The idea that consumption is the driver of growth is a pervasive one, and one that is quite intuitive. After all, your spending equals someone else income, and more spending at businesses should increase the demand for labor and profitability. It is backed by the commonly cited statistic that 70% of our GDP is consumption, which many misinterpret to mean 70% of our GDP is generated by consumption.
This is not the case. It is crucial to keep in mind that GDP is an accounting identity, not a growth model. How we decide to allocate the spoils of our productive capacity is the result of growth, not the cause of it. If consumption did drive growth, Singapore wouldn't be one of the wealthiest nations on the planet, and the Chinese wouldn't have such rapid growth rates (just to be clear, I'm not saying we could grow as fast as them if we had their level of savings, I don't think growth that high is possible for an economic frontier nation like the U.S.). The fact is that during normal times (near or at full employment), higher savings results in higher growth, not consumption. The reason is simple; savings = investment. More savings results in more capital goods, which increase the productive capacity of the economy (see figure 1.3 and comments). And since in this scenario most or all of our resources are being utilized, any spending on consumption necessarily translates to less savings (in most cases, anyway, obviously an increase from 99% savings to 100% savings would reduce GDP, and GDP maximization is not the goal, the optimal rate is the based on the Golden Rule). This is one of the reasons why economists consider the Long Run Aggregate Supply Curve to be vertical, and why increased savings, not consumption, boosts the level path of GDP. in the Solow Growth Model.
Other reasons include the fact that outside of recessions, more consumption generates higher inflation. This wipes out any GDP gains, so that real growth is at best growing at a similar rate (often, such as the case in Zimbabwe or the U.S. in the '70s, real growth slows or even declines). One might object to both those cases, given that there was a lot of money printing going on, but printing money itself is not the cause of inflation. We can observe that by looking at QE; trillions were injected into the economy but had limited effects on inflation because the vast majority of the dollars were saved in the banks as excess reserves, and not loaned out. If one looks to the equation of exchange, MV=PY, one can see that the increase in inflation is caused by an increase in overall demand. If the monetary base increases but velocity falls, the impact on inflation (and demand) is uncertain (depends on how much each changed by). The same goes for the opposite. It is only when there is more demand available than supply that inflation starts to rise. Therefore, when there's a lack of an output gap, increased demand simply translates to more inflation, not higher real output. That is if one can even increase demand at one point, keep in mind most centrals banks target inflation and thus will try to reduce demand should inflation get too high.
The final point to understand is that the value of the money itself is tied to what we produce. Say's Law may not hold in all circumstances, but in the long run it is more or less correct. This is why we cannot print/spend our way to prosperity, and why recessions are short run. The price level will adjust to the amount of demand in the economy in the medium run.
If one is wondering why this doesn't apply in the short run, it's because of sticky wages and prices. If a 10% decrease in demand was responded to by an immediate corresponding reduction in wages and prices, there would be no actual change in any factors other than transactions would be dealt with in lower nominal terms. This isn't the case, however. People often have difficulty distinguishing between nominal and real, so they refuse to take pay cuts when a demand-driven recession begins. This boosts their real wage at a time when businesses become less profitable, often pushing them above their marginal productivity. This results in a surge in unemployment. One can see some confirmation of this by looking at the results of FDR's mandated wage hikes in the Great Depression. If it was just consumption that drove growth, increasing wages should boost production. If the sticky wage theory is correct, than they should have lowered growth, which is what happened. So making sure the demand side of the economy remains on a stable path (like the market monetarists have suggested) is important for macroeconomic stability, but we cannot spend our way to prosperity.
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