The Age of Turbulence by Alan Greenspan

Author:Alan Greenspan
Language: eng
Format: epub
Publisher: Penguin Publishing Group
Published: 2008-09-08T16:00:00+00:00

1Sample surveys of U.S. consumer income and outlays have been published periodically by the U.S. Department of Labor and its predecessors since 1888. I collected data from seven surveys from 1888 to 2004. The raw survey data appeared to have no consistent pattern until I exhibited each income bracket’s ratio of spending to income against each particular year’s average family income. Then, as in Brady and Friedman, for all seven surveys, the ratio of spending to income for those households with a third of the nation’s average income concentrates around 1.3 (their spending exceeds income by 30 percent). The spending/income ratio then falls eventually to about 0.8 at double the average income level.

2An alternate way to reach the same conclusion is to observe that there is no discernible long-term trend in the nation’s household saving rate. Yet all surveys show the saving rate is higher for upper-income households than for lower-income households. For both statements to be true (and if the distribution of incomes does not veer outside its historical range), households at any given dollar income level must be saving less as the aggregate incomes rise with time. The extent of the downward creep in saving must be directly related to the growth rate of average household income.

3Food, of course, is a very useful proxy for the subsistence level, which shouldn’t be tied to where a family stood in the income pecking order.

4Fortunately, this psychology also works in reverse. Sharp financial adversity brings deep depression. But people not otherwise psychologically incapacitated rebound with time. Their smile returns.

5In some instances, however, political impediments have prevented governments from creating or abolishing institutions to better reflect the cultural choices of their constituents.

6In calculating the index, all ten elements are given equal weight. Allowing the weights to change on the basis of time-series correlations would increase the degree of correlation.

7The tragedy of the denuding of Brazil’s Amazon rain forests is that the inhabitants of the region need to cut down trees to survive.

8European Union member countries prior to the expansion of 2004.

9In April 2007, the rate was 8.2 percent.

10Parts of the euro area, however, have already undertaken considerable reform. Ireland and the Netherlands particularly have developed programs that lowered the rate of unemployment. And Germany’s incomplete labor reforms of earlier in the decade may be having a greater impact than previously contemplated.

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