U.S. Consumers Saving More, Spending Less
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  • Anthony

    Paying oneself first is commonsense – thus savings ought to rise during periods of economic anxiety; yet the causes of American insufficiency are not economic, or at least political before they are economic. Better put to paraphase thibaud, they are cultural – and I agree let the economists worry about national trends and numbers.

  • Walter, there is little or nothing to quarrel with in the account that you spotlight here of the public pension problem. But let me pose a conundrum that you are well qualified to clarify. That is: how come nowhere in the current uproar over public pensions to I find anyone pointing out that private employers have a record of promise-breaking in the pension arena that extends back perhaps half a century (and goes far to explain the existence of the Pension Benefit Guarantee Corporation). Indeed, I’d speculate that one reason voters get so incensed at the idea of keeping faith with public employees over pension promises is that they’ve been victims of so pervasive a pattern of betrayal from the private sector. Would you agree?

  • So please tell me how that works: if everybody saves more, some people lose their jobs. Then they buy less, and businesses sell less, and pay less, and people earn less, and they have less to save.

    Then they decide to save more to follow your advice, and soon we are in a full fledged depression. Great.

  • Fiipe: You can have a geart party if you slaughter the brood hen and cook the seed corn. Next year will be pretty grim. Money that is saved is not lost to the world, it is invested. That is how employers can obtain the capital to hire employees and expand their factories.

  • If you think promise-breaking by private companies has been bad for us, you ought to see what it would be like if they kept their promises.

  • if everybody saves more, some people lose their jobs…

    I think that’s only true if stuffing money in mattresses is the only savings method utilized. Otherwise, if money is going into retail banking, investment products, government bonds, etc., it’s still flowing through the economy.

  • Jim.

    Money saved now will be spent later.

    If money is saved first and then spent (rather than borrowed and then spent), the banking system won’t risk collapse due to loans gone bad.

    It also won’t lead to overinflated profits in the financial sector, as they rake off their cut from irresponsibly used consumer credit.

    Of course, if the savings are all withdrawn at once things would be bad… but that’s highly unlikely if the savings are broad-based through the population at large. It’s infinitesimally unlikely compared to the chance that a cascade of loans can all go bad at once… like we just experienced.

    It’s great advice to give to the needy too, for a variety of reasons, but for its own sake most of all.

  • Mark Michael

    The saving numbers are still tiny: going from 3.2% to 4.4% of one’s income. A more comfortable number is 10%, which is what Americans saved in 1981-1982 when we had the Federal Reserve’s induced recession while Reagan was president. We need to get back to that.

    “Demand side” analysis is nuts IMO! Saved dollars are invested – go into capital equipment, R&D – absolutely critical for any thriving, growing economy. The US has only survived with a tiny savings rate because other countries loaned us big bucks. But “unsustainable trends will not be sustained!” Those foreign loans – buying our T bonds, bills, notes, Rockefeller Center, MBSs(!) – will not be sustained. We’d better be saving when that (finally!) happens.

    At some point, the Chinese, S. Korean, Japanese, Saudi CBs will conclude we can’t pay the interest on our huge national debts – IF we keep running it up as we have been recently. (Of course, we can never pay off the principal.)

  • thibaud

    Yes, Walter is correct: savings, when channeled effectively by well-functioning capital markets and financial institutions, is a source of growth.

    No wonder that countries like Sweden have been growing faster than we have in recent years.

    They save at rates 2-3x the US household savings rate, and they have properly-regulated, disciplined, well-managed financial institutions.

    Here are net household savings rates by country, 2012:

    Germany 11.4%
    Sweden 9.3%
    Netherlands 8.6%
    USA 3.6%

    And here’s the range of annual household savings rates in the period 2001-2012:

    Germany: 9.4 to 12%
    Sweden: 6.2 to 11.7%
    Netherlands: 6 to 10%
    USA: 1.4 to 4.3%


  • thibaud

    There is indeed a way out of the consumption vs savings paradox: it’s called investment in real goods and technologies that will yield substantial productivity increases.

    This is not at all the same as encouraging people to buy shiny consumer junk they don’t need with money they don’t have.

