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Too Much Stuff? Or Too Little Income?

Posted by: Michael Mandel on April 02

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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Reader Comments


April 2, 2008 02:41 PM

They are buying too much stuff. They are too pampered.

A recession will reacquaint Americans with notions such as living within one's means, which will be good for the long term.

But always remember that technological advancements increase the purchasing power of consumers, FOR THOSE SPECIFIC ITEMS, very rapidly.

A 42-inch Plasma TV took 400 hours of wages to purchase in 2003. Today, it takes 45 hours of wages. That is an increase in purchasing power, at least in terms of technological products.

This factor, while still small, is growing larger, and should no longer be dismissed as insignificant.


April 2, 2008 03:18 PM

Actually, this question has already been answered. The growth in debt is a combination of four things.

1. Americans love to buy stuff and they bought a lot of it to maintain or even improve their standard of living. In the U.S., shiny, expensive stuff is a status symbol and has been since the 1950s when the phrase "keeping up with the Joneses" was coined.

2. Real wages remained stagnant or fell while inflation accelerated, fueled by rising oil, food and real estate prices. When you need to pay for all the stuff you bought and try to keep buying new stuff as you're making less and less in real terms, a shortfall is automatically created.

3. Americans are maxed out on their sources of income. With all adults in most households employed and spending around 50 hours a week at their primary job, there is very limited if any way to bring in fresh income in a pinch. There's little time for moonlighting and there's no adult that's not already in the workforce but can be brought in to make ends meet should financial trouble arise. In the 1970s and 1980s, families in a pinch had stay at home moms who could take on nearly full time jobs and significantly augment a single income household in need. Now, women are just as busy as men and there's only so much a teenager can make with a part time job. This is not even to mention the pay disparities according to education levels.

4. Americans don't save enough to cover emergency expenses and a staggering number of Americans live from paycheck to paycheck. That leaves very little elasticity when they're overwhelmed by bills, someone loses a job, or suffers from a very costly and devastating medical emergency. The rainy day fund is empty and thus to stay afloat, Americans already swimming in debt, must take on even more. Eventually they run out of credit and out of money to cover even little parts of what they owe.

Simply put, Americans hit their limit and stretched themselves so much, any notable change leads to a spiral of bills and debt.

Mike Mandel

April 2, 2008 03:21 PM


Yes, these are all the reasons...but what changed in 2000 to make debt soar so fast? That's what I am trying to figure out.


April 2, 2008 03:39 PM

What about non-durable consumption and services? All those manicures and trips to Applebee's really add up.


April 2, 2008 03:40 PM

What about non-durable consumption and services? All those manicures and trips to Applebee's really add up.


April 2, 2008 03:42 PM

"Yes, these are all the reasons...but what changed in 2000 to make debt soar so fast? That's what I am trying to figure out. "

Just two simple things :

1) Low interest rates leading to many people extracting equity and replacing that with debt.
2) Baby boomers reaching their peak debt-taking years. This demographic effect would have happened anyway.


April 2, 2008 03:44 PM

Also, I think that significantly relaxed import restrictions probably explain much of the spike in automobile growth in the 1980's.


April 2, 2008 05:21 PM

There is an increasing transfer of income from young to old. It is healthcare and retirement.

Also, education has been exploding (actually dropping the ROI it used to give students).


April 2, 2008 05:43 PM

Somewhere I read that, on average, people will exert more effort to MAINTAIN a given standard of living than they will to IMPROVE their standard of living.

Over the last couple of decades , more women have moved into the workforce , some people have taken on second jobs , etc. , all in an effort to simply hold their ground , as wages have not increased measurably -in real terms - for the vast majority of the workforce.

Loading up on readily available debt was the obvious , and final , attempt to maintain the facade of " I'm doing OK , thanks ! ".

It's pathetic , really , in a country that spouts supposed truisms like " A rising tide lifts all boats".

The end of the current debacle will find a once happy and prosperous middle class in shambles - no savings , no house , and no reason to believe that continued striving is worth the effort.

