If the US 'savings rate' were so low and so dire, would the interest rates be at record lows? The record low interest rates indicate that there is a surfeit of money out there to be borrowed.

I really hate these 'analysts'(emphasis on the 'anal') who bring up tripe like this. They fail my 'Mr G' test. There is a weatherman on NYC local TV who used to be an NYC science teacher, Irv Gikofsky, who calls himself 'Mr G.' He used to be featured on an ad for the local evening news. This ad showed him in his office/lab looking at computer printouts, radar screens etc. He then said that he looks at this machine and that printout but before he goes on screen to do his report he looks outside the window, 'just to make sure.'

Mr. Bennett would do well to look out the window once in a while.

AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS;
BY ADAM SMITH, LL.D. AND F.R.S. OF LONDON AND EDINBURGH:
FORMERLY PROFESSOR OF MORAL PHILOSOPHY IN THE UNIVERSITY OF GLASGOW
EDINBURGH: 1776

BOOK II. OF THE NATURE, ACCUMULATION, AND EMPLOYMENT OF STOCK.

CHAPTER III. OF THE ACCUMULATION OF CAPITAL, OR OF PRODUCTIVE AND UNPRODUCTIVE LABOUR.

But though the profusion of government must, undoubtedly, have retarded the natural progress of England towards wealth and improvement, it has not been able to stop it. The annual produce of its land and labour is, undoubtedly, much greater at present than it was either at the Restoration or at the Revolution. The capital, therefore, annually employed in cultivating this land, and in maintaining this labour, must likewise be much greater. In the midst of all the exactions of government, this capital has been silently and gradually accumulated by the private frugality and good conduct of individuals, by their universal, continual, and uninterrupted effort to better their own condition. It is this effort, protected by law and allowed by liberty to exert itself in the manner that is most advantageous, which has maintained the progress of England towards opulence and improvement in almost all former times, and which, it is to be hoped, will do so in all future times. England, however, as it has never been blessed with a very parsimonious government, so parsimony has at no time been the characteristical virtue of its inhabitants. It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.

==========================

I think nothing else need be written by anyone else on this topic.

I have a question: In calculating savings rates, do mortgage payments count as consumption?

Jeff - Additions to the housing stock are put in the Investment category of GDP, not consumption. Whether you buy the housing by writing a check (we should be so lucky to be that wealthy) or by paying mortgage payments over 30 years is not really pertinent.

On this topic in general - Keynesians used to yelp about the saving rate being too high. This ceased only when they decided to yelp about it being to low. The common feature, one will notice, is that there's always some problem that must be addressed (by government, of course).

Tom:

Thanks, but I am still confused. If paying a mortgage does not count as consumption, then how could any homeowner not have a savings rate on the order of 25%?

Given the extremely high rate of homeownership in the US, something seems very amiss. (Which could, admittedly, be my own misapprehension.)

Hi Jeff. In some conceptual schemes investment is actually identical to saving by definition. If one takes that approach, then indeed, saving is a lot higher than the official stats would suggest, as your last remark implies. On the other hand, there are other ways of looking at all this. For example, another reasonable approach is to consider net saving. That is, add up gross saving, but then subtract debts. In this case, the motrgage l;oan note is a debt that about offsets the value of the house. Then you need to assess the nation's saving position by looking at who owns the mortgage note, i.e., whether its foreigners or a domestic entity. At this point my undergrads fall asleep, so I never any further!

Tom:

Actually household net worth is after debt & it's over $47 trillion now.

Tom:

Thanks for your reply.

Assuming savings is income left over after consumption (in my simplistic view of things, that means goods & services), then at some point in a mortgage's lifetime, the goods and services involved in constructing the house are paid for.

After that, something else is going on. My house is roughly 30 years old. No matter how you look at my mortgage payment, it is not going to purchase goods and services.

Further, assuming I stay in the house until it is paid off, and even assuming a completely flat housing market, I have a considerable asset that (in my simplististic view) savings statistics simply can't account for.

So either I need to be less simplistic, or that number needs less reverence. I just don't know which.

OJ - Exactly.

Jeff - Yes, housing is definitely part of the nation's stock of real wealth. As such, it definitely is accounted for in measures of our country's aggregate net worth, which as OJ suggests is also an important variable. I think your larger point is that it's not just the savings rate we should look at, but also the stock of assets (including physical assets likes houses) we have. Definitely.

Tom:

Note too that when you do find measures of assets neither the people themselves nor their education and training get counted as having worth.

OJ - In principle I like the idea of throwing human capital along with physical capital into measures of the nation's wealth. As a practical matter, ooh, boy, the measurement problems!

Tom:

Yes, but that simply means that the measures are semi-useless.