Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

The Savings-Rate Myth (Bogus assumptions based on a bogus government statistic)
NRO Financial ^ | Dec 23, 2004 | John E. Tamny

Posted on 02/01/2006 8:49:13 AM PST by Toddsterpatriot

The Wall Street Journal’s David Wessel wrote last week that “American people, businesses and government don’t save enough.” Citing the Commerce Department’s official U.S. personal savings rate, 0.2 percent, the Los Angeles Times’s Bill Sing wrote, “It doesn’t help that people in the U.S. are spending like there’s no tomorrow.” Sing’s and Wessel’s assumptions are as bogus as the government statistic on which they’re based.

To see why, one need only understand how the government calculates personal savings. Not surprisingly, the calculation is a simplistic one that involves a subtraction of cash outlays from disposable income. David Malpass, NRO Financial writer and chief economist at Bear Stearns, recently noted that savings statistics “understate actual additions to savings by excluding cash flow improvements from realized gains on equities, houses, and mortgage refinancings.” Importantly, the government savings rate either cannot factor in, or would calculate negatively, how Americans purchase the instruments of the wealth that Malpass mentions.

To begin with, 401(k) accounts have become highly popular investment vehicles for Americans over the last 20 years. Since 401(k) deposits come out of pre-tax income, the significant savings built up within those accounts would not factor into government calculations of money saved over outlays.

As for home ownership, mortgage payments are not deducted from pre-tax income, and often are paid out of disposable income. While no one would deny that home ownership is a form of saving, Commerce Department math would put money used to pay down a mortgage into the same basket as money used for everyday consumption.

Even if we didn’t know how savings were calculated, it would still be obvious that a savings rate of 0.2 percent is wildly inaccurate. To see why, consider a variety of statistics about wealth in the U.S.

For starters, the members of the latest Forbes 400 have a combined net worth of $1 trillion, up $45 billion in twelve months. In Merrill Lynch’s 2004 World Wealth Report, the U.S. experienced the biggest jump of any country in terms of high-net-worth individuals, with the number rising 14 percent to 2.27 million. If American’s weren’t savers, the wealth statistics in each case would have fallen.

Someone might reply that the above statistics describe rich people, and that non-millionaires don’t have the means to save like the rich do. Unfortunately, a host of other statistics would also prove an assumption like that wrong.

Indeed, the Securities Industry Association reports that individual participation in the stock market has jumped from 30.2 million in 1980 to 84.3 million in 2002. As the number of investors has grown, so too have stock market returns, with the Dow Jones Industrial average trading at roughly 14 times its low of 743 in 1982.

Home ownership? The rise in home prices is increasingly on the minds of many Americans. That this is so has a lot to do with the fact that at 69 percent, the supposedly “spendthrift” United States has the highest rate of home ownership in its history.

Despite all of the above evidence suggesting a strong culture of saving in the U.S., it can be expected that the “Americans as bad savers” canard will continue to be thrown out by the major media to explain “good” (consumption) and “bad” (trade deficits) economic news.

An optimist would say the mainstream media’s obsession with saving might be a happy signal that its members intend to write more positively about private Social Security accounts, stock options, and other opportunities to save. Sadly, they’ve already demonized stock options, and presumably have only just begun to start scaring readers about the perils of investing their own payroll taxes. Here’s hoping readers start to notice these paradoxical stances, and tune them out altogether.


TOPICS: Business/Economy; Government
KEYWORDS: liberalwsj; myth; savings; wsjliberal
Navigation: use the links below to view more comments.
first previous 1-2021-4041-6061-80 ... 181-187 next last
To: Citizen of the Savage Nation
well it's a horror to the government who would like to TAX your savings :)

I have gone from nearly nothing to a multimillionaire in the last 12 years and haven't really paid all that much in Federal taxes during that time. This is because I made all my money in real estate and put every spare dime into purchasing additional properties. Even when I sell a property I just roll the profits into the next one, avoiding taxation... I can also use the equity that I've built up as collateral to purchase additional units negating the need to sell to get needed cash.