The post-Reagan laissez-faire , crony capitalism era will eventually be revealed as a costly economics experiment. We'll wonder why we abandoned the post-WWII model that worked so well , and we'll be begging ecomomists in "Old Europe" to tell us how to get it back.

Mike Reardon

April 2, 2008 08:48 PM

A social observance on this question. There were during this time, waves of financial possibilities put into consumers hands. The web build out with a universal interest in investments building out your own future retirement vehicle. Gains from day traders and web stocks up and down, then your own home re-fi added large checks of disposable cash, and if your re-fi was done twice successfully or doubled the size of your home or added to the purchase a family members homes, it created larger waves of possibilities. Try years of $60,000 extra above the equity needed on the purchase of a larger home, then times that by 50,000 homes in your state and you think your house prints money for you while you are driving home from your employment. Anyone could and did enter that race. True observations from friend working in the Bat Area for the last twenty years. And Government gifts to the well to do from 2002 on. I know people who have done and been gifted by all the rest. You will not see that develop from a small $600 check.


April 3, 2008 02:15 AM

While housing growth is lowest, I assume it is on the highest base so was the largest contributor.

What happened was a recession combined with low interest rates. People borrowed to live. We would probably see even more now, except for lenders tightening up.

Hank Jestor

April 3, 2008 02:30 AM

The issue is never to much stuff. The problem is the government wanting to limit any pain on the consumer for the past 8 years.
The Strong Dollar. The Strong Dollar and the Chinese peg of their currency to it has created the ultimate trickle down theory to be manifested. The trickle down to China and India.
In understanding a free currency market a job in India or China doesn't pay less than the same job in the U.S. The disparity is a product of currency manipulation. Chinese products are cheaper because the Chinese wanted to drive all U.S. manufacturing jobs out of the U.S. and maintained a cheap currency.
The U.S. also had incentive to maintain a Strong Dollar to allow for cheap gas prices that helps them get re-elected.
This lack of wage growth is a product of currency manipulation that has allowed the U.S. consumer to buy cheap stuff while loosing wage growth. The more jobs they lost the cheaper their products got.
Only a fool can still believe that you can decimate the manufacturing base in the U.S. and still continue to have wage growth.
The lack of wage growth along with cheaper consumer goods drove more and more jobs overseas. This viscous circle only ends at one point, recession.
The point it turns around is when it becomes economically feasible to open a factory in the U.S. versus China.
There is not a new economy.
The U.S. can only fix this issue by creating real jobs in the U.S. and that is not an easy task once you are in the rabbit hole. So the best policy is to enact trade barriers to support growth.
I don't see this government doing this at this point, so recession/depression via deflation is needed to force the political will.
Things are going to get bad until the government in the U.S. starts to protect U.S. jobs. Until then every dollar they print will just end up going to China and not produce the jobs needed to pull the consumer out of the hole.


April 3, 2008 08:22 AM

"...but what changed in 2000 to make debt soar so fast? That's what I am trying to figure out."

There are couple of things happening since 2000 that took debt to a whole new level. First and foremost you have the tech bubble bursting. Millions of people lost their jobs and the effects reverberated across the economy. At the same time, globalization was finally beginning to take its toll, taking away factory and other blue collar jobs as well as quite a few white collar tech jobs. People already stretched to the limit, unable to find jobs in a contracting economy had to pile on more debt to stay afloat.

Second, you have the birth of the housing bubble. People who still had jobs or could get them, turned to their houses as their safe assets. They pumped tens of thousands of dollars into new floors, kitchens, bedrooms and libraries, hoping that all the work they've done would raise the price of their house and frankly, put their money to work in something tangible. They've been burned by tech stocks with nothing behind them, but know that if they stay still, they would loose money by virtue of inflation. Now, they could see where their money went. But to pay for the more expensive renovations, remodeling and even a second or third house as investment properties, they had to take on a lot of debt.

Thirdly, the widespread adoption of new financial tools such as CDOs, subprime lending and ARMs allowed people take on even more debt. Because of how much money there was in selling and re-selling mortgages, fraud buried many unsophisticated, overzealous buyers in immense debt obligations and many poorly audited and improperly researched loans have been made. Homeowners who poured tens of thousands of dollars into their homes now also found that they could use their real estate as an ATM simply by refinancing for the appreciated value of their homes, upping their debt obligations even more.

