The Independent Institute’s Senior Fellow Robert Higgs has been taking on the so-called conventional wisdom that the U.S. economy continues to be in recessionary or near-recessionary conditions because “consumers are not spending”. On Friday, Dr. Higgs issued a challenge to readers of the Independent Institute’s blog The Beacon, as well as commentators and pundits, that we here at the MyGovCost blog couldn’t pass up:
Commentators and pundits, some of whom ought to know better, continue to harp on the idea that the recession persists because consumers are not spending. Every Keynesian seems to believe that because consumers are in a dreadful funk, only government stimulus spending can rescue the moribund economy, given (to them, at least) that investors will not spend more because the Fed, having already driven interest rates to extraordinarily low levels, cannot use conventional policies to drive them any lower and thereby elicit more investment spending.
People, please look at the data. They are conveniently available to one and all at the website maintained by the Commerce Department’s Bureau of Economic Analysis [BEA], the outfit that generates the national income and product accounts for the United States.
According to these data, real personal consumption expenditure recovered from its recession decline by the fourth quarter of 2010. Continuing to grow, it now stands (as of the most recent data, for the second quarter of 2011) even farther above its pre-recession peak.
Real government expenditure for consumption and investment (this concept does not include the government’s transfer spending, such as unemployment insurance benefits and social security benefits) is also running higher than its pre-recession level. In the second quarter of 2011, it was running more than 2 percent higher (recall that this is “real,” or inflation-adjusted spending; nominal spending has grown substantially more).
The link Dr. Higgs provided will take you to all the various tables produced by the BEA to describe the state of the U.S. economy, which means that the casual reader has got some serious data-sifting to do before they might drill down into the nation’s personal consumption expenditure data.
To make looking at the data easier, we pulled the historic data from Table 2.3.6, which provides the level of inflation-adjusted personal consumption expenditures for all quarters beginning with 1995, and visualized it in the graph below:
In scanning the chart, we can see that the inflation-adjusted personal consumption spending of U.S. consumers peaked at just over $9,300 billion in the fourth quarter of 2007, just at the official beginning of the 2007 recession. Real personal consumption expenditures then fell before bottoming just below $9,000 billion in the second quarter of 2009, which marks the official end of the 2007 recession.
We then confirm that the collective spending of U.S. consumers reached its pre-recession level in the fourth quarter of 2010 and has since risen above that level to reach just under $9,400 billion through the second quarter of 2011.
Of course, Dr. Higgs’s main point in his analysis is that both pundits and commentators cannot legitimately blame U.S. consumers for the anemic state of the U.S. economic recovery. As for what is holding back the economy from making a solid recovery, we can make a pretty good case that too much debt is the major contributing factor, both at the national level and also for the growth engine of the U.S. job market: small businesses (coming soon!)
U.S. Bureau of Economic Analysis. Natonal Economic Accounts. Table 2.3.6. Real Personal Consumption Expenditures by Major Type of Product, Chained Dollars. Billions of Chained 2005 Dollars. Seasonally Adjusted at Annual Rates. Last Revised on 26 August 2011. Accessed 10 September 2011.