    Note that the high savings countries all have much higher levels of taxation than we do, including, in many cases, a VAT. They consume less; they save and invest more. Their economies since the early 1990s have grown at decent rates and they avoid our serial asset bubbles.

    One of the areas where greater US savings should be used to invest massively is in replacing our dilapidated infrastructure.

    Mr Mead helpfully pointed us to a wise report from a bipartisan commission chaired by Paul Volcker and Richard Ravitch, whose authors concluded:

    “Essential state and local infrastructure is starved of funding and necessary maintenance. This underfunding threatens the nation’s competitiveness; the longer it is ignored, the larger the problem it will pose.” (p.86)


  • Walter Sobchak #4 and Jim #7, although there exists an accounting identity that savings = investment, when there is little appetite for investment then the total os savings will be low. This is precisely what is happening now: people want to save but they don’t want to invest. The result is the recession the US is in. Likewise for Europe and Japan. This is very basic macroeconomics, by the way.

  • Jim.

    @Felipe Pait-

    Little appetite for investment? Perhaps because the Fed’s free-money policy has spoiled everyone’s dinner.

  • Joe

    Between basic macroeconomics and basic common sense, I’ll follow the common sense any day of the week.

  • Michael K

    The increased savings rate perhaps is Ricardian Equivalence in effect. The theory is how the gov’t finances its expenses is irrelevant. If taxes are cut but gov’t spending is the same then people will know the gov’t will have to increase taxes in the future. Households will increase savings completely offsetting any Keynesian stimulative effect of the tax cut. People know the Federal and State Gov’t are headed for a fiscal train wreck. You start saving now in preparation for the tax increases/spending cuts that must take place.

  • gunnar myrdal

    Only KEYNESIAN economists are wringing their hands: Supply-siders are jumping joyfully.

  • BarryD

    Macroeconomics is the last refuge of a scoundrel.

    “people want to save but they don’t want to invest”

    Uh, apart from stashing money under a mattress, how is savings different from investment? Whether someone invests directly, or allows some entity like a bank to act as a surrogate and invest the “savings”, makes little or no difference.

    Felipe is clinging to some failed macroeconomic dogma, which says that we can borrow our way to prosperity, and that the more we borrow, the more prosperous we will be. Inflating consecutive bubbles and calling that “growth” is not sustainable. Sooner or later you have to pay the piper.

  • Haiku Guy

    Government sucks up,
    With their voracious spending,
    That money and more.

    The savings rate can continue to rise, but as long as government is borrowing 10% of the GDP, year in and year out, it will never increase the amount of capital available for private investment.

  • M. Report

    The good ship Savings has sailed…and sunk.
    All your savings belong to the State, which
    _will_ take them, through taxes or inflation.
    The best ‘investment’ is marketable skills,
    second best is luxury goods, which are less
    likely to be confiscated and redistributed.

  • cas127

    If the workers aren’t kept perpetually busy building monuments to the pharaoh’s potency (gotta up that GDP – and payrolls – through “infrastructure” spending) then they have the time to start *thinking* about what is really going on.

    And *that* is never good for the pharaoh.

  • Jeffersonian

    We’ve always had the 401(k), IRA and kids’ college funds, but I got spooked in 2007 and we went on a budget and started putting away a lot of money into savings. I haven’t regretted it for a minute. We’re not living as high on the hog as we could, but we’re well set for any downturn that may come or able to retire just that much sooner.

  • Andy Freeman

    > That is: how come nowhere in the current uproar over public pensions to I find anyone pointing out that private employers have a record of promise-breaking in the pension arena that extends back perhaps half a century (and goes far to explain the existence of the Pension Benefit Guarantee Corporation).

    One reason why no one has pointed that out is that it isn’t relevant. Disagree? Explain the relevance. Am I supposed to simply accept the massive tax increases to fund public employee pensions because IBM cheated its retirees? How does that work?

    Note that the amount of tax money going to the PBGC is small compared to the amount of tax money that will be required to bail out public employee pension funds.

    However, there is one relevant point – when a private pension is taken over by PBGC, the beneficiaries take a huge hit in pension benefits.