During all these years I've rarely had much more than it would take to pay my property taxes in the bank at any one time... so by the way the government figures it, I have saved little to nothing in the past 12 years!
21 posted on 02/01/2006 9:44:51 AM PST by conservative physics
[ Post Reply | Private Reply | To 16 | View Replies]

To: conservative physics

Interestingly do you consider your car to be savings?


22 posted on 02/01/2006 9:46:31 AM PST by x5452
[ Post Reply | Private Reply | To 21 | View Replies]

To: conservative physics

Is that a bad thing? Should not the governments numbers be conservative in this case? Creative accounting for 'savings' and 'assets' in the late 90s sort of blew up in everyone's faces.


23 posted on 02/01/2006 9:49:08 AM PST by x5452
[ Post Reply | Private Reply | To 12 | View Replies]

To: conservative physics

And the one huge, monsterous, gigantic, overwhelming important word these government eggheads left out: Primary Residence!!!! Hello, most homeowners in the country have seen a dramatic increase in the value of their home. That is SAVINGS if you don't sell it.


24 posted on 02/01/2006 9:49:47 AM PST by bpjam (Now accepting liberal apologies.....)
[ Post Reply | Private Reply | To 12 | View Replies]

To: x5452
Liberalizing the definition of savings is a stupid idea that will drive the country further into debt.

How is counting 401k and IRA contributions "liberalizing" the definition of savings? If capital gains taxes are subtracted from savings how is adding the capital gain "liberalizing" the definition of savings?

It's bad enough that idiots like yourself call your car savings without convincing everyone to do so.

No one called a car savings. It's idiots like you who claimed a car isn't an asset.

25 posted on 02/01/2006 9:50:31 AM PST by Toddsterpatriot (Why are protectionists so bad at math?)
[ Post Reply | Private Reply | To 20 | View Replies]

To: Toddsterpatriot

One thing this article missed was how most of the LSM lament how our savings pale when compared to other countries. They neglect to mention the "savers" in those other countries mostly don't own their own homes, and have ZERO equity therefrom.

Maybe they have $100,000 in the bank drawing a whopping 2% interest, but compare that with the $200,000 equity I have in my house, which will be $250,000 next year, then $300,000 and so on. That's how I'm funding my retirement. (And I pay ZERO taxes on that appreciation and equity)


26 posted on 02/01/2006 9:51:01 AM PST by Auntie Dem (Hey! Hey! Ho! Ho! Terrorist lovers gotta go!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Toddsterpatriot

For purposes of applying for a loan it is useful to call a car an asset. For purposes of planning one's retirement it should not even be pondered. Quit falsifying my point.

Further IRA and 401k contributions can go up or down. It is foolish to count them as savings because they are not 'money in the bank'. The day before Enron revealed its behavior all it's employees were certain they had great 'savings' for retirement. That saving the next day was worthless. Promoting that rationale and basing government policy on volatile 'savings' is stupid.


27 posted on 02/01/2006 9:54:01 AM PST by x5452
[ Post Reply | Private Reply | To 25 | View Replies]

To: x5452

Dear x5452,

I missed the post where someone called his car "savings."

Could you point it out?

Thanks,


sitetest


28 posted on 02/01/2006 9:55:42 AM PST by sitetest (If Roe is not overturned, no unborn child will ever be protected in law.)
[ Post Reply | Private Reply | To 20 | View Replies]

To: x5452; Toddsterpatriot
Could you please direct me to where Toddsterpatriot called a car "savings?" Thanks in advance.
29 posted on 02/01/2006 9:55:54 AM PST by 1rudeboy
[ Post Reply | Private Reply | To 20 | View Replies]

To: x5452
I hate to be a fence sitter, but I believe both of the analyses are pertinent. One provides some perspective to the other.

