This assumption is almost universally made by the masses of every industrialized nation. Economists, politicians, and investors also assume this. If they didn't, the level of debt would be much lower.
There are a lot of reasons for this assumption, all of them incorrect. These include the following:
Thrift is sometimes very bad for the economy. The government can spend us into prosperity. The cause of depression is low consumer demand. The consumer will buy if he gets more money. The central bank will inflate the money supply.
Why is thrift bad? It makes available money for tools. It makes available money for wages before new production comes on- line. There is always demand for more production. If there weren't, then all prices would fall to zero.
Thrift is bad if the money is invested in production processes that fail to meet consumer demand. But this is always true, not just during depressions.
"The government can spend us into prosperity." How? Where does it get the money? From taxes? Then taxpayers cannot spend the money the way they choose. No net gain, and probably a net loss. From borrowing from private creditors? Then lenders won't lend to private businesses or consumers. This is probably a net loss. From borrowing from the central bank? This increases the money supply, but it does not increase the number of goods. It finances production of goods that the government buys, not goods that productive producers buy.
The government is not the tooth fairy.
The cause of the depression is indeed low consumer demand. But why is consumer demand low? Because the productivity of producers has fallen. You have to be a producer before you can become a consumer, unless: (1) you are a thief; (2) you are a welfare case; (3) you are a recipient of private charity; (4) you work for the government; (5) you work for the Federal Reserve (legal counterfeiter); (6) you are a private counterfeiter.
Why has productivity fallen? Because everyone made a prior mistake. They assumed that lower interest rates were the result of greater thrift. But lower interest rates were the result of central bank counterfeiting. Thus, when the central bank slowed down or stopped the presses, interest rates rose, and the economy faltered.
This is the explanation offered by Ludwig von Mises in his book, Human Action (1949), chapter 19. It is also the explanation offered by Mises's disciple, Murray Rothbard, in his book, America's Great Depression (1963). But hardly anyone believes them.
The consumer may buy if he gets more money. Or he may not. He may save. He may bury it. We don't know for sure what he will do. What we do know is this: if he spends money, someone else isn't spending it: the taxpayer, the creditor, or the person who did not get access to the newly created money early. These people pay the price of the consumer's ability to spend.
Yes, the central bank will supply new money. But that merely starts the next cycle: boom, then bust.
At some point, there will be a depression. It can be a deflationary depression, where people don't buy because they do not have enough money, because their productivity has fallen. Or it can be an inflationary depression, where people don't buy because sellers will not offer anything for sale in exchange for depreciating money. Whichever form the depression takes, people can't buy. They get poorer.
You must make up your mind. Which form of depression will it be? The strategies for defending yourself are different -- not in every case, but in most cases.
That's why I set up this Website. I want to show people which kind of depression is likely. Then I want to show them how to prepare for it. That's why I have posted all seven deadly assumptions on my site for free:
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