January 13, 2005
CAN'T FIND MY PASSBOOK UNDER ALL MY 401K STATEMENTS AND THE DEED TO THE HOUSE:
Our Hidden Savings: Americans don't set aside much. But include R&D and education spending, and the picture changes (Michael J. Mandel, 1/17/05, Business Week)
Yet the savings rate is a misleading measure of future economic performance. In today's economy, education and innovation are the main engines of wealth-producing growth, not physical capital. Yet the official statistics count spending on education and research and development as consumption, rather than as an investment.That's a crucial distinction, since an outlay that is counted as investment ends up increasing savings. For example, if U.S. companies buy new capital equipment, that bolsters the U.S. savings rate. But if those same companies hire more scientists and boost R&D, that spending would not be counted as investment or add to savings, even though it would boost long-run growth.
It is more informative to look at what might be called the "hidden savings rate" -- the share of GDP devoted to education and R&D. By that measure, the U.S. far outperforms its major industrialized rivals. According to the latest data, the U.S. devotes 9.6% of its GDP to education and R&D. The next closest major countries are France and Canada, at 7.8% and 7.5%, respectively, followed by Germany and Japan.
So while other countries chide the U.S. for being profligate, Americans are putting more money into the things that matter over the long run. That's reflected in U.S. economic performance, among the strongest in the world. Both in the short run -- the past year -- and the long run -- the past 20 years -- the U.S. has had the fastest growth of the major industrialized countries.
Moreover, low personal savings has not stopped Americans from accumulating plenty of assets for retirement. Strong economic growth has lifted both housing and equity values. Over the past decade, for example, the NASDAQ is up 182% and Standard & Poor's 500-stock index is up 158%, far more than the London, Frankfurt, Paris, or Tokyo bourses. Over the same stretch, household net worth is up 67%, after adjusting for inflation and subtracting federal debt.
It's a healthy, though silly, sign of our Puritan natures that we obsess over our failure to save despite a household net worth of $43 Trillion.
Posted by Orrin Judd at January 13, 2005 3:37 PM
Puritan in part. But also in the attitude mix is the legacy marxist idea that proles are just wage slaves and have no capital. All they can do is scrimp and stash a few bucks into the coffee can before the "wage fund" monster hears about it and dries up the slush. It's also derivative of the terribly out of date way the govt. collects data and compiles information. As for other countries chides, compare and contrast Chile and France on two issues: who has a future; and, whose people possess growing wealth.
Posted by: LUCIFEROUS at January 13, 2005 4:26 PMSo then, the data claims that our low savings rate is merely a result of having better things to invest in, and perhaps in being further along the transition to an "Information Age" economy? Surely even a leftist would agree that education is an investment in the future.
Posted by: John Thacker at January 13, 2005 8:14 PM