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What Is a Consumer Economy?

By Alex Newth
Updated: May 16, 2024

A consumer economy refers to an economic system that primarily runs on consumers' spending. In the U.S., it is often said and also often disputed that consumers are responsible for 70 percent of all spending and, therefore, this class of spender must be constantly stimulated to make money for businesses. There are other classes of spenders that represent a lower amount of spending and are usually ignored by attempts to revitalize the economy. In this economy, some financial experts say consumption is required, while others say production is required to keep the economy satisfied.

Consumer economy simply means there is an economy where consumers dominate the spending sphere. Instead of businesses, government, pharmaceutical or other spenders, consumers dominate the spending world. For this type of economy to work, consumers must be stimulated to buy products, and products must be produced. To stimulate purchases, the government will usually offer larger tax returns so consumers have more money to spend, which will give businesses more capital so they can create more jobs.

The usual percentage of consumer spending is quoted to be 70 percent in the U.S., but this number is often disputed. This is because, instead of pure consumer spending, most statistics lump in government spending meant for consumers, such as health care. By doing this, the economy appears inflated. Some financial experts say the percentage is closer to 40 percent or 50 percent, which would still dictate the U.S. as a consumer economy, but to a lesser extent.

The main principle of a consumer economy is the consumer must consume. Products must be purchased and used for the economy to function. This economy is so heavily dependent on the cycle of consumption that it can easily break if the consumer refuses to spend money and chooses instead to invest it. To this end, consumers are often given extra money to spend on products to drive the economy. Most other spenders, such as businesses and manufacturers that purchase supplies, often go ignored by these stimulus attempts because they represent a lower percentage of overall spenders.

Others believe a consumer economy is not about consumption but production. If the right product is made, the consumer will purchase it and a variety of different products must be made to satisfy consumer demands. If production stops, there will be nothing to consume, which is what leads many financial experts to state that production is the driving force of a consumer economy.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By literally45 — On Nov 29, 2013

I'm one of those who believe that consumer spending doesn't make up as much of the American economy as people think. It's exaggerated. The American economy has its ups and downs but it's a huge player in the global economy with many trading partners. Our economy is also attractive for investment. Consumer spending is definitely important, but it's only one factor.

Plus, is there any developed country that does not rely partly on consumer spending for its economy? It's a part of capitalism. I don't know why people put so much importance on this one factor.

By serenesurface — On Nov 28, 2013

@ZipLine-- I agree with you and I think that this is bad. What if we stopped buying so much for whatever reason? The economy would be in a crisis. I think that a consumer based economy is fragile.

By ZipLine — On Nov 28, 2013

The US is definitely a consumer driven economy, much more than other countries in the world. But this may have to do with Americans having more money to spend.

I realized that consuming is very important for the US when I lived in Asia. My family is Asian but I grew up in the US. The first thing that surprised me about Asian families is that they don't shop very much. They buy what they need and usually nothing else.

As an American, I'm used to buying a lot of stuff, even if I don't need it. For example, if there is a sale, I will buy things and stock them to use later. I have so much stuff at home that if there was an emergency, I could probably survive without leaving my house for a month or more.

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