What is Autonomous Consumption
Autonomous consumption is the minimum level of consumption or spending that must take place even if a consumer has no disposable income, such as spending for basic necessities. This contrasts with discretionary consumption, which is used for non-essential items. When combined with discretionary income, a person's autonomous consumption determines his or her real income or real wages.
BREAKING DOWN Autonomous Consumption
Certain bills and expenses are deemed autonomous or independent, such as electricity, food and housing costs. These expenses cannot be entirely eliminated regardless of personal income. If a consumer's income were to disappear for a time, he or she would have to either dip into savings or increase debt to pay these expenses. The process of using debt to finance autonomous consumption is also known as "dissaving."
The level of autonomous consumption can shift in response to events that limit or eliminate sources of income, or when available savings and financing options are low. This can include downsizing of a home, changing eating habits or limiting the use of certain utilities.
Autonomous Consumption and Dissaving
Dissaving is a state in which net assets are used to meet debt obligations and is generally related to an individual’s expenses outweighing his or her income. The individual must spend accumulated savings or pledge future income in exchange for the ability to manage the current expense.
Also referred to as negative saving, dissaving can be examined on an individual level or on a larger economic scale. If the autonomous spending within a community or population exceeds the cumulative income of the included individuals, the economy has negative savings and is likely taking on debt to finance expenses.
A person does not need to experience a financial hardship for dissaving to take place, as the act of using net assets for an expense can be voluntary or intentional. For example, a person may have significant savings to pay for a major life event, such as a wedding, with the purpose of the accrued funds being for the discretionary expense.
Autonomous Consumption in Government
In regards to government expenditures, funds are directed to either mandatory or discretionary spending. Mandatory, or autonomous, spending includes funds mandated to specific programs and purposes that are considered necessary for the nation to function properly. Discretionary funds can be directed to different projects of interest and, while the programs do provide value to society, are not considered critical. Mandatory programs include Social Security, Medicare and Medicaid, while programs related to certain defense activities, education and transportation programs are supported by discretionary funds.