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This paper argues that the versions of both permanent income and life-cycle theories which have recently become fashionable are inconsistent with the grossest features of cross-country and cross-section data on consumption and income. There is clear evidence that consumption and income growth are much more closely linked than would be predicted by these theories. it appears that consumption smoothing takes place over periods of several years not several decades. These results confirm Milton Friedman's (1957) initial view that: "The permanent income component is not to be regarded as expected lifetime earnings... It is to be interpreted as the mean income at any age regarded as permanent by the consumer unit in question, which in turn depends on its horizon and foresightedness." They call into question the usefulness of standard representative Consumer approaches to the analysis of saving behavior. And they call for increased emphasis on liquidity constraints and short run precautionary saving as determinants of consumption behavior.

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Robust and reliable measures of consumer expenditures are essential for analyzing aggregate economic activity and for measuring differences in household circumstances. Many countries, including the United States, are embarking on ambitious projects to redesign surveys of consumer expenditures, with the goal of better capturing economic heterogeneity. This is an appropriate time to examine the way consumer expenditures are currently measured, and the challenges and opportunities that alternative approaches might present. Improving the Measurement of Consumer Expenditures begins with a comprehensive review of current methodologies for collecting consumer expenditure data. Subsequent chapters highlight the range of different objectives that expenditure surveys may satisfy, compare the data available from consumer expenditure surveys with that available from other sources, and describe how the United States's current survey practices compare with those in other nations.

Cost and standard of living. --- Consumption (Economics) --- consumerism, expenditures, economic activity, wealth, poverty, income inequality, resources, welfare, inflation, public policy, consumption, cost, standard of living, expenditure survey, research, consumer price index, panel data, leisure, labor, household demand, denmark, sweden, reliability, methodology, balance edit approach, saving, aging, payment, habits, budget, technology, quantifiable, nonfiction, sociology, politics, economics, international.