Monday, May 24, 2010

What we Spend our Economy On

It's illuminating, in thinking about future economic events, to have a fairly concrete and specific idea of what the economy is used for.  What exactly do we make with all these factories, fantastic amounts of fossil fuels, raw materials, etc?  Hence, in this post, I present a few graphs just showing some basic breakdowns for the United States economy.  Other advanced economies would be broadly similar, though some things in the detail would differ quite a bit.  These all come from BEA table 2.4.5, and I have expressed everything as a fraction of GDP.  All graphs are 1950-2008.

The first graph above shows the breakdown of "Personal Consumption Expenditures" (PCE) - ie final spending by households.  I've just shown the major components: "Durable Goods" - cars, furniture, etc., "Non-Durable Goods" - groceries, clothing, etc, and "Services" - healthcare, financial services, etc, etc.  Obviously the major takeaway is that PCE has been about 2/3 of the economy, and a gradually increasing share, though possibly stabilizing after 2002.  And services have been an increasing share of that.

Next up is the durable goods part:

As you can see, these are about 9% of the economy, though slightly declining over time. The major categories are new vehicles (cars and light trucks), household furnishings (which includes things like TVs and computers in addition to appliances and furniture), and recreational equipment and vehicles (everything from junior's soccer boots to the family RV).  Striking features are the steady growth in recreational equipment spending, and dramatic decline in the fraction of the economy going on cars since 2002 or so.

Next up is the non-durable goods:

The big story here is that as we gradually got wealthier through the second half of the century, a smaller and smaller fraction of the economy was spent on non-durable goods.  However, you could certainly argue this started to turn around after 2000, as the long decline in groceries as a fraction of the economy started to stabilize and spending on gasoline increased (note that for reasons that are quite unclear, some energy products, particularly gasoline and fuel-oil, show up here in non-durable goods, while others - electricity and natural gas, show up under utility services).

Finally, we have the services.  Having other other people, or businesses, do stuff for us has been an exploding trend:

Obviously, the big growth areas are healthcare and financial services (banking, insurance, etc).  But all service categories have tended to grow.  "Housing" includes not just spending on rent by renters, but also "Imputed rental of owner-occupied nonfarm housing" which is slightly odd - the implied ongoing benefit of your car is not included in PCE, but the equivalent for your house is.

Finally here is that last graph as individual lines so it's easier to see the trends in each category:

Indeed, healthcare for the aging baby-boom seems likely to eat the economy alive.  Somebody better invent some robots to take care of them...


Greg said...

Maybe you were being facetious with your last sentence, but I think it's the literal truth -- and that it will happen quite soon, within decades. It's probably happening now, if I were to look.

The combination of machine vision, expert systems, modern sensor technologies, robotics, and the "internet of things" (RFID on passive objects, communications on powered ones) are all the ingredients needed to automate most of medicine -- all the routine stuff. We don't need any technology breakthroughs such as machine intelligence. We can do it now.

As you have pointed out, it's almost certain to make economic sense to automate. And, as well as lowering costs, automation improves quality. So this will be a good thing from the consumer's point of view.

The same reasoning applies to many other industries: transport and logistics, construction, security and public order, education.

Oh, and the other attributes of robots (robustness, and in a pinch disposability) make it sensible to use them in mining, forestry, and military applications.

BTW, where is education in the above charts? I guess it's accounted for separately, not in personal consumption.

Stuart Staniford said...


There's a small amount of "Education" in "Other Services" - I think private schools, test prep services, etc. However, the bulk of education spending is done by government.

Greg said...

Thanks, Stuart. You probably guessed the reason I asked--education is ripe for automation just as is medicine.

There is just as much need, too. The frequency at which people need to retrain during their working lives is increasing, so there is a lot of latent demand for cheap, good-quality education up to the lower tertiary levels.

John Kaay said...

A question and a comment:
What are the light green areas/ lines in charts 4 and 5? I count 9 items charted and only 8 descriptors.
Re automation and healthcare: Soon after I started working in a VA Hospital pharmacy in the mid 70s, automatic packaging of pharmaceuticals was introduced. It was sold as a way to decrease personnel costs and improve dose delivery accuracy. At the time there were two pharmacists,two pharmacy technicians and one clerk working in the pharmacy. When I retired 3 years ago, there was a million doller robotic packaging machine in a sealed clean room, and four times as many pharmacists, clerks and technicians in a new space about 6 times as large. As the technology improved, they kept on finding new things to do with it!

Stuart Staniford said...


The top one is "Other Services". Sorry, I didn't realize I'd tweaked it out of site in formatting the graph. Glad to see someone is scrutinizing the data closely!

MisterMoose said...

I recall reading somewhere that the Japanese are seriously working on the robotic solution to the problem of who will take care of all the old folks. One hopes they'll have better luck with the robots than Europe is having with guest workers and immigrants from mostly Muslim countries.

Assuming that populations continue to decline in the industrialized countries (and who, reading The Population Bomb 40 years ago, would have predicted THAT?), do you think these general trends will continue? This could solve the problem of overconsumption...

So, if we end up living in a world where robotics and even nanotechnology can provide us with most (or even all) of our physical needs, will we all just provide "services" to each other? I'll take in your laundry if you'll take in mine.