Sad but true, it happens everywhere in the world. Spending will disperse more funds into the market, but then again who gains and who doesnt? Does the man in the street benefit while the rich gets richer?

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I've been shouting about this for quite some time. The US savings rate was also "zero percent" in 1998. Meanwhile we're busy socking our money away in our 401k's, and none of this is reported as "savings".

When a traditional passbook bank account draws no net interest, and a CD isn't much better, where the hell are we supposed to stick our money? We stick it in places that don't show up in the statistics.

Our treasure is in the ingenuity of our people, not in beans piling up in savings accounts.

This has always baffled me. A friend of mine has about $900K in the market and bonds, about $250K in equity in a paid for house, 2 paid for cars and doesn't owe a dime to anyone. In a savings account.....$0. This guy is not a saver? Samuelson is right; the way they figure this needs a little more thought. At the same time, based on what I've seen published as the average net worth in the US, people do need to think about the future a lttle more.

I guess those two attitudes are there.

re: Americans like to spend on themselves while simultaneously worrying that other people are spending too much...

One of my favorite and much-quoted Onion headlines of all time:

"98% Recommend Public Transportation for Others"

Counting unrealized capital gains as "savings" can be as much of a distortion as the current method, unfortunately. I think a lot of people are going to learn that the hard way when the housing bubble pops.

Unfortunately there's no statistic that perfectly measures the thing that really needs measuring.

If the housing bubble "pops" Matt, and I have my doubts at least up here in MA where demand will far outstrip supply for the forseeable future, then no "traditional" savings instrument will be insulated from the effects.

The problem isn't that they aren't calculating savings the "right" way ... there are many measures of savings. The problem is that the press is focused on the savings definition per the National Income Accounts (personal saving = personal disposable income - personal consumption expenditure) because the number is now basically zero. If you looked at other measures of personal savings (per the US Flow of Funds Accounts, for example) you would see a much higher savings rate.

Samuelson is correct that the NIPA measure of saving does not capture portfolio effects; it also fails to capture corporate retained earnings (since all corporate earnings are eventually redistributed to households) and contributions to our very inefficient "forced" savings systems (although I think we can all see an argument against calling contributions to Social Security "saving.")

The NIPA definition of savings is really only useful in the context of a really simple Keynesian macro model where consumption is driven entirely by current income (as opposed to wealth or, as Modigliani reminded us, anticipated future income. That doesn't make the number wrong -- it's just that certain journalists are using that figure in the wrong context.

Bros. Judd recently had an article that the Chicoms are also looking for higher returns and want to invest in the stock market.

And spending on children is counted as disposable income, not an investment.

Shouldn't at least what we spend on schooling count as investment instead disposable income?

the fact remains that savings does not power a growth engine in an economy. As much as we are attracted to the notion that people are saving for the future, it can be a destructive factor in an economy, just ask the Japanese.

The more important measure of "saving" is investment in those things that lead to future growth, and on this point the U.S. leads teh developed world in spending on R&D and education, often referred to as the hidden savings rate.

The critics cannot ignore the fact that the U.S. has outperformed on every economic measure those countries that feature traditionally high savings rates.

Gp pondered:"...who gains and who doesnt? Does the man in the street benefit while the rich gets richer?"

Actually, yes. Despite what might instinctively seem correct, the rich getting richer has no negative effect on the poor, and in reality has the opposite effect. Rich people tend to spend money, and the richer they are, the more they spend, out of bounds of all reason in many cases, but they buy consumer goods and invest in business, thus creating jobs.
I have noticed a trend in my business, which is wedding photography, in that I have far fewer blue-collar clients these days than in the past, though my prices haven't risen, but those low-budget clients I've lost are replaced by people with more disposable income, with a direct benefit to me.
I used to work in construction, and twenty years ago, most new houses were fairly moderate in size and finish, but newer houses are almost exclusively large and lavish. Does this mean that poor people can no longer afford to buy or build houses? No, just the opposite, it means that those houses that were at the top end of the market twenty years ago are now considered average, meaning that the average person can now afford them.
Stop drinking the socialist Kool-Aid and wake up to a nice cup of capitalist coffee; capitalism is good, because it benefits everyone, whether directly or indirectly.

Please! I am SO tired of the "housing bubble" nonsense. I live in the Bay Area, near Berkeley. My neighborhood is full of big old houses built in the 1930s and 1940s. They are worth a lot of money. There is no room to build more. If someone wants to live in this area, they have to pay a lot to do so. A housing glut in San Bernadino is not going to affect me. I have a fixed rate mortgage. I also have bonds, a 401K, another government deferred compensation account, and the equity in my house. I have NOTHING in savings. But I guess I'm not doing what the big boys tell us we need to do...dump money in a 2% savings account.

APRIL 25, 2005

The Debate Over Nest Egg Math

Economists who closely study retirement savings widely disagree when it comes to even the most basic assumptions

...HOME INEQUITY. Another question: What to count when figuring out how much wealth retirees actually have? All economists include 401(k) and IRA accounts, benefits from traditional pensions, and Social Security income, as well as other financial assets. But many exclude the value of owner-occupied homes, arguing that seniors must still pay to live somewhere.

But others say many elderly will sell their homes, move into less costly residences, and cash out hefty capital gains. Or they could take out reverse mortgages -- a technique where seniors sell their ownership in a home to an investor who agrees to pay them a fixed monthly sum for as long as they live in it.

Scholz includes home equity. Wolff doesn't but agrees that at least some home value should be counted. Scholz figures that if only half of home equity is included in wealth, the percentage of people saving enough for retirement falls from 83% to less than 60%....

Scott in CA, buckle in tight. Cali is about to witness a housing price collapse the likes of which we haven't seen in decades. Same for those of you in New England, DC, Phoenix, Las Vegas and Florida.

Quote:

Our very inefficient "forced" savings systems (although I think we can all
see an argument against calling contributions to Social Security "saving.")

end-quote

You're not kidding that there's an argument against calling Social Security
savings. For one thing the roughly fifteen percent collected off the top of
most people's income is immediately spent -- most of it on current retirees.
That portion left over that is not spent on current retirees is immediately
spent just like the receipts of any other tax with the one difference that
for this money and only for this money the government writes out an IOU
promising to pay this money back to the taxpayers.

But when you consider that the only place to collect this money to pay
to the taxpayer is from the taxpayer, it becomes clear that the whole IOU
business is a bit of an accounting fiction -- except that the taxpayer the
money is collected from is not literally, usually anyway, going to be the
same as the one that receives.

jeff said,

"...the U.S. leads teh developed world in spending on R&D and education..."

But we don't lead the world in educational output -- at least for our
native children. According to the achievement tests we rank below quite
a few other countries, all of which spend considerably less per pupil than
we do. This would seem to imply that there's considerable waste in our
educational system -- over and beyond the waste doubtlessly present in
the educational systems of these other countries we're being compared to.
Measuring how much we are doing by how much we spend makes a certain sense
if we're talking about a market, because the market -- meaning choice and
many producers -- will force a certain correspondence between results and
the money spent, but a monopoly, which for most parents is what our educational
system is, opens up the possibility of an enormous divergence between the
resources put in and the practical results.