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Too Much Stuff? Or Too Little Income?


I’ve been writing about the astonishing acceleration of household borrowing since 2000 (see this post here). Here’s the question. Are Americans in debt because they’ve been buying too much stuff? Or because they had too little income?

I decided to take a first shot at answering this question. The BEA publishes data on the real stock of various types of capital, including consumer durables of all types, motor vehicles, furniture, and homes. So I wanted to see how our accumulation of “stuff” compared with the growth rate of households. That is, did Americans start buying a lot more “stuff” after 2000?

The answer is yes…but not enough to explain the $3 trillion extra in debt. The chart below compares the growth rate of various types of capital per household over time (all of these are adjusted for inflation). The fourth bar in each group is 2000-2006, the last year available)

Consumer durables includes motor vehicles, furniture, video and computer equipment, and basically everything else except homes. That clearly accelerated in the 2000-2006 period. But the jump was not enormous.

Motor vehicles was a surprise. Originally I thought I was going to see that Americans had bought too many SUVs etc in recent years. But it doesn't look like the growth rate in the lastest period is that far off the historical trend.

Furniture is the clearest cut case. The combination of the housing boom and cheap furniture from China means that Americans bought a lot more, relative to the number of households. We won't be buying many living room sets for a while.

Homes was also surprising. This number measures amount of real residential capital per household. It grew in recent years, but no faster than in the 1990s.

My initial conclusion: People bought more "stuff" in recent years--but it looks like the shortfall in income was equally important. In other words, Americans attempted to maintain the growth rate of living standards after 2000, even after income growth slowed for many people and real wage growth turn negative.

I'm going to keep working at this.


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