package.
The author explained that an economy to recover requires a “system rebuild its stock of capital” by enhanced savings because this would restore the credit supply. These measures alone would assist in the conclusion of “financial failures based on a lack of credit.”
Furthermore, wage rates and prices have to fall, fast liquidation of unsound investments must take place and the end of “financial pretense” has to transpire in order for the economy to undergo a full recovery.
“When these various requirements have been met and the process of financial contraction comes to an end, the profitability of business investment will be restored and recovery will be at hand,” wrote Reisman.
The Foundation for Economic Education (FEE) also published a similar piece by Mark Skousen titled “Consumer Spending Drives the Economy?”
It starts off by explaining consumer spending isn’t the foundation of a strong economy. Instead, it’s investment: businesses spending on capital goods, new technology being created, workers maintaining consistent productivity and the spirit of entrepreneurship thriving.
“It’s supply—not demand—that drives the economy. Savings, productivity, and technological advances are the keys to economic growth,” wrote Skousen. “This principle was discovered and developed by the brilliant French economist Jean-Baptiste Say in the early nineteenth century and is known as Say’s Law. In fact, he invented the word ‘entrepreneur’ to describe the primary catalyst of economic performance.”
To get a sense of how many consumers purchased their Black Friday deals on credit, Mark Dice posted a video Friday of his interviews with Best Buy shoppers. As each customer came out with a shopping cart of video game consoles, televisions and computers, he asked if they purchased it with cash or credit. Nearly each person responded with “credit.”
According to the latest Federal Reserve data on consumer debt in the U.S., combined, credit card and non-revolving debt (mortgages and student loans) stands at a record $2.737 trillion. In Canada, the average consumer debt is $26,768.