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05 Oct 2009 05:33 pm

Beyond Flat-Screen TVs

James Surowiecki blogs about his column from this week. This is worth noting:

[A]s this paper from economists at the Federal Reserve shows, the growth in indebtedness has largely been driven by demographic changes and housing prices. Most interestingly, as Elizabeth Warren has argued, the idea that most Americans have been spending frivolously on consumer goods actually isn’t true. Instead, a hefty chunk of the increase in consumption in recent decades has been the result of higher housing prices, the rising cost of medical care, more spending on education, and childcare.

A generation ago, Warren says, basics (housing costs, health insurance, transportation, education, and taxes) accounted for fifty-four per cent of the average family’s income. Today, they account for seventy-five per cent of it. Now, some of those costs arguably do reflect a lack of frugality—homes are more expensive in part because they’re so much bigger. But the fact that more than fifteen per cent of personal consumption expenditures now go to medical care, when in 1930 only three per cent of personal consumption did, isn’t a reflection of frivolity, and that’s not going to change any time soon. In fact, when you actually look at what Americans spend money on today versus what they spent it on fifty years ago, it’s striking that Americans today actually spend less of their income on goods—including everything from furniture to clothing to food to appliances—and much more of their income on services. For the savings rate to get back to ten to twelve per cent, in other words, will require a lot more than having people stop buying flat-screen televisions.

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