MPC: Marginal Propensity to Consume

From the Wikipedia article:

The proportion of the disposable income which individuals desire to spend on consumption is known as propensity to consume. MPC is the proportion of additional income that an individual desires to consume.

Oh... Okay. But that is not the interesting thing about the MPC. The interesting thing is that as income goes up, more of it gets saved. Saving increases faster than income, and spending increases more slowly. The propensity to save goes up more than income. The propensity to consume goes up less.

And that is exactly what Waliapreeti's graph in the Wikipedia article shows:

Graph #1: Consumption Spending goes up Less than DisposableIncome.

As income goes up, more of it is saved. As income goes down, less of it is saved. If we are saving less, the MPC says, our income is probably going down.

So now: Here's a graph of the U.S. personal saving rate. (As FRED describes it, "Personal saving as a percentage of disposable personal income".)

Graph #2: Personal Saving as a percentage of Disposable Personal Income

A pretty much straight-line decline in saving from the mid-1970s to the recession of 2009. The MPC tells us what we already know: Income was going down all that time.

But then, with the recession of 2009, the saving rate suddenly jumped up. So based on the principle of the Marginal Propensity to Consume, did income suddenly jump up sharply? That upward spike during the 2009 recession, that's what it suggests.

Or maybe -- just maybe -- there was a sudden change in the Marginal Propensity to Consume. Yeah, that's it. A sudden change in the MPC. And what does that tell us?

It tells us that the straight-line downward trend of saving and income was not a sustainable policy.