American consumption outpaces income growth

This morning, the Commerce Department released its latest set of data on income and consumption. The good news? They are both growing — Americans are earning more, and spending more. The bad news? Consumption is growing faster than income, and Americans are saving less to fuel their purchases.

But as Paul Krugman notes: “We’re still in a liquidity trap, with Fed policy constrained by the zero lower bound. And a liquidity trap world is a paradox-of-thrift world, in which the virtuous individual decision to save more is a vice from the point of view of the economy as a whole. For now, it’s actually a good thing that consumers are behaving irresponsibly.”