The Consumption Surge That Wasn’t

William Galston’s economic tour de horizon contains the following description of a recent “orgy of consumption”:

Personal consumption. Nothing has defined the past decade more than the orgy of personal consumption. From large flat-screen TVs and i-phones to furniture and foreign cars, Americans spent as though there were no tomorrow, until tomorrow came.

It’s easy to forget how unusual this period was. Once the pent-up demand from the World War Two era of austerity subsided, personal consumption was remarkably stable for three decades, averaging about 62 percent of GDP between 1951 and 1980. And then the great shift began. Personal consumption rose to 64.6 percent in the 1980s, 67.3 percent in the 1990s, and an astounding 69.8 percent between 2001 and 2008.

The thing of it is that his numbers, the ones that I quoted just there, don’t really support the characterization of a decade-long orgy of consumption at all. Here’s a decade-by-decade look at the increase in the percentage points of GDP that were dedicated to personal consumption:


The orgy of consumption, in other words, looks to have taken place in the 1980s, moderated somewhat in the 1990s, and really slowed to almost nothing in the 2000s. Nor does it seem especially reasonable to characterize the nonexistent explosion in consumption as driven by “large flat-screen TVs and i-phones.” In 2007 the average consumer unit had $63,000 in income of which $987 was spent on “Audio and visual equipment and services.” In 2000, that was $44,649 (these are nominal dollars) and $622 — the share is flat.

Note that in March of 2002 you could buy a 10GB iPod for $499. Today a 120GB iPod Classic costs $249 and a 16 GB iPod Nano costs $199. Insofar as the past decade has been characterized by an explosion in cool consumer electronics, that’s because consumer electronics have been getting cheaper not because people have been drastically scaling up their expenditures on consumer electronics. Health care and education have, I believe, been driving household expenditures.


A lot of folks in comments seem to think that I don’t understand the fact that the absolute level of consumption was higher in the 2000s than in the 1980s. I do, in fact, understand that perfectly well. But what we’re discussing here is changes. In the 1980s there was a large upward shift in the consumption share in the United States. In the 1990s, there was a small upward shift in the consumption share in the United States. In the 2000s, there was a tiny upward shift in the consumption share in the United States.

The fact that the 2000s shift was tiny, combined with the fact that the share of consumption going to electronics was low and flat during that period, debunks the idea that our economic problems were caused by some recent upsurge in gadget purchasing.