Sometimes a politician’s spontaneous comments reveal more than intended.  My favorite example was the reaction of French premier Raymond Barre in 1980 when he received the news that a synagogue in the Rue Copernic in Paris had been bombed.  His reflexive reaction was (paraphrasing) “This is terrible! Innocent French people could have been killed.”

When President Clinton was running for re-election, someone suggested that low tax rates ensure that individuals rather than government make choices about how their money should be spent.  Mr. Clinton asked, “What if they choose the wrong things?”  A man who cannot govern himself was concerned about the bad choices the common folk might make.

And just recently, Dr. Anthony Fauci chastised a widely followed podcaster who had argued that there was no reason for a healthy 21-year-old to receive a vaccination against COVID.  Dr. Fauci pointed out that the vaccination benefits not only the recipient but all those with whom the recipient may come into contact.  It was good to hear Dr. Fauci imply – even if he didn’t say it out loud – that vaccines confer immunity. This was a point on which America’s leading epidemiologist and part-time Caesar has expressed doubt on prior occasions.  Apart from skeptics like super-scientist Jenny McCarthy, I believe this is the first time anyone in the medical field has expressed doubts about the efficacy of vaccination since Edward Jenner coined the term – and invented the process – in 1798.

However, the Fauci example is not really appropriate because he is not a politician.  He is a scientist, America’s foremost authority on contagious diseases.  Not a politician.  When he tells the citizens of the United States “Do as you’re told” he is speaking as a scientist.

Let’s leave Dr. Fauci alone.  Please.  The spontaneous statement I want to focus on is one that Nancy Pelosi made years ago during her first tenure as speaker, during President Obama’s first term.  Discussing the best way for government to stimulate the economy, Speaker Pelosi stated that issuing food stamps to poor people was the surest way to achieve the goal.

Like the first three examples, this one is prompted by an idea lurking unthought in the background.  This time, the unnoticed idea is that consumption drives economic growth and prosperity.  The more we consume, the better off we all are.  Put a dollar or a food stamp in the hands of a poor person and that individual will spend all of it.  A dollar in the hands of a rich person might be saved or invested instead.  If it goes into the bank, it might as well never have existed.  Consumption creates growth and spending fuels consumption.

Is that why the United States is a richer country than, say, Peru (not to pick on Peru)?  Are Americans better at consumption than Peruvians?  If only the people of Peru, Bangladesh, Chad, or Albania could be taught to consume, they too would be prosperous.

The “consumption creates prosperity” idea is clearly wrong, yet it persists.  Consider a witticism of John Maynard Keynes.  He suggested – I assume in jest, but with a purpose – that local governments could cure unemployment by placing cash in old wine bottles and hiding the bottles at various depths in the local landfill.  Contractors would be invited to bid on the right to mine the wine bottles.  The winning contractor would need employees to work the mine.  Unemployment problem solved.

That’s very clever from one of the cleverest economists ever, but what I wonder is when the employer uncorks the bottles and pays the workers, what are they to do with their newly earned wages?  Are they going to buy old wine bottles from other mining companies similarly employed in other towns?  The plan would put money in the hands of people willing to spend it, but someone – someone who is not mentioned or thought of in the clever example Mr. Keynes offered – is going to have to produce something besides old wine bottles in order for the ad hoc mining operation to make any sense.  You can’t build a prosperous economy by having us all take in each other’s laundry or collect each other’s thrown away trash.

I can offer a real-life example.  Six days a week, a mail carrier delivers mail to my house.  I put 99% of it into my recycling bin.  Every other Thursday, the Waste Management people come and collect my recycling.  I pay the mail carrier to deliver recycling material to my house and I pay the collection person to pick it up and carry it away.  My role is to move it from my front door to my back curb, a job for which I am not paid.  The only reason this self-contained system can continue is that I am bringing in a paycheck from outside the system to pay for delivery and collection.

Instead of using wine bottles full of spendable cash or the delivery and collection of recyclables as the model of what drives prosperity, imagine a simpler economy.  (This parable courtesy of Peter Schiff.)  Three people, Pat, Chris, and Jamie, live on an island.  Each of them is able to catch one fish a day.  One fish, gutted and cooked, can sustain the life of one person for one day.  So, the daily GDP of this island is three fish.  That’s what they produce and it’s what they consume.

One of them, Jamie let’s say, conceives the idea of a net.  Jamie develops a design and works out what materials will be needed.  Jamie is convinced that a person who uses a net built to this design can catch three fish a day without help from anyone else.

The problem is that Jamie needs all day to catch a fish.  If Jamie does not catch a fish every day, Jamie faces starvation.

Jamie figures that it will take two days to build the net.  Jamie decides to manage on two-thirds of a fish per day for those two days.  Jamie will face hunger and want for two days but not starvation.  On day one, Jamie divides his fish into three parts, consuming two-thirds while salting away the last third.  Jamie saves rather than consumes that final third.

I forgot to mention that while you were reading the preceding paragraph, I assumed some salt.  I am not an economist, but I can assume as easily as if I were fully credentialed.

After four days, Jamie has four pieces of fish, enough for two hungry days.  Jamie takes two days off from fishing and builds a net.  On the third day, Jamie tests it.  If it works, Jamie can catch enough fish in one day to feed the entire population of the island.  If it fails, Jamie and the other fishers will be back where they started.

The design is a good one.  Jamie’s net catches fish.  Jamie unveils the invention to Chris and Pat.

Now the island has the capacity to be more productive.  One person can catch all of the fish that the island needs.  That frees up the work of the other two to gather fruit or nuts, or to tend a vegetable garden.  A brisk trade in fish, fruits, nuts, and vegetables results.

The island is more productive and more prosperous.  It consumes more, but it wasn’t consumption that drove economic growth.  It was investment in a piece of equipment that allowed one person to do the work formerly done by three.  And investment was made possible because of deferred consumption.  (Note, meanwhile, that the economy “lost” two life-sustaining fishing jobs.)

When you strip an economic model down that far, you don’t lose sight of the fact that production not consumption is what drives prosperity.  Production is enhanced by investment – intelligent investment like a well-designed net.  And investment is made possible by deferred consumption.  That’s where the savings come from that can be invested to improve productivity.

The scaled down model tells us that Nancy Pelosi had the answer to a prosperous economy backwards.  To hand out food stamps, you have to take the funds away from someone.  If that someone would also have consumed his or her entire income, then it’s a zero-sum game.  Those individuals who would have consumed all their income make an involuntary contribution to someone else who will consume it for them.  But if the person whose income was contributed involuntarily would have saved some of his or her income, then by taking that investible potential out of the economy and handing it to someone who by design will consume all of it, you have reduced the productive capacity of the economy.  You are forcing everyone to live on an allegorical fish a day instead of investing in a net.

If the first law of politics were “Do no harm” the corollary would be “Don’t subsidize consumption by confiscating savings that can be invested to improve productivity.”  A second corollary would be “Don’t use the word invest when you really mean spend.”