As of the third quarter of 2007, the 10-year growth rate for consumption was 3.6%, vs. GDP growth for the same period of 2.9%. This difference represents an enormous gap. If consumer spending had tracked the overall economy over the past decade as it has in the past, Americans today would be spending about $600 billion less a year. The extra spending has amounted to a total of about $3 trillion since 2001.Unless you are in the top 5% income bracket vote Democratic - its good for your pocketbook. Larry M. Bartels - Princeton Economics study - pdf. The primary reason is that Democratic post WW2 fiscal policies have been aimed at reducing unemployment while Republicans are more concerned about inflation and the economic environment for investors. The partisan related income growth differences for citizens at different income levels has grown more marked in recent decades based on a large number of studies.
Where did we spend the money? On housing and health care, of course. But outsize gains also came in clothing, furniture, recreation equipment, motor vehicles, and consumer electronics—all areas where prices have fallen and imports have surged.
The question now is how much of that extra $3 trillion we will have to give back. Will real consumer spending in the U.S. lag the broader economy for several years?
Friday, January 25, 2008
How Real was Bush Prosperity?
Businessweek has their chief economist saying maybe not very real: