The political left wing .. have long called for policies to redistribute wealth or for government to inject funds directly into the economy. Either mechanism puts money into the hands of everyday consumers who they claim to be the true engines of economic growth. They believe that consumer spending lies at the root of the economic pyramid. When people spend, business owners are able to sell more products, hire more workers, and reap more profits. In essence,they believe in a system of “trickle up” economics, whereby prosperity flows upward from government into the lower and middle classes and ultimately to the upper class.
Conversely, they argue, if consumers aren’t buying, business sales decline and workers lose jobs .. This leads into a vicious cycle of falling sales and increased unemployment. They believe that if a shock is not applied to reverse the cycle it is possible for an economy to regress, in theory, right back to the Stone Age. Using such logic, it is easy to identify the foundation upon which the economy rests: it’s the spending, stupid ..
But as usual, they have it exactly backwards. The savings that they find so unproductive is actually the foundation upon which the economy rests. Nothing can be consumed until it is produced. The act of spending is meaningless without something to buy. The savings of the rich forms the capital that funds business investment which increases productivity. The more that society produces, the more that can be consumed. The key here is the supply, not the demand. The grass that feeds the zebras comes from seeds, not rain. Capitalists provide the surplus seeds that are planted.