Thank goodness for skeptics. Several of them are now challenging the “conventional wisdom” that Americans in the aggregate—like drunken sailors on shore leave—have a consumption habit that has embarrassingly resulted in a negative personal saving rate for the nation as a whole.
For example, skeptical reader John Winner sent me this question:
Somehow the idea of negative savings just doesn't square with other things I read about record mutual fund inflows and reports of record net worth among US citizens... What gives?
Well, one would think that if the US Department of Commerce reports a negative savings rate for our economy, one could take that to the bank—wouldn’t one? (See lower-right number on this official page.) Don’t get me wrong, I have a lot of respect for the job the folks at the Dept. of Commerce are doing with the numbers they’re stuck with. But something in the numbers didn’t smell right.
Fortunately for us, Brian Wesbury recently sniffed out the problem. (After I pointed reader John Winner to Brian's article, I decided to compose this post.)
As I carefully re-read Wesbury’s piece about the inaccuracies embedded in the rube goldberg algorithm for backing into the “personal savings rate,” the mental image I couldn’t shake was one of a very strange parfait. This strange parfait had the following layers: vanilla ice cream—raw hamburger—sawdust—cow pattie—motor oil—whipped cream—and, of course, red cherry. Voilà! Our nation’s Personal Saving Rate! (Oh no, it’s negative! Just wait until the San Francisco Chronicle gets hold of this!)
Gracefully, Wesbury ended his article by pointing us to an alternative way to gauge whether Americans are savers or not: the Federal Reserve’s Funds Flow Statement. I checked it, and extracted the key page. Funny thing: It turns out we’re not drunken sailors after all.
Click to enlarge.
The Fed’s report above strongly suggests that we Americans are thrifty savers. Our $38 trillion in financial assets is $3.3