The last link in this chain would be the real estate development projects that kept home prices high and contributed to the creation of exurbs and vast expansion of suburbia at a blistering rate. The new development encouraged Americans to keep doing what they were doing, which is put all their money into homes and stuff and keep refinancing to use their houses for quick cash. Much of that was done on CDOs and borrowing too, but you're focused on household debt so I'm not going to go any deeper into it.

Joe Cushing

April 3, 2008 09:47 AM

Before the year 2000 30 year mortgage rates were in the 7 to 9% range since the data I'm looking at started in 1992. (there was a short exception during recession times) In the week of Jan 7 2000, you could get a 30 year mortgage for 8.15%. The rates stayed kind of high peaking at 8.52% in May, then slowly began dropping. In 2001 rates started to dip just below the 7% mark. In 2002 they started to dip below 6%. By June of 2003, where the line in your "worlds scariest chart" really takes off, rates sank to 5.21%. Rates stayed very low for a long time after that and never got above 6.5% for more than a couple weeks after that. Today they are still in the 5s. This is 40 to 45% lower than the 90s.

Other interest rates fell with mortgages too. Starting in 2002, there was no incentive to save and no disincentive to borrow. So what did people do? They stopped saving and started borrowing. Now, the fed is lowering interest rates and pumping money in the system in the delusion that it will somehow fix things.

Another factor is that companies stopped putting money into pension funds. I don't know what the numerical history is on that though.

When China comes to collect on our debt; and when the inflation, that has already happened, shows itself; we will see a reversal of this long trend. We will also see a reversal of the savings rate. There is a cultural learning curve too--because we are used to our companies saving for us. Now we have to do our own saving.

Mike Mandel

April 3, 2008 11:01 AM


Agreed..I think we will see the savings rate start to rise.


April 3, 2008 12:29 PM

One thing has always had me puzzled - the negative correlation between interest rates and the prevalence of ARMs. ARMs became popular in the low interest rate environment of 2002-03. Wouldn't we expect ARM originations to rise as interest rates rise since you expect future rates to be lower?

If I'm a homebuyer in 2003 when 30-year fixed rates are under 6%, that's a great opportunity. Conversely, if 30-year fixed rates are 10%, then an ARM is attractive since interest rates are likely to be lower when the rate resets.

Is anyone else perplexed by that?


April 3, 2008 01:20 PM

Yes. We need to evolve away from a retail based economy, where "stuff" is made overseas, trucked around, and bought with credit, to an economy based on untraded services.

What would such a 21st economy look like? Less manufacturing, transportation and retail, and more:
- maintenance & rebuilding of infrastructure
- materials recycling
- healthcare
- human services of all kinds, even *gasp* legal prostitution
- law enforcement and security
- retraining and education, lifelong learning for a high skill workforce
- maintenance and repair of natural resources (sustainable forestry etc)
- maintenance and repair of household stuff (don't buy new cheap stuff, repair the high quality stuff you have)

The above promotes jobs that stay in the U.S., and is a step toward a sustainable economy (ie, when the Saudis start running out of oil, the impact won't be as bad). How to get there: stop taxing income up to about $100K, and start taxing durable and semi-durable goods, and consumables based on non-renewable resources (such as gasoline from oil).


April 3, 2008 01:49 PM

1. Dot Com bust
2. H-1B cap raised to 200K, left there for three years despite mass layoffs of Americans. This depressed salaries. Lots of white collar people I know don't make what they used to before 2000.
3. 9/11 and aftermath. Our economy was in a coma for a while.
4. Offshore outsourcing
5. Easier access to various types of credit
6. Baby boomers raising families, trying to stay in the middle class despite all of the above.

Brandon W

April 3, 2008 04:38 PM

In relation to what Joe said:
I recall reading someplace that interest rates had dropped so much because the "brilliant" finance people had decided they had historically overestimated risk, and so the "new" math set a much lower risk premium. Well, what has happened? Looks like a lot of banks issued a lot of debt at rates that underestimated risk. Brilliant.

