Description and meaning of the component

In the context of concepts of welfare measurement  growth in private consumption is regarded positive: It is assumed that the consumption of a good creates utility for the user. That basically makes sense, since consumption of private households includes central areas like accommodation, water, electricity, gas or other fuels, which accounted for not less than a quarter of total domestic consumption in 2010, transportation and communication (16 %) and nutrition, drinks, tobacco products (14 %).

The private consumption of goods and services can often be questionable for ecological or health reasons, as the examples of meat consumption, frequent air travel or the ownership of two or even three cars per household show.

On the other side, the NWI calculation does not assess the desirability of different consumption patterns – these are not used as a weighting factor for consumption expenditures. Instead of that, negative impacts of consumptions are corrected  by other components (e.g. component 19 "damage cost of CO2 emission”). When interpreting the values one should keep in mind that an increase can also take place even if only one of the two components (private consumption and Gini-Index) changes positively: This is always the case when the positive change of one variable over-compensates the negative change of the other. In other words: Within the index, a more “unjust” income distribution can be compensated by a considerable rise of private consumption.


Description of Indicator trends

The value of weighted private consumption is always above real private consumption if in the respective year the Gini-Index shows a more equal income distribution as in the reference year 2000;  vice versa.

In the NWI logic this leads to the following results: from 1991 to 1999 real consumption was increasing and income inequality remained mostly constant over time – therefore resulting in a rising societal welfare.

Afterwards real consumption expenditure was slightly increasing whereas the rise in income inequality led to an overall decrease of societal welfare between 2001 and 2005. Here, the welfare level is even below 1991. This reasoning follows the assumption of a decreasing marginal utility of income – because an additional euro for consumption of low income households creates more utility than an additional euro for a high income individual which therefore adds more to societal welfare. Until 2014, only small changes can be seen, resulting from a permanent high income inequality and an only small increase of consumption expenditures.

There exists no uniquely defined goal for the weighted consumption expenditure with regard to welfare development: The component can either be improved by a more equal distribution of income (and thus, consumption) or by a higher level of consumption in general.

A sustainability perspective could qualitatively change consumption, since the ecological limits of the planet are crossed in several dimensions. A rise in consumption appears – at least in a macroeconomic perspective – positive only if an absolute decoupling from resource consumption is taking place. It would be also possible that mass consumption and GDP are both falling together with a more sustainable development due to a diminishing “throwaway mentality” or a stronger focus on non-material consumption. Regarding the NWI this would presumably be, in contrast to GDP, compensated by a lower negative impact of the ecological components, thus increasing the national welfare.