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gwern comments on Stupid Questions Thread - January 2014 - Less Wrong
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I don't follow. How can consumption increase economic growth when it comes at the cost of investment? Investment is what creates economic output.
There is such a thing as overinvestment. There is also such a thing as underconsumption, which is what we have right now.
Can you define either one without reference to value judgements? If not, I suggest you make explicit the value judgement involved in saying that we currently have underconsumption.
Yes, due to those being standard terms in economics. Overinvestment occurs when investment is poorly allocated due to overly-cheap credit and is a key concept of the Austrian school. Underconsumption is the key concept of Keynesian economics and the economic views of every non-idiot since Keynes; even Friedman openly declared that "we are all Keynesians now". Keynesian thought, which centres on the possibility of prolonged deficient demand (like what caused the recession), wasn't wrong, it was incomplete; the reason fine-tuning by demand management doesn't work simply wasn't known until we had the concept of the vertical long-run Phillips curve. Both of these ideas are currently being taught to first-year undergraduates.
Economic activity, i.e. positive-sum trades, are what generate economic output (that and direct labour). Investment and consumption demand can both lead to economic activity. AIUI the available evidence is that with the current economy a marginal dollar will produce a greater increase in economic activity in consumption than in investment.
I think you are failing to make a crucial distinction: positive-sum trades do not generate economic activity, they are economic activity. Investment generates future opportunities for such trades.