I wonder how much of the average American's income is going to service only the interest on all this debt. To the average person, that's money right out the window. So their income is stagnant, they've run up a bunch of debt they now have to pay off, and they're sending money into the pit of finance charges. And suddenly, we realize that maybe we ought to be SAVING money on top of all that?

What happens to consumer spending now?


April 3, 2008 05:16 PM


Its Ironic that you would have such anamolies in the same sentence.
"2. H-1B cap raised to 200K, left there for three years despite mass layoffs of Americans. This depressed salaries. Lots of white collar people I know don't make what they used to before 2000."

For one, even when the cap was lifted to 195000, it was never reached in those 3 years.
Two, in 5 years from now, by which time the housing market will hopefully have corrected itself, will you again say that a lot of folks I know never saw their houses appreciate to the level they were at before the bubble burst? htats the main issue. There was a tech bubble which increased white-collar salaries to unsustainable levels until 2001. When that bubble burst, only inflation would bring the salaries to the same level.
Also, globalization increased competitiveness in the global economy. Cost factors became important to ensuring survival. No one's gonna pay you a premium just because your previous income levels were higher unless the market supports it. Thats simple economics....
There is a lot of abuse and loop-holes in the H1B program. But to blame excessive spending and high debt on others is simply running away from your mistakes.

Dan Olson

April 3, 2008 05:32 PM

I'm sure there are people who buy things they don't need. But for all those who like to wag their fingers at our (apparently) greedy fascination with plasma televisions and other various bling bling I would encourage you to instead look at the data (as, thankfully, Mr. Mandel is attempting to do). Focusing on the data, after all, allows us to solve for the right problem. For my money, one of the better attempts to explain the rise in indebtedness came from Harvard law professor Elizabeth Warren in her book, "The Two Income Trap." She found some very interesting stats while looking into bankruptcy data and does a great job of addressing (and for the most part debunking) the myth of the overspending consumer. She helps us understand that we're spending about as much as we always have, just on different stuff. To wit: "The average family spends more on airline travel than it did a generation ago, but it spends less on dry cleaning. More on telephone services, less on tobacco. More on pets, but less on carpet. And, when we add it all up, increases in one category are offset by decreases in another. In other words, there seems to be as much frivolous spending today as there was a generation ago." (p.19)

So my contribution is this: the data tells us that the real problem is not consumers buying too much stuff. Let's focus elsewhere.

Where? I would say focus on wage dispersion, not just wage stagnation. that will help you answer the income question.

On the question of "stuff," I would say to take a look at the Consumer Expenditure Survey from the BLS b/c you can then compare current consumption trends with your BEA data on consumer durables.


April 5, 2008 11:35 AM

The "gap" that the article is referring to are services - landscaping (to go with the new house), designers (the interior of the house to match the exterior), beauty (the look of the owners to match the look of the house). Do we really need to have 2 nail salons per block in NYC? I doubt it. This is why the spending skyrocketed.

Joe Cushing

April 5, 2008 05:17 PM


In April of 1999 interest rates for a 30 year mortgage and 1 year arm were 6.98 and 5.65% respectivly. That's a 19% difference.

By April of 2003 they were 5.79 and 3.82. That's a 34% differnce.

Add in the fact that housing prices were bolooning in 2003 and people could no longer afford the house they had set as thier standard. This made having an ARM seem much more attractive.

When you multiply a 34% diffence in interest time $200,000, or $500,000, that's a lot of money. It comes to $241 a month per $100,000.

Adam Smith

April 6, 2008 12:12 PM

Lax standards led to a lot of unwarranted borrowing. An effort to juice the economy after the "Tech Bubble" and 9/11 was warranted for a time. However, we didn't cut back because it felt so good. Europe and Japan can't serve as models of how to fix things. It took more than a decade (1990 - 2004) for those areas to emerge from a recession. A mature market-based economy wrings out economic excessives. Painful, but, in the end, a more robust recovery and growth, more quickly.

bean counter

April 7, 2008 12:42 PM

stupid question on furniture,
"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."
These percentage increases are in units or dollars? If in dollars would being cheap encourage us to spend more in total dollars?


