Consumer Expenditures

Consumer Expenditures: New Measures and Old Motives

Stanley Lebergott
Copyright Date: 1996
Pages: 298
https://www.jstor.org/stable/j.ctt7zvn2s
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  • Book Info
    Consumer Expenditures
    Book Description:

    Changing consumer choices have built microchip factories where cotton fields used to be and have doomed cities from New Bedford to Detroit, while the impact of these choices on jobs and tax revenues has stimulated the creation of models of consumer behavior. Even finely tuned econometric models, however, have not served well as guides for policy choices, for they have relied chiefly on data for the Great Depression and the Cold War era or on biased budget surveys. Stanley Lebergott here provides the way to greater realism with new data for the entire twentieth century, including the decades of peacetime prosperity. The new measures also permit moving from the level of the nation to the state.

    Analyzing our interest in individual economic well-being, Lebergott argues that consumer expenditure provides a better guide than the usual data on money income before tax. He also challenges continued reliance on a single consumption function in macro models. In other essays he uses the new data to demonstrate that the supposed "flawed prosperity" of the 1920s was not responsible for the Great Depression; points out the limitations of the usual consumer budget surveys; and contrasts the role of age, nativity, and other factors in creating interstate differences. The new data, which link to the official BEA estimates, will provide raw material to test and extend theories of how the consumer and the economy function.

    Originally published in 1995.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6416-4
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. LIST OF TABLES
    (pp. ix-x)
  4. PREFACE
    (pp. xi-xii)
  5. Part One
    • CHAPTER 1 MEASURES OF WELL-BEING: INCOME VERSUS CONSUMPTION
      (pp. 3-8)

      Who knows how large an income Louis XIV enjoyed? Or Midas? Or Montezuma? Or any dominant figure before capitalism arrived? Who knew Gorbachev’s income? Deng’s? Castro’s? Or any dominant figure under communism?

      The exceptional role of money income developed in recent centuries. That change accompanied an economic advance in capitalist markets, at a political price. Communist and authoritarian regimes, however, minimized that price, skillfully and shrewdly.

      Among its singular triumphs finance capitalism may well count the widespread acceptance of two propositions. One, that money income measures “economic welfare”—exactly. Two, that money defines how much “well-being” any job yields. Even...

    • CHAPTER 2 WAS THE GREAT DEPRESSION DRIVEN BY CONSUMPTION?
      (pp. 9-16)

      The unprecedented severity of the Great Depression has generated a host of explanations, many of which emphasize consumption. Some point vaguely to the “exhaustion of consumer purchasing power” in the 1920s, to a mechanism that drove savings up and wages down (cf. chapter 3). Among the newer analyses, Temin emphasizes the greater decline of aggregate consumption in 1929–30 than 1920–21.¹ His thoughtful “spending hypothesis” provides an opportunity to reconsider the role of consumption.

      Instead of looking merely at the single aggregate for total consumption we have developed data for approximately one hundred separate components of total consumer expenditure....

    • CHAPTER 3 DID UNDERCONSUMPTION END THE BOOM OF THE 1920s?
      (pp. 17-21)

      Leading historians agree that “flawed prosperity” in the 1920s, which portended the Great Depression, stemmed from inadequate consumption:

      “Insofar as one accepts the theory that underconsumption explains the Depression, and I do, then the Presidents of the 1920s are to blame for operating a . . . government responsive mainly to large business corporations. This led, among other unfortunate consequences, to the failure to maintain an adequate level of purchasing power on the part of workers and farmers, which left the economy with inadequate underpinnings.”¹

      Foster and Catchings had in some respects the most striking insights of any American economists...

    • CHAPTER 4 MASS CONSUMPTION AND “AMERICANIZATION”
      (pp. 22-28)

      Histories of many nations have been dominated by the activity of tiny groups—the nobility, the clergy, the intellectuals. But, even before De Toqueville, travelers saw the new United States as a different land, and the American as “this new man” (in Emerson’s phrase). One reason they did so was that behavior and consumption patterns across U.S. economic and social classes seemed so homogenized as compared to Europe. Indeed, when mass production began producing those results in Europe, well over a century later, the acute Ortega y Gasset called it the Revolution of the Masses.

      America set that pattern much...

    • CHAPTER 5 THE ELITE’S SHARE OF CONSUMPTION: U.S. VERSUS USSR
      (pp. 29-36)

      The leaders of Communist nations long emphasized how “obscene” the money differentials under capitalism were. They knew that what mattered was consumption, not income. They determined their own well-being by fixing their consumption entitlements, not by the modest money incomes for their positions.

