100% of the economy

The latest economic data has been released, and the media is reporting that consumer spending increased slightly in January despite the fact that consumer income hasn’t increased. Apparently this is a good sign because it shows that consumer confidence is increasing if people are willing to spend from savings.

Invariably, reporters will say things like: consumers account for almost three quarters of the economy in this country.

Multi-hued Hatian tap-tap busI’ve always found such a statement to be mildly absurd. It implies that there are two different economies, a business-to-business economy and a business-to-consumer economy. The reality is that the economy is an incredibly complex and intertwined web of interactions between people and businesses in a multi-hued cacophony.

House constructionIf consumer demand for housing rises, it will create more jobs for construction companies, which in turn creates more jobs for the companies that sell products to construction companies, which in turn creates more jobs for the companies that sell products to companies that sell products to construction companies. But at the end of the day, none of this would be possible if people didn’t buy houses.

Business-to-business spending only occurs because somewhere down the line there is a business-to-consumer transaction.

News flash to economists and business people: 100% of the economy is driven by….. wait for it….. people.

Unless dogs start spending their own money for the treats they really want, all money is transacted by human beings. (Perhaps Boston Thumb Cats could whip out cash for catnip purchases?)

So while we’re at it, let’s also strike the word “consumer” from our vocabulary. Consumer is just a fancy jargon-y word, designed to distance our thinking from the concept it replaces, which is “a person who buys things.” Since we’re all people who buy things, let us simply replace the word “consumer” wherever it occurs with the word “person.” Kinda puts things in a more human perspective, which is A Good And Useful Thing.

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2 Responses to “100% of the economy”

  1. Jeffry Pilcher | TheFinancialBrand.com Says:

    The motivations and evaluation criteria driving B2B vs. B2C purchase decisions are somewhat different. In B2B, most purchases are clearly needs-based, and you are required to rationalize and justify your decisions to your boss/peers. With B2C, people have no one to hold them accountable, and thus are free to make much more irrational and impulsive purchases.

    It’s one thing if a consumer doesn’t buy a $1,500 pair of Manolo Blahnik shoes or take a trip to Tahiti. It’s another thing if a business won’t buy a new photocopier to replace the one that just broke.

  2. Morriss Partee Says:

    @Jeffry -That may be a difference, but one that I don’t believe ultimately is significant in the larger picture. After all, a business ultimately is a collection of people who have come together to fulfill a mission, one that either serves people or other businesses. So I’m going to substitute the word “group of people” for the word “business.”

    Both people and groups of people have to satisfy their basic needs first, which include eating and paying rent. Most people and most groups of people (both in the U.S. and worldwide) don’t have a lot of money left over after basic needs are met. But both people and groups of people will spend discretionary money, if they have enough of it, on nice things like big houses or large corporate offices, nice furniture, travel, whether it be on vacation or conferences, nice cars, and on and on. Perhaps in general, in business environments, people need to be more accountable since there are others in the organization depending on certain things happening and resources being allocated in certain ways, but aside from that, people and groups of people are fundamentally similar in nature. It’s just a matter of organization and culture.

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