Sustainable Consumption and the Comprehensive Economic Well-Being of American Households 
This paper presents a comprehensive measure of household economic well-being that the authors call “sustainable consumption.” The resources supporting sustainable consumption are a combination of households’ current wealth and projections of both after-tax income and cash transfers over their lifetimes. The authors measure sustainable consumption empirically using Panel Study of Income Dynamics data for working-age American households from the mid-1980s through 2018.
Key Findings
- Following a period of rapid growth from the mid-1980s to the early 2000s, sustainable consumption stagnated on average for several years before declining nearly 10 percent in the aftermath of the Great Recession.
- The decline in sustainable consumption following the Great Recession exceeded the fall in actual consumption due in part to a decline in real asset returns.
- On average, sustainable consumption was less than actual consumption from 2004 through 2018, which implies that American households typically did not accumulate sufficient wealth during the 2000s and 2010s to maintain their path projected at the beginning of the century.
- Taxable income supports the majority of sustainable consumption; however, as a share of households’ lifetime resources, taxable income has decreased on average over time while the importance of Social Security has increased.
Implications
The sustainable consumption concept offers several advantages over other measures of economic well-being. It adjusts for how age differences affect available resources and therefore provides a more reliable measure of economic well-being over long periods of time as the age distribution in the population shifts. In addition, because sustainable consumption is defined as an annual flow, it is directly comparable to actual spending in a way that the present value of total household resources is not. The sustainable consumption concept also enables one to analyze the impact of changes in macroeconomic variables, such as the interest rate, on economic well-being on an annual flow basis. Thus, it can provide a straightforward assessment of how changes in macroeconomic conditions affect the average US household.
Abstract
This paper develops a comprehensive measure of household economic well-being. The “sustainable consumption” concept accounts for income, assets, debt, transfer payments, and asset returns to estimate a consumption path that balances resources with expenditure over a household’s lifetime. Calculating sustainable consumption using Panel Study of Income Dynamics data demonstrates that it acts as an anchor for actual household spending. Results show that following a period of rapid growth from the mid-1980s to the early 2000s, sustainable consumption stagnated on average. In the aftermath of the Great Recession, the decline in sustainable consumption exceeded the fall in actual consumption due in part to a decline in real asset returns. Decomposing sustainable consumption reveals the relative importance of different household resources in determining well-being and how these factors evolve over time—insights that would be missed when resources such as income or wealth are considered separately. Taxable income supports the majority of sustainable consumption; however, as a share of households’ lifetime resources, taxable income has decreased on average while the Social Security share has grown.