    Why should public employee pensioners be any different?

  • Rich K

    The Left can’t have it both ways. They want all of us to consume less to save the earth yet now that the man in charge is in political trouble they want us to consume until we puke.Sorry Leftworld, but until you convince us your serious and send Al Gore to antarctica to live out his life as a gaia worshipping gnome it aint gonna happen.Or until the new guy gets elected,whichever comes first.

  • Rich K

    BTW, “thibaud” seems to forget that Nancy,Harry and Barry raised 800+ billion for Infastructure Improvements and what do we have to show for it? Yep, a big fat NOTHIN!

  • BooMushroom

    “This is precisely what is happening now: people want to save but they don’t want to invest.”

    When the president can arbitrarily change the contract law underlying your investments based on the political leanings of your counterparty, why would you invest?

  • Mike C

    Back in the early 19th century, British commoners chose to adopt a strict moral code – including thriftiness – as a way of distinguishing themselves from a debauched, profligate aristocracy.

    Hopefully, we are heading into a postmodern redux of the Victorian era.

  • Some Sock Puppet

    Would these be the same sort that hold to how evil we were for being a consumption oriented society?

  • tom beebe

    I completely agree on the moral and ethical argumwnts for saving money. But what of the threat of hyperinflation? Won’t the money we save today be worth but a pittance in years to come? And we certainly can’t make it on the current measely interest rates. Somebody ‘splain please!

  • mac

    I save well over 20%. I’ve been sitting in almost all cash for more than three years because I couldn’t find anything that didn’t put me out farther on the risk scale than I wanted to go.

    Savings is only going to do us some good as an investment if we have something worth investing in. Look at what has happened to all the money people invested in Facebook, to give just one example. We’ve got to do better than that!

  • Matt

    @Barry D:

    When you invest money, you do it with the expectation of making some kind of return, from some vehicle that involves some kind of risk. You put it to work with the understanding that the investments could go bad.

    Saving money is stashing it away in something that has minimal risk. A deposit account, such as a money market, time deposit, or savings account, effectively carries no risk for most people, because it is FDIC insured up to 250k. Considering the current rates on these traditional savings products, there is no expectation of return. In fact, there is effectively a negative return (loss) because the abysmal interest rates are less than inflation. That is the difference.

    On a side note, the Fed is peopled by fools. Their ultra-low interest rates discourages people from saving money, and so the banks have less capital to work with and invest.

  • Steve S.

    If I don’t attend to proper savings, and be thrifty in my purchases how am I ever going to have the resources to bail out the next government-induced financial bubble? Our financial geniuses can’t crash my investments if I don’t have any, you know. How can they rob-Peter-to-pay-Paul unless Peter has a stash?

  • thibaud

    #23: You’re misinformed. At the maximum, the CBO estimates that the total funds from ARRA dedicated to infrastructure will amount to $53 billion, or less than 7% of the total.

    In any case, given the amount of money needed to repair our decrepit infrastructure – the American Society of Civil Engineers (ASCE) gives it a grade of “D” – $53 billion is chump change. It’s nowhere close to what’s needed.

    In the 1960s, we used to spend about 3% of GDP on infrastructure; now, with aging and collapsing bridges, choked roads, aging dams and pipes and airports and ports, we’re spending only 2.4% of GDP on infrastructure.

    No wonder that 25% of the nation’s bridges are rated “structurally deficient or functionally obsolete,” or that the average age of the nation’s dams has reached 53 years, or that school districts have compiled over $200 billion worth of deferred maintenance.

    In 2009, the ASCE estimated the five-year need for bridges roads and transit ALONE at $739.6 billion.

    From that report on state budget shortfalls that Mr Mead pointed us to, the total amount needed to repair our crumbling infrastructure is on the order of $3 trillion.

    A modest proposal: let’s spend less of our wealth on consumer junk, and INVEST more of it into 21st century roads, bridges, dams, water facilities, airports, ports, public buildings, schools.

    Maybe then we can get our GDP growth back on a trajectory that at least matches Sweden’s.

  • thibaud

    Especially foolish not to invest in infrastructure now that interest rates have fallen so low.

