Would you believe one fourth full ? No how about one tenth full ? How about not as dry as the Sahara desert ?
Recently I asked the question. Keynes dismissed the PIH (well before it re-emerged) as follows when discussing consumption in Chapter 8 of The General Theory …
(6) Changes in expectations of the relation between the present and the future level of income. — We must catalogue this factor for the sake of formal completeness. But, whilst it may affect considerably a particular individual’s propensity to consume, it is likely to average out for the community as a whole. Moreover, it is a matter about which there is, as a rule, too much uncertainty for it to exert much influence.
It seems to me that the very very first step in evaluating Keynes’s null is to look at the association between the ratio of consumption to current income and the ratio of future income to current income. If there is anything to the PIH it seems that it must be that a high ratio of consumption to disposable personal income must be correlated with a high ratio of future disposable personal income to current disposable personal income.
Here is a scatter of those ratios
“consinc” is the ratio of US consumption expenditures (PCECA) to US disposable personal income (A067RC1A027NBEA) both from Fred. finc4inc is the ratio of the average of US real disposable personal income (A067RX1A020NBEA) over the next four years (t+1, t+2,t+3 andt+4) to current year real disposable personal income (A067RX1A020NBEA).
The two variables should be possitively correlated if there is anything to the PIH. Now achieved future average real disposable income should be the forecast plus an error term, so the correlation should be well below one. But there is almost nothing there. the main feature of the data is that consumption was low compared to income when consumption was explicitly rationed.
To avoid this, I also looked at data of consumption from 1946 on here
There is no pattern to explain (the correlation is actually slightly negative).
How is it possible that the profession has debated for decades how to improve on the primitive model of consumption as a function of current disposable income to consider the average agents’ consideration of future income when there is no evidence that at all ?