March 4, 2006


U.S. calculations on savings don't add up, some say (ELLEN SIMON, 3/04/06, The Associated Press)

With retirement looming for the baby-boom generation, the concern is that a dearth of savings now could cause a cutoff in spending later.

Some economists say that's far-fetched. They argue the personal savings figures are artificially low, since the numbers don't include increases in assets such as equities and homes.

Yale University economics professor William Nordhaus made that argument in 2002 congressional testimony, saying that once assets were included, the savings rate for the 1990s would have been a robust 25 percent.

European countries count capital gains and home appreciation when they calculate personal savings, said William Hummer, chief economist at Wayne Hummer Investments.

"Our savings rate is understated," he said. "I think it's wrong."

Another argument is that the wealthiest 20 percent of American families account for roughly 40 percent of consumer spending, spending 4.5 times as much as the lowest 20 percent, something Citigroup's chief U.S. equities strategist Tobias Levkovich pointed out in a recent report.

The implication: This group isn't going to run out of money soon. If a healthy economy depends on the wealthiest Americans' continued spending on $200 haircuts and $500 seven-ply cashmere sweaters, we can all rest easy.

His corollary argument is that some of those with the lowest earnings are retirees, who are spending money they've already socked way, so the fact that they spend $18,000 a year but earn only $9,000 should worry no one.

I knew we were miscalculating, but didn't realize that Europe's weren't. That makes this whole meme even more asinine, if possible.

Posted by Orrin Judd at March 4, 2006 8:29 AM

And our old friend, the inability to distinguish between income and wealth: "Save for retirement, save for retirement; oh no, it's a crisis, the retired are spending their savings."

Posted by: David Cohen at March 4, 2006 10:15 AM

Just how low will the price of those stocks and houses go when the baby boomers start selling them off?

Posted by: Bartelson at March 4, 2006 1:47 PM


Not as low as you might think; we're talking about a sell-off over four decades, after all.

It'll be a slight downward pressure on prices, but many times other upward forces will be more powerful.

One positive factor might be that the American stock markets will be more attractive relative to the Euro bourses over the next forty years, so the U.S. will benefit from Euro capital flight, and a larger share of other international investment funds.

Posted by: Noam Chomsky at March 4, 2006 9:50 PM