Sunday, December 05, 2004

Consumer spending

The Times has a silly article on consumer spending. It's a mix of anecdotal evidence and hasty generalizations:
Indeed, while there was a good deal of tut-tutting about Ms. Millard's refusal to take responsibility for her spendthrift ways, it might be time to ask if American consumers are entirely responsible for all their out-of-control spending. After all, the United States economy depends on its citizens' penchant for spending with abandon. Consumer spending accounts for two-thirds of the nation's $11 trillion economy, and the machinery of American advertising, marketing, media and finance all encourage the consumption habit. Many consumers are unable to resist the overpowering mantra: spend, spend, spend.
Damn those corporations who have programmed us to recite the mantra: spend, spend, spend! Helpless to overcome the mantra, consumers scurry from store to store, spending, spending, spending!

In all seriousness though, it's true that consumer spending is now 70.5% of GDP. A few things about this. First, the Times article actually understates this, saying that it is two thirds of GDP. But 66.6% is the average share of consumption in GDP for the last 20 years, while 70.5% is the highest since 1939. Sometimes precision matters, Steve Lohr. Second, 70.5% IS the highest share of consumption in GDP since 1939. And this number has been steadily moving up since 1981 when it was 62.0%. (You might say that government spending has been coming down in that same period, you are correct. But government spending plus consumption has been rising, so decreases in government spending are recovered more than one-to-one in increases of consumption.) To give you an idea of what this means, since 1946 mean consumption has been 64.2% with a standard deviation of 2.2%. This means that since 1981, share of consumption in GDP has risen by 3.8 standard deviations. This is a significant and compelling number. But where is this in the Times article?

Instead, Steve Lohr focuses on sillier points, like the fact that consumption is most of GDP. But this is not news, consumption has been around two thirds of GDP for the last 50 years. Of course the economy depends on consumption! This is the most basic of economic activities. And statement like this are simply ridiculous:

And in surveys of children age 10 to 13, Ms. Schor, the author of "Born to Buy: The Commercialized Child and the New Consumer Culture," found that their overriding goal was to get rich. In response to the statement, "I want to make a lot of money when I grow up," 63 percent agreed, and only 7 percent disagreed.
No one should find it particularly worrying that most 10- to 13-year olds want to make a lot of money when they grow up. And certainly no one should draw the conclusion from this that "their overriding goal was to get rich."

The point is that, yes, there are problems with consumer spending. But articles like this one do not present a clear and accurate view of the facts and the problems involved, instead relying on unneeded alarmism to make a point.

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