Comments on economics, mystery fiction, drama, and art.

Monday, August 22, 2016

You can't make this stuff up

"So to recap: not only did Donald Trump hand out Play-Doh to working class people in desperate need of food and water and money to rebuild their own modest homes, it turns out he didn’t even donate the Play-Doh he was handing out, and then he gave a six figure donation to a wealthy local hate monger. It’s increasingly beginning to look like Trump would have fared better if he’d taken the Louisiana Governor’s advice and just stayed away..."

Friday, August 05, 2016

More on Consumption Spending, GDP, and Inequality

On the Marginal Revolution blog (on August 4), Tyler Cowen posted a   link to a twitter feed, with this header:

The link shows personal consumption expenditures as a percent of GDP and a measure of income inequality (the Gini coefficient) from 1978.  Both PCE as a percent of GDP and the Gini coefficient have been rising—consumption has become a larger percentage of total spending in the US and inequality has been increasing.  Cowen’s “ahem” is, I suppose, an indication that we should be surprised that both of these have happened at the same time.

Leaving aside the issue I raised yesterday there is also the issue of what, exactly, has been happening to consumption, if we disaggregate households by income.  Fortunately, we can do this, using data from the Consumer Expenditure Survey.*  The CES presents measures of after-tax income and household spending by quintiles—the 20% of households with the lowest incomes, and so on.  (Which means each group has the same number of households in it).  So we can look at what has happened both to household (after-tax) income and to household consumption spending.  And the results are interesting.



% Change,
Q1 Income
Q2 Income
Q3 Income
Q4 Income
Q5 Income
Q1 Spending
Q2 Spending
Q3 Spending
Q4 Spending
Q5 Spending

Q refers to the income quintile, from lowest to highest.  The values have been
adjusted using the CPI, with 2011 used as the base year.  Spending can exceed
income when households receive transfer payments or use their savings to
pay for part of their spending.  Transfer payment receipts are the obvious
source of funds in Q1 and Q2.

Overall, income increased by about 39%...but spending increased only by 3.8%.  While about 60% of the total income increase went to the highest income quintile, more than 75% of the increase in consumer spending occurred in the highest-income households.  It’s worth noting that consumption spending actually fell in real terms in the lowest income quintile.
What this tells us is quite simple.  It’s possible for consumption spending to rise as a percentage of GDP and for income inequality to increase at the same time.  All that’s required is for the bulk of the consumption spending to occur in high income households.  And—that is exactly what happened.

Thursday, August 04, 2016

A "Gotcha" moment, not an analytical moment

On the Marginal Revolution blog today, Tyler Cowen posts a link, with this header
2. Consumption as a percentage of gdp has increased with inequality (ahem).
The link is not to a piece of analysis, but to a twitter feed. 

Well, that’s not a very interesting observation, now is it? Because GDP shares are constrained to sum to 100%, if one component of GDP is decreasing as a percentage of GDP, some other component has to be increasing. We might as well point out that government investment and consumption expenditures have been falling as a % of GDP as income inequality has been rising.
We might also point out that investment spending has been rising as a of GDP (with sharp downturns during recessions) since 1970–up from about 12.5% in 1970 to around 16.5% now (investment’s share of GDP is up by 30%–4%/12.5%–since 1970)–and that’s after investment spending has been depressed by two recessions in the past 16 years. Consumption’s share is up from 61.2% in 1970 o 69.3% in 2016–a 15% increase. The investment share of DDP has increased twice as fast (in percentage terms) as the consumption share.

So C+I as a % of GDP is up from 75% of GDP to 86% of GDP as inequality has been increasing–and would be even higher but for the failure of I to recover significantly. Does this tell us anything meaningful? If so, what? All this is, is a “gotcha” moment, not an analytical moment.