The US consumption function: a new perspective
- PDF / 1,627,184 Bytes
- 26 Pages / 439.37 x 666.142 pts Page_size
- 36 Downloads / 196 Views
The US consumption function: a new perspective John Foster 1 Accepted: 26 October 2020/ # Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract In the United States, the ratio of consumption to GDP has risen steadily over the past half century. In trying to understand why this ratio has increased so much, it is argued that standard models of the consumption function, built up from the neoclassical theory of constrained optimization, cannot offer a satisfactory answer. An alternative perspective is offered whereby aggregate consumption expenditure is seen as primarily the outcome of the population adopting widely upheld rules (‘meso-rules’) in a complex economic system. Aggregate consumption is viewed as the outcome of two contrasting historical processes: one mainly involving pre-committed, rule-bound choices and the other involving open-ended choices, made knowingly in the face of uncertainty, to adopt new meso-rules concerning the consumption of novel kinds of goods and services. The former process provides the degree of order that must be present in any complex system and the latter facilitates evolutionary change to occur. Using over half a century of data, the US consumption function is modelled successfully on the presumption that the economy is a complex system. The evidence supports the hypothesis that the ratio of consumption to GDP has risen because of the diffusion of a ‘culture of consumerism’ in the post-war era and that the limit of this process is now being approached, with important macroeconomic and social implications. JEL codes E10 . E14 . E21 Keywords Macroeconomics . Consumption . Meso-rules . Economic evolution .
Consumerism
1 Introduction Keynes (1936) argued that aggregate consumption expenditure is important because it transmits multiplier effects to GDP when there are expenditure shocks emanating
* John Foster [email protected]
1
The School of Economics, The University of Queensland, Brisbane, Queensland 4072, Australia
J. Foster
from, for example, business investment. However, he offered a discussion of the determinants of the marginal propensity to consume that was, in the main, qualitative.1 From 1938 on, researchers began to estimate, econometrically, the quantitative relationship between consumption and income, controlling for other hypothesised causal variables. This was labelled ‘the consumption function,’ and it became a core component of macroeconomics. It was deemed to be of key importance in assessing the impacts of aggregate expenditure shocks and the efficacy of monetary and fiscal policy. After the Second World War, there was a growing tendency to construct models of it using neoclassical micro-foundations, following, for example, Friedman (1957). This involved a range of restrictive assumptions and much of the debate in this field became concerned with the implications of relaxing one or more of these assumptions. The original motivation was empirical: why did econometric estimates of the marginal propensity to consume, derived from models using short
Data Loading...
