CANARD IN A COALMINE :

Japan heads rapidly down the drain. (Jane Galt, Live from the WTC)
Patrick Ruffini points out this post, to which I'd add one major thing. Ms Galt seems to have bought into one of the biggest canards about Japan as compared to the U.S., which is that the Japanese have a particularly high rate of savings. This was a favorite point of those who expected Japan to surpass us economically in the 1980s, but as Bill Emmott, and a very few others, pointed out at the time, comparisons of U.S. debt and savings rates to those in other countries are completely bogus because home equity is not taken into account. The bogosity has only worsened over the last decade because 401ks are not considered either. Thus, if you live in Japan and earn $40,000 a year (bear in mind these numbers are not intended to reflect reality) , pay $15,000 in rent, and save $1,000 a year, giving you a savings account with $10,000 in it, you are conmsidered a good saver. But if you live in America and earn $40,000, pay $15,000 on your mortgage, and put $5,000 in your 401k at work (which your employer matches at 50%), but save nothing in the bank, you are considered a bad saver. Now, on its face, you have indeed spent all your money and have no savings. But in reality, you may have built up $80,000 in equity in your house and may have another 80k in your 401k (even measures like the National Savings rate only measure what you put into retirement accounts, not the appreciation in value over time). You've "saved" far more money (four times your salary) than your doppelganger in Japan (one quarter of his salary). What's more, while his savings went into an unbelievably low interest savings account that is basically unproductive in economic terms, you bought stock and bonds with your 401k (basically lending the money to other people) and paid someone to build a house, etc., etc., etc. There are significant ripple effects from your massive savings and hardly any from his meager savings.

So the next time you hear some nitwit talking head rambling on about how Americans borrow too much and don't save enough, by all means take a look at your too large credit card debt and consider paying it down, but then take a look at your mortgage and your 401k statement and then throw something at the TV. Even if you break it, you can afford a newer, bigger, and better one. You're an American; you've got savings out the wazoo.

N.B.--the foregoing should be considered even more unreliable than the usual sketchy ranting posted here. I'm actually not at all sure that the numbers crunchers haven't yet compensated for their home ownership oversight, but I know that several years ago they hadn't. If I'm wrong please feel free to let me have it with both barrels.

Posted by Orrin Judd at June 14, 2002 4:16 PM