Re Neil Irwin’s Archive “You Can’t Feed a Family With G.D.P.”…but the family has been eating GDP???

In a recent Washington Post article Neil Irwin quipped  that you cannot feed a family with GDP and illustrated this comment with a graph of GDP relative to income growth.  The graph showed the rate of growth of GDP and median income moving in opposite directions from circa 1998 onwards.  

My point is that the family has been feeding its family with GDP, to a large extent, via debt and falling savings and that it was the combination of high debt levels and weak income growth that played a major role in the crisis and weak economic growth thereafter. 

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We can see that personal consumption expenditures grew at roughly the same rate as GDP up to the early 1980s, started to grow at a moderately higher rate between early 1980s and 1997, and then spiked higher…

We can also see this happening in the UK:

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In fact eerily similar….

And if we look at US household and NPO debt to personal disposable income and annual increases in debt (Q on Q) as a % of disposable income we get some clue as to the source of the increase: image

Yes a lot of this debt was mortgage debt and remains so but we cannot ignore the relationship between debt and personal consumption expenditure and the divergence between income and GDP growth.

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