IT HAS ALWAYS BEEN A SOURCE of professional pride to me to be able to
tell my undergraduate students in macro theory that economists know a lot
about what makes consumers tick. However, in light of the experience of
the past several years, I now state this proposition much more circumspectly,
and perhaps should restrain myself altogether. For the fact is that in the
last three or four years, the consumer has done few things predicted of him.
To be sure, there have been some new elements in the picture: interest rates
at the highest levels in a century; a "roaring" inflation, at least by contemporary
U.S. standards; and a temporary tax increase. But even so, the consumer
seems to have injected his own element of eccentricity. Among other
things, he was thrifty in 1967 and the first half of 1968 on a scale then unprecedented
for the postwar period. And while he regained his taste for
spending in the last half of 1968, it was rather short-lived. For in the third
quarter of 1969, the personal saving rate again began to rise, and from the
third quarter of 1970 through the second quarter of 1971, was in excess of
the unheard-of level of 8 percent.