  • Savings provides a foundation for self-sufficiency, particularly the ability to ride through hard times … mitigating the need for the rest of us to help one out when the hard times come.

    One reason saving has been out of fashion … along with active management of one’s career and future, to maintain/enhance their earning power … is the EXPECTATION, viewed as an “entitlement” that the rest of us – through government in particular – will help one out when hard times hit.

    So people keep swilling their $tarbuck$ and twiddling their iThingys and plodding off to that 8-to-5, instead of saving for that rainy day, working to maximize their value in the marketplace, and doing more than 8-to-5 … because they think they have a “right” to enjoy life today, and others will bail them out later.

    Yet another reason why government intervention in personal economics is a fool’s errand … it distorts the incentives to be responsible.

    And using higher taxes as an incentive to save is also a fool’s errand, because that mis-directs resources from the incentives and correctives of the free market, and directs them instead to government management … where politics and bureaucracy suppress said incentives and correctives, leading to a waste of those resources as we have seen with the infamous Porkulus.

    No, it is OUR job to make sure we save … not the job of the Powers That Be to MAKE us.

  • teapartydoc

    Japan has a very high savings rate and things look pretty bleak there. No magic formula. The bottom line remains: That Blue Model just isn’t working out. One can point to all of the individual statistics one wants, and have the “best” logic and “analysis” available. The knowledge problem still exists, and the idea that one can come up with a top-down plan to solve all problems remains illusive.

  • Mike Mahoney

    I’ve read it is not so much savings that are on the increase as it is debt is being paid down. A cash economy grows slower but is more stable. Bankers don’t do so well. Tax collecters don’t do so well. Then is it any wonder they are squawking?

  • Jim.


    So you’re saying that all that celebration of the (ongoing) stimulus as a festival of shovel-ready projects was one of the biggest lies ever told in the history of politics?

    You’re saying that if we hand the current administration $800 billion and say, “Go spend it on Infrastructure”, the ratio between amount spent on infrastructure and payouts to favored Democrat client groups ends up worse than one part in twelve?

    How about the fact that the level of government spending is still at least $1 trillion over what we take in, in taxes? How much of THAT is spent on infrastructure? Any of it?

    And you want us to trust these people with trillions more??

    That’s insane.

    By the way, the fact that interest rates are low now is almost totally irrelevant, if even Paul Ryan’s budget plan is so far to the Left it doesn’t have us paying off what we borrow today when the bills come due.

    When those bills come due, we’ll have to roll them over into other debts… whose interest rates could approach historic average (in which case Medicaid gets cancelled) or historic highs (in which case both Medicaid and Medicare get cancelled.)

    The Federal Government is stuck with over $15 trillion dollars’ worth of Adjustable Rate Mortgage. We’re in the negative amortization phase right now — the interest we’re paying is paid for with more borrowing, and we’re piling on still more.

    We’re in “the hole”, as common parlance refers to debt. We need to stop digging. No amount of sophistry on Paul Krugman’s part can change that fact.

  • thibaud

    Jim – you’re confusing different things. Deleveraging is one thing – yes, it’s necessary to fill the hole that was created by decades of under-saving. It’s likely that households will continue to build up their savings/deleverage for years to come, no matter who’s in the White House or what policies are followed. Ray Dalio’s written brilliantly about deleveraging and how it works.

    But that’s a separate issue from what the _government_ should be doing. In addition to thorough tax reform that stops punishing work while rewarding capital gains and Romney-style games, we need to shift the economy toward longer-term investments and away from short-term consumption.

    Less money for Nike or Starbucks, and more for new bridges and ports and pipelines and school renovation projects.

    I’m not an economist, but I suspect that the multiplier in terms of GDP growth, jobs creation, productivity increases etc are all significantly greater for new bridges or expanded highways in this country than they are for consumption-focused companies that in most cases keep the majority of their profits, cash and employment growth overseas.

    Seems foolish not to do this now that the need is so massive and borrowing costs are so low.

  • tom beebe

    Unlimiyed IRA’s?? Why not?

  • tom beebe

    Unlimited IRA’s? Why not?

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