American Consumers Haven't Become More Frugal
Via LRC I found this article by someone called Carol McMullen, which is very sloppy with facts, and therefore reaches very misleading conclusions.
Interestingly, it starts by quoting the one of the more relevant indicators of frugality, namely consumer spending as a share of GDP, but gets the numbers all wrong and then drops it.
"U.S. consumer spending rose from historical rates of about 65 percent of U.S. Gross Domestic Product (GDP – the total of goods and services produced annually in the U.S.) to 75 percent of GDP."
Actually, the post-World War II peak for consumer spending relative to GDP was 70.9% (reached in Q2 2008), a number way to low to be rounded up to 75%. The preliminary number for Q1 2009 is only marginally lower, 70.7%.
Not much of a shift in frugality, especially considering that direct government spending at the same time rose from 20.1% to 20.4%. Taking that into account, savings fell.
Later into the article, shares of GDP aren't mentioned, and instead the discussion shifts to discussing the household savings rate. Aside from getting even that number slightly wrong, that number is misleading for reasons I discussed here.
In the article, it is also asserted that "discretionary consumer spending" in America has been reduced by 30%. Since it is not specified what that is supposed to mean it is difficult to analyze it, but assuming she means car sales and certain other durable consumer goods, she may be right in one sense, but even more wrong with regard to the point she is trying to validate.
Cars and other durable consumer goods differ from other consumer goods (and consumer services) in that purchases of them do not represent only consumption. Since a car will last years, and to a very limited extent even decades (assuming you spend some money on repairing it), car purchases should arguably partially be seen as investments. And so, if purchases of cars and other durable consumer goods fall relative to purchases of non durable consumer goods and consumer services, then this means that savings are falling given a certain level of consumer spending to GDP.
Thus, just as was the case with Japan, the decline in U.S. consumption hasn't represented increased frugality, but declining income.
Interestingly, it starts by quoting the one of the more relevant indicators of frugality, namely consumer spending as a share of GDP, but gets the numbers all wrong and then drops it.
"U.S. consumer spending rose from historical rates of about 65 percent of U.S. Gross Domestic Product (GDP – the total of goods and services produced annually in the U.S.) to 75 percent of GDP."
Actually, the post-World War II peak for consumer spending relative to GDP was 70.9% (reached in Q2 2008), a number way to low to be rounded up to 75%. The preliminary number for Q1 2009 is only marginally lower, 70.7%.
Not much of a shift in frugality, especially considering that direct government spending at the same time rose from 20.1% to 20.4%. Taking that into account, savings fell.
Later into the article, shares of GDP aren't mentioned, and instead the discussion shifts to discussing the household savings rate. Aside from getting even that number slightly wrong, that number is misleading for reasons I discussed here.
In the article, it is also asserted that "discretionary consumer spending" in America has been reduced by 30%. Since it is not specified what that is supposed to mean it is difficult to analyze it, but assuming she means car sales and certain other durable consumer goods, she may be right in one sense, but even more wrong with regard to the point she is trying to validate.
Cars and other durable consumer goods differ from other consumer goods (and consumer services) in that purchases of them do not represent only consumption. Since a car will last years, and to a very limited extent even decades (assuming you spend some money on repairing it), car purchases should arguably partially be seen as investments. And so, if purchases of cars and other durable consumer goods fall relative to purchases of non durable consumer goods and consumer services, then this means that savings are falling given a certain level of consumer spending to GDP.
Thus, just as was the case with Japan, the decline in U.S. consumption hasn't represented increased frugality, but declining income.
posted by stefankarlsson at 10:45 PM
2 Comments:
Stefan,
Thanks for your constant informative blogs. My question for you is about inflation. I'm getting through a bunch of readings at the moment. On the Mises blog last year, I remember you disputing some other Austrians' views on the importance of the monetary base.
Can you tell me about your views? From what I gather, you seem to be saying that banks can inflate to their hearts content with minimal restrictions since they are protected by the Federal Reserve from failure.
Also, can you tell me where I can find a discussion of Fed inflation in the 1930s after 1933? I hear that prices rose in that period foreshadowing the 1970s. Where can I find discussion of these two periods from an Austrian perpective? Bob Higgs? I've read Rothbard's AGD which only covers 1921-1933.
Thanks...
Sag, questions unrelated to the content of the post should be posted here.
As for your question about the monetary base, you appears to have understood my position, and the argument for it, though that was mostly relevant for the situation before the Fed started paying interest on reserves.
And yes, I would say that Robert Higgs has done the best analysis of what happened after 1933.
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