- Spending and Saving
As we have seen, the history of the United States over the past century or so shows that increases in productivity have predominantly been harnessed to increase output, with some portion captured by labor, through increasing real wages. Up until the middle part of the century, increasing productivity was accompanied by a decline in the length of the working week. However, once the eight-hour day had become the norm, work time began to plateau, even as in the postwar period productivity and real hourly wages continued to rise. But what was done with this increasing wage income? It is quite hard to get a clear picture of past consumption practices, but some general trends are apparent, some of which are prima facie quite puzzling. Aggregate levels of consumer spending, as opposed to saving, are consistently high, especially in the second half of the century. Empirical analysis has shown that, not just in the United States but across capitalist economies, consumption increases proportionately with income (Thaler 1990). This goes against the view that increasing income should lead to a higher proportion of income saved (the increasing marginal propensity to save).
Bureau of Labor Statistics data show that between 1900 and 1950, average household income and consumer spending track one another almost exactly. Spending begins to lag somewhat behind income between 1950 and 2000, but it does so to a surprisingly small extent. Lizabeth Cohen (2003) notes that private consumption remained steady as a proportion of GDP, accounting for at least two-thirds of the national product. Spending in the latter half of the century absorbs a roughly constant (albeit inconsistently so—sometimes it is higher and sometimes lower) rather than a declining proportion of income (National Bureau of Labor Statistics Report 2006). In fact, with the exception of the Depression of the 1930s, levels of consumer spending remained remarkably high across the course of the century, tending to increase at least in proportion to rising income. In 1993, Americans spent over 90 percent of their incomes on consumption, and this is not untypical for the postwar period (Lebergott 1996, p. 61). In line with this pattern, the average household savings rate in the United States was fairly stable for most of the twentieth century, varying only between 6.5 percent and 8.5 percent (with the exception of a spike in savings between 1973 and 1975), before dropping to historic lows in the 2000s, when it averaged 3.5 percent (Maddison 1992).38
Empirical Pattern in the United States
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