April 10, 2008 05:30 PM


Peter St. Onge

April 14, 2008 05:32 PM

Maybe people were simply spending the unrealized capital gains on their houses?


April 15, 2008 03:53 AM

There is a lot of blather here about doom and gloom over the horizon, when in reality American balance sheets are very strong. If you want to know just how strong, take a look at the national balance sheet figures that the Fed puts out:

The savings rate is irrelevant considering the large run-up in household financial assets over the last decade, as strikingly displayed by the chart and paper here:

Who cares about a loss of savings of 10% of income when household assets have increased by 2X income? It is fairly clear that Mike and the other pessimist commenters here are Democrats who are trying to play their part in the current scare-mongering that the press has been indulging in, so that their party will come into power in 7 months. One blatant example of this is the recent articles that talk about "record job losses" not seen in 5 years, over the last couple of months. Well, that data is available online (you can play with the figures yourself here: so I checked it out and found that the reason the losses were the highest in 5 years is that there were NO losses for 5 years. In 2003 five years ago, we were just coming out of the 2002 dip and there were small job losses as a result. The dimwit press has taken those small figures, noticed that the current loses were slightly more, and used it to write up scary headlines about record job losses. All Mike is doing is playing his part in this politically-motivated press blitz.

Mike Mandel

April 15, 2008 06:44 PM


As you should know, I am an inveterate optimist. In fact, I've got many posts making just the point you have made about household assets.

But I've come to conclusion that the debt load is more important than the balance sheet right now.

P.S. If you look at the sum total of my stories and posts, you'll see that I am quite balanced politically.


April 16, 2008 03:29 AM

Mike, That's one of the reasons I even read your blog, because of your efforts to dig up the real national wealth figures. That's how I found your blog in the first place, by googling for that data. If you now believe that debt load is more important than those assets, please make an argument for why that is so. So far, all you have done is point out the debt load, while being careful not to contrast it with ameliorating information about the size of household assets. I would welcome a reasoned discussion of why the debt load is too large but the kind of selective display of data I've seen on this blog recently looks quite partisan instead.

As for political balance, I'm not interested in that old media trope. I would rather that people, in the media or otherwise, disclosed their ideological or party biases and then proceeded to make reasoned arguments about whatever issues are at hand (I myself am a libertarian, for example). I realize there are a lot of dimwit readers who will then dismiss anyone with a stated affiliation as always subservient to that ideology in every argument you make, and proceed to attack or ignore you. I would rather that intelligent people ignored such dimwit readers and proceeded anyway. In sum, political balance is a media hypocrisy that distorts the truth while maintaining the media's political position.

Mike Mandel

April 16, 2008 10:55 AM


Two points:
First, on the debt/wealth figures. Netting out debt against assets makes sense at a time when the financial markets are functioning well. But if they are not, then much of the wealth becomes illiquid..not just homes, but the large amount of imputed wealth in privately owned businesses. Right now I'm fairly skeptical of the asset side of the Fed figures.

On the larger question of the political bias of the media. This really deserves a post of its very own, but I don't feel like tackling it yet. I can just for myself, there are plenty of people who write on economics from both the left and the right. Most leading economists, too, end up identified with one party or the other depending on whose administration they serve in Washington. There are much fewer economists who are not beholden to either side. So it's very important to me that I maintain a stance of open inquiry,without regard to whose ox is going to be gored.

I would argue that in nearly twenty years of writing at BW, I have pretty much maintained that stance.


May 1, 2008 02:28 AM

I enjoy your blog. You always seem to be curious about econ, asking questions, puzzled (good-naturedly).
Anyway, I was delighted to read "stuff" in this post. When I get to lecture on econ I always ask my students what economics is about; waiting for a few responses -- those who have lectured know the routine -- I always say: it's about stuff! (Of course I follow up on this point. ) (Even the Monty Hall experiments are about stuff!)

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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