Who drives the economy?

The WSJ, USA Today, and Reuters have been carrying stories where various experts claim that a drop in “Consumer Confidence” is a bearish signal for markets. Not so, according to Economist Richard Salsman, who writes in the latest edition of the InterMarket Forecaster,

The positive (and correct) view of markets — which thoroughly dispels the Keynesian myth — is known as Say’s Law (named after the great classical economist, Jean Baptiste Say). Say’s Law demonstrates that supply (production) constitutes demand –and that production is the source of income, exchange and (ultimately) consumption. Say’s Law also represents the irrefutable axiom that aggregate supply and aggregate demand are always equal and never out of balance, because they are the same thing, seen from two distinct perspectives…Only producers, savers and investors — not consumers per se — drive the stock market and the economy.


According to Salsman, if investors pay any attention to the “consumer confidence”, it should be as a contrarian indicator, and seen to add a further impetus towards a bullish signal.