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.
Ping.
Just under 15% of my income is stolen from me in the form of Social Security. The politicians want you to think its savings.
Yes what we need is more complex calculations more invassive surveys, and to count everything including the XBox360 as savings.
Between the price of gasoline for the car, and gas and oil for heating, is it any wonder that peoples savings have gone negative. Hell, even a Democrat can figure that out.
You're as good at reading as you are at accounting.
YO, Adrian, read the article. American savings are not going negative. DemonRATS can't "figure" anything out. Being a demonRAT is akin to being a communist which is a mental disease.
Is paying down debt the equivalent of savings?
Thanks for the ping!
You apparently have never heard of the word sarcasm.
people are just saving "differently" than they used to ... people are smarter about how and in what they invest. Many of these changes in behavior are not registering in government surveys.
LOL! Kind of ironic since they probably have already spent it.
So much for "savings."
You mean all your posts about assets yesterday were sarcasm and not stupidity? Thanks for clearing that up.
IMO, no.
A good, timely article, and the 'savings rate' is a bogus statistic since its absolutely meaningless in the context of today's environment. My net worth keeps on growing year after year, despite having 0 savings according to the gubmint. Oh, the horror.
"Saving differently". Exactly. Why should anyone park significant funds in interest bearing accounts that not only lag the return in stocks, real estate but are taxed every year as income as well?
Exactly. You can make $100,000 in capital gains which the government doesn't count. They do manage to subtract the $15,000 you pay in capital gains taxes. I guess the $85,000 left over doesn't exist.
You can put $14,000 (last year, $15,000 this year) into your 401k, but that doesn't count either. Real good statistic they have there.
Thanks for posting this.
It is probably a safe bet to say that, The Wall Street Journal’s David Wessel, was/is a rat weasel hire by Al Hunt when Hunt ran the bs side of the WSJ.
Hunt was in charge of the rigged polls and bs like this. He hire and trained a large cadre of left wing liars to infiltrate the WSJ, and they are still there.
Ths is quite unrelated to you're bragging about what big assets you have yesterday.
Liberalizing the definition of savings is a stupid idea that will drive the country further into debt.
It's bad enough that idiots like yourself call your car savings without convincing everyone to do so.
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