      How great a consumption gap separates the elite from the average family in the U.S. compared with that gap in the Soviet Union? That question is at least as meaningful as money income comparisons. For a rough answer we estimate consumption in 1984–85 by the upper 1.5% of the Soviet Union—its “Nomenklatura.”¹ That group included...

  6. Part Two
    • CHAPTER 6 BEYOND THE CONSUMPTION FUNCTION
      (pp. 39-44)

      In 1936 Keynes first reported his “normal psychological law”—that consumption rises when real income does, “but not so fast.”¹ It proved to be one of those psychological tendencies on which he erected the foundations of modern macroeconomics.² But his “propensity to consume” was merely stipulated. It was “a statement of statistically observable fact which Keynes raised to the rank of an assumption. “Nothing is gained (by that statement) except a spurious dignity,” said Schumpeter.³

      Why was that “psychological law” supposed to prevail? Because every component of consumption was income inelastic? Surely not. Yet if even one component were elastic...

    • CHAPTER 7 TASTES—AND OTHER DETERMINANTS OF CONSUMPTION
      (pp. 45-55)

      Leading approaches to modeling consumer behavior offer little guidance in explaining long-run differences in consumption. An alternative involves that “black box,” consumer tastes.

      One leading theory views the household as seeking to maximize “its total lifetime utility . . . influenced by its expectations concerning the future behavior of prices and rates of return.”¹ Of such perspectives Arrow has remarked: “For any set of excess demand functions there is a choice of preference maps and of initial endowments, one for each individual . . . whose maximization implies the given aggregate excess demand functions.” Thus, “the hypothesis of rational behavior...

    • CHAPTER 8 WHY STATE CONSUMPTION PATTERNS DIFFER
      (pp. 56-68)

      Two routes have been followed to explain variations in what consumers spend. Economists focus on income, relative prices, and wealth. Survey and sociological analysts, however, deal with demographic variables—age, sex, and family relationship. And general social critics have tackled stereotypes and cultural groupings—“the French,” “the Greeks,” “the Nineteenth century,” “immigrants,” the bourgeoisie.

      The new PCE estimates by state (Appendix B) permit joint consideration of both economic and noneconomic factors. Some variance is necessarily omitted by state averages, but much remains. We test below how key economic and noneconomic forces shape housing expenditure, food, clothing, etc. The first part...

  7. Part Three
    • CHAPTER 9 ESTIMATING PROCEDURES: U.S. CONSUMPTION, 1900–1929
      (pp. 71-90)

      The methods used to estimate annual U.S. personal expenditures for 100 + BEA consumption items in Appendix A are described below. Those for most service expenditures have been reported previously.¹ Part I in this chapter outlines the procedure used for most goods. Part II describes the approaches for revised housing and welfare expenditure. Part III outlines how the price deflators were derived.

      The present study develops data for the one hundred consumer expenditure items in the national income accounts. It relies chiefly on the Censuses of Retail Trade, Services, Housing, Government, and Population. Each Census drew on an enormous sample...

    • CHAPTER 10 STATE CONSUMPTION, 1900–1982: ESTIMATING PROCEDURES FOR APPENDIX B
      (pp. 91-124)

      This chapter outlines the procedures by which the state estimates were derived, for 1900, 1929, and so on. We uniformly began with estimates, by specific item, for the United States as a whole. (Chapter 9 describes how these were derived.)

      Each U.S. total was distributed among the states by an allocator, then usually checked against another allocator. Had estimates been directly made for each state, they would not necessarily add to an adequate U.S. total. More important, comparisons against the per capita average for the U.S. as well as nearby states, permit some judgment as to whether a state estimate...

    • CHAPTER 11 VALIDITY OF ESTIMATES
      (pp. 125-144)

      The expenditure changes shown by the present series differ from those of Kuznets and Kendrick (who adopts Kuznets’s consumption figures). Four main reasons are at work.

      1. Kuznets (and therefore Kendrick) adopts the Grebler-Blank-Winnick residential construction deflator, which uses a construction cost series to proxy for a rent series. Though a tolerable proxy in most years, it fails whenever great capital gains and losses occur. Since the Commerce concept for the imputed rental value of owner occupied homes is relevant here we use the BLS price index for rents, and check it by the NICB series. These rental series gives...

  8. APPENDIXES: Personal Consumption Expenditures
  9. NOTES
    (pp. 249-276)
  10. BIBLIOGRAPHY
    (pp. 277-284)
  11. INDEX
    (pp. 285-286)