How We Spend

Even Americans who think they know where their money goes probably have no idea how their spending compares with that of their parents or grandparents. But such figures yield a surprising picture of how our economy works—and how it’s changing. We take for granted, for instance, our much-discussed drift away from manufacturing. Advances in technology and education have created massive productivity gains, which have made things cheaper and easier to obtain.

Consider necessities like food and clothing, which gobbled up 42% of our spending in 1947. Six decades later—even in the face of exorbitant spending on frivolities like high-end coffee and designer clothes—food and clothing accounted for only 16% of spending. (In our research, we use 2007 as our end point because some economic relationships have been distorted by our current downturn.) But is spending less on the production of tangible goods such a bad thing? Not necessarily. After all, the shift frees up resources for areas like health care, education, and recreation, where spending has increased.

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