America's Savings - Is Anyone Saving?

By now, everyone is familiar with the doomsday reports of the American consumer. Economists have been predicting the demise of the American consumer forever. I thought it was just a recent pheonomenon, but then I spoke with a 65 year old in my office and he said that he remembers similar reports about Americans in the 50's and 60's.

The doom scenario goes like this: Americans had a savings rate of 10% from 1974-1984. Then it went to 4% by 1994. Now this year, it has even turned negative - -.7%. Most economists sight these statistics when talking about how overspent the American consumer is, and that's why the economy is on the verge of a collapse. So how come these so-called experts are always wrong?

Well, an alternate viewpoint is that Americans do save, but in recent years, more and more Americans are buying equities and property, and capital gains do not show up in the savings rates. William Nordhaus, a Yale econ professor has stated that if assets were included then the savings rate would be close to 25%, hardly problematic.

The bottom two quintiles of Americans do have a savings rate of 7%, or roughly equal to thrifty nations like Japan or Germany(where cap gains do show up in the stats). The problem in the US is the top quintile which has a -2% savings rate, but again, the top quintile of Americans is awash in property and equity which is not included in the official statistics. Roger Cass is one optimist who has considered this and has been bullish on the American consumer.

I'm not about to make any prediction about the US economy. No one ever gets this right anyway. I do think however, that the savings rates calculations, if we're going to use them, need to be all-conclusive, or they're just not that valuable. It's very possible that the US consumer might be in better shape than many give him credit for.