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How Are We Spending Our Money?

Aug 11, 2010 • Businesses, Demand, Supply, and Markets, Economic Thinkers, Households, Macroeconomic Measurement • 92 Views    No Comments

Has the recession changed how we spend? Here are the numbers that give some answers according to a summary from Michael Mandel, former BusinessWeek chief economist.:

Since the 4th quarter of 2007, we have spent more on: 1) telephone equipment/up by 16.6% 2) pets/up by 14.4% 3) education/up by 13.4% 4) childcare/up by 12.8% 4) healthcare (including drugs/up by 10.8% 5) housing (owner-occupoed and rental/up by 6.4% 6) food and drink for off-premises consumption/up by 5.3% (Please note that the percent change can indicate very different dollar amounts. For #1 16.6% refers to $1.5 billion while for #5, 6.4% represents $95.4 billion.)

During the same 2 1/2 (or so) years we have spent less on: 1) Moving, storage and freight services/down by 19.6% 2) Motor vehicles and parts/down by 16.0% 3) gasoline and other energy sources/down by 15.3% 4) sports and recreational vehicles/down by 12.8% 5) video and audio equipment/down by 8.4%

What does all of this mean? It appears actually that we are not spending very much more because the healthcare increase, by far the largest in billions of dollars, is from government. Also the housing total is what owners would have spent n rental if they had rented–an “imputed” number. So, accelerating this sluggish U.S. recovery will ultimately mean more private sector spending from you and me or from businesses. This returns us to the importance of stimulating innovation and entrepreneurs.

The Economic Lesson

Called National Income Accounting, a system for knowing the value of what we produce, how much we pay ourselves, and what we spend was developed by Simon Kuznets during the 1930s. Knowing the value of production, incomes, and spending enabled economists to recommend government economic policy more knowledgeably. 

 

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