Now that we've established both how to calculate Irving Fisher's consumption-based measure of the size of the nation's economy as it matters to ordinary Americans (the national dividend) and compared that result with the alternative production-based measure of the national income of Gross Domestic Product (GDP) developed by other economists, the next question we'll address is how well does the national dividend line up with the incomes earned by the ultimate end consumers?
We'll do that as simply as possible, in nominal terms, by determining the correlation of the average annual total expenditures per consumer unit, which is the near equivalent of a U.S. household, with median household income over the thirty year span for which we have data for both series. The chart below shows the result of that very simple linear regression analysis.
What we find is an almost perfect correlation for the years from 1984 through 2013, where the relatively small deviations from the otherwise nearly 1:1 linear trend are easily explained by the following factors:
- The Dot-Com Stock Market Bubble (1997-2003)
- The First U.S. Housing Bubble (2001-2007)
- Fuel, Oxidizer and a Spark (Part 1)
- Fuel, Oxidizer and a Spark (Part 2)
- Fuel, Oxidizer and a Spark (Part 3)
- The Second U.S. Housing Bubble (2012-Present)
Otherwise, with such an almost perfect 1:1 correlation, we confirm that our consumption-based national dividend for the U.S. almost perfectly represents the national economy as experienced by its most typical and ultimate end consumer representative: the median U.S. household.
Data Sources
U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Total Average Annual Expenditures. 1984-2013. [Online Database]. Accessed 14 March 2015.
U.S. Census Bureau. Income, Poverty, and Health Insurance in the United States: 2013 (P60-249). Current Population Survey. Annual Social and Economic Supplement (ASEC). Table H-5. Race and Hispanic Origin of Householder -- Households by Median and Mean Income. [Excel Spreadsheet]. 16 September 2014. Accessed 21 March 2015.
Previously on Political Calculations
Once upon a time, last Wednesday, we solved a problem that had stymied economists since 1906. And we made it look easy!
Labels: economics, math, real estate, stock market
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