Now both y'all calm down and be nice :)

30 posted on 02/01/2006 9:58:25 AM PST by Paradox (Liberalism IS a religion.)
[ Post Reply | Private Reply | To 27 | View Replies]

To: x5452
A car is a depreciating asset... and although VERY necessary is one of the worst investments a person can make... BUT it does have a set value at any one point in time and assuming you owe less than it's worth, it is an asset you could sell to come up with needed cash, but I wouldn't consider it a form of savings since in almost all cases it's a loosing investment.
31 posted on 02/01/2006 9:58:46 AM PST by conservative physics
[ Post Reply | Private Reply | To 22 | View Replies]

To: x5452
For purposes of applying for a loan it is useful to call a car an asset. For purposes of planning one's retirement it should not even be pondered.

Who pondered that?

Quit falsifying my point.

You had a point?

Further IRA and 401k contributions can go up or down. It is foolish to count them as savings because they are not 'money in the bank'.

Some 401k money is in money market accounts. Can we count that as money in the bank?

32 posted on 02/01/2006 9:59:16 AM PST by Toddsterpatriot (Why are protectionists so bad at math?)
[ Post Reply | Private Reply | To 27 | View Replies]

To: 1rudeboy; sitetest

http://www.freerepublic.com/focus/f-news/1568643/posts?q=1&&page=151#188


33 posted on 02/01/2006 9:59:38 AM PST by x5452
[ Post Reply | Private Reply | To 29 | View Replies]

To: Paradox

I do not find it to be pertinent, 1 it would require invasive legislation, 2 it would tell a room full of legislators with no required accounting experience that all contributions are 'savings'. Considering the way they treat Social Security 'savings' I think that'd be quite dangerous.


34 posted on 02/01/2006 10:01:20 AM PST by x5452
[ Post Reply | Private Reply | To 30 | View Replies]

To: x5452

Thanks for a link to where I called a car an asset. Would you like some links where you said a car was not an asset?


35 posted on 02/01/2006 10:01:36 AM PST by Toddsterpatriot (Why are protectionists so bad at math?)
[ Post Reply | Private Reply | To 33 | View Replies]

To: x5452
Your link points to the following:

"That's right. Cars are never assets. Only rental property."
So let me be the first to ask, what's your major malfunction?
36 posted on 02/01/2006 10:02:05 AM PST by 1rudeboy
[ Post Reply | Private Reply | To 33 | View Replies]

To: conservative physics

So you'd agree that when planning on's financial future that regarding the car as more or less a wash financially is better than carefully calculating it's apparent value?

Personally I think it's distracting to the point to get into assets with as little and declining value.

Depending on one's home, and the finances involved I'd say the same can apply to a live-in home, although there is certainly more ability to examine that balance sheet to see if it's a positive or negative.

That is my objection to counting these sorts of assets as 'savings'.


37 posted on 02/01/2006 10:05:59 AM PST by x5452
[ Post Reply | Private Reply | To 31 | View Replies]

To: 1rudeboy

Don't clip his post. He tried to infer that all cars could latter be sold for 50 million dollars.


38 posted on 02/01/2006 10:06:33 AM PST by x5452
[ Post Reply | Private Reply | To 36 | View Replies]

To: Toddsterpatriot

Can you give me a summary of this whole car as savings thing? Is this one of those "doom and gloomer arguing with a notion that exists only in his imagination" occasions?


39 posted on 02/01/2006 10:06:38 AM PST by 1rudeboy
[ Post Reply | Private Reply | To 35 | View Replies]

To: x5452
Don't clip your argument, silly. Where, when, and how did T argue that a car is "savings?"
40 posted on 02/01/2006 10:07:43 AM PST by 1rudeboy
[ Post Reply | Private Reply | To 38 | View Replies]


Navigation: use the links below to view more comments.
first previous 1-2021-4041-6061-80 ... 181-187 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson