The Wilder View

Follow up on Debt-Fueled Consumption Growth

Wow, this post got a lot of attention/criticism on the web (see comments on RGE Economonitor, Investment Postcards from Cape Town, and of course News N Economics). I guess it’s hard to believe that the mortgage buildup over the last decade was financing health care rather than durable-goods consumption.


The chart illustrates annual real spending, as released by the BEA (see data here). The mortgage data comes from the Fed’s Flow of Funds accounts. The BEA is smack in the middle of updating its history, following the comprehensive revisions, and some of the data is truncated at 1995.

I agree, but only to the point that the line dividing types of debt-fueled consumption growth is not clear – consumption was just growing. But I find this chart to be rather remarkable: notice how the trend term for durable-goods consumption growth peaks in the late 1990’s, well before the run up in mortgage debt was established. Services got a bit of a push during the same period, but nothing like durables. And notice the positive correlation between some of the quicker rates of mortgage debt growth and the pace of health care spending.

Obviously this is not a quantitative study, rather a qualitative approach. But it does support the premise that the debt was going, at least in part, to finance health care spending. Frankly, I don’t know why it is so hard to believe. Anecdotally, I have a friend that is just swimming in debt, all on an uninsured week at the hospital.

Originally published at News N Economics and reproduced here with the author’s permission.

3 Responses to “Follow up on Debt-Fueled Consumption Growth”

GuestAugust 24th, 2009 at 11:38 am

IT is a double standard how we view spending on energy verses health care/education. Energy costs rise and we want to punish the oil comapnies as evil. In meantime health care costs and education costs have risen more than the infaltion rate for the last 20 plus years and we reward them. There is a local medical provider where I live that just about owns the health care industry in my county. In 2007 they had a 18 percent profit margin – they called it a surplus. Any other industry would love to have that type of return but the eveil oil companies were under fire for having a 9 percent return in 2008.

rrandallAugust 28th, 2009 at 8:19 am

The durables spending curve tracks the Dow Jones internet bubble (for which President Clinton took so much credit) more than the mortgage curve…Also, plot expenditure levels, not growth rates, for better eyeball analysis of your topic; I see too much misinterpretation of year/year change charts as tho they are current-conditions indicators: they look great when “bottoming” is all they are showing…..

MPatinAugust 28th, 2009 at 11:15 am

The danger of reading too much into a chart like this is there are too many aggregate moving targets to draw any summary conclusions. Of course if health care expenditures (something that is much less discretionary than buying cars, furniture, IPods, and travel) rise against relatively fixed income, aggregate spending on other stuff naturally has to come down. What we should be looking at were the spending trends of those households who, 1) owned homes, and 2) had stable health care expenses. Then the case for irresponsible monetizing of inflated, low-interest house value might become apparent.What you have done is make the case for health care reform, which looks like–using your logic–will now bankrupt everyone eventually unless we make some necessary changes.

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