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Home Publications Blogs Beat the Press Robert Samuelson Gets the Saving Story Wrong

Robert Samuelson Gets the Saving Story Wrong

Monday, 30 August 2010 03:47

Robert Samuelson seems to think that the problem with the recovery is that people are still saving. While this is in part right, Normal 0 he is wrong to suggest that anyone should be surprised by the current level of saving.

The current saving rate is approximately 6 percent of disposable income. While Samuelson implies this is high, it is actually very low by historic standards. The saving rate averaged more than 8 percent through most of the post-war era until the wealth effect of the stock and housing bubbles drove it toward zero in the last 15 years.

Samuelson seems to think that after a couple of years of a 6 percent saving rate, saving will again fall to its bubble levels of near zero. There is no reason to expect this. As the housing bubble deflates further, households will see a further decline in wealth. They will likely increase their saving rate to the 8 percent pre-bubble range.

In fact, demographics suggest that the saving rate could rise even higher. The huge baby boom cohort is at the edge of retirement, with most having almost nothing other than their Social Security to depend upon. This provides a strong incentive to save, especially in an environment where much of the political leadership is pushing for cuts to Social Security.

Comments (4)Add Comment
written by izzatzo, August 30, 2010 8:12
Samuelson seems to think that after a couple of years of a 6 percent saving rate, saving will again fall to its bubble levels of near zero.

This is true. Among the unemployed, stocks of canned bean asset wealth have replaced housing wealth as a form of savings. However space available for canned beans has restricted canned bean savings to around 6% of total consumption since there's no income, so combined with expected deflation of canned bean prices, the savings rate will eventually drop to zero, despite pressure in the opposite direction to save more on electricity by eating them cold.
history repeats itself
written by frankenduf, August 30, 2010 8:55
Samuelson may be projecting the angst of the wealthy interests, which will yearn for a return for the good ole days- that is, when the smoke clears from a crisis, hopefully the public will be duped back into the trickle up economy- this is the same historical hope, verified over and over, when after a stock crash, the moneyed investors generate rehashed propaganda how the market will rebound, thereby fostering another generation of joe punchclock investors to jump on the stock bandwagon, and be left holding the bag for the next generational crash...
written by PeonInChief, August 30, 2010 12:12
I wonder how long it will take for some intrepid journalist to note that people don't spend money because they don't have any, and because they have lots of debt they're trying to pay off.
I don't suppose Dr. Baker reads these, pity
written by scott, August 31, 2010 7:32
You say our savings rate is 6%. A question, does our taxation for entitlements count as savings? Shouldn't it? Wouldn't that get us approaching far higher levels of savings than we've reported? You guys decide on one way of looking at the world and never reconsider your methods, means, or what they mean. I understand the need to use the same rubric to get a consistent picture over time, but doesn't mean that rubric is definitive, or IS what you label it to be.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.