Wealth by itself now appears to explain about one-fifth of the total level of consumer outlays, according to the Board’s large-scale econometric model, leaving disposable income and other factors to explain only four-fifths of consumption. Indeed, if capital gains have any effect on consumption, the propensity of households to spend out of income must be less, possibly much less, than 90 percent.
If income and wealth moved tightly together over time, the distinction between them might not be meaningful for predicting the future path of consumption. And, over very long periods of time, capital gains on physical assets are not independent of the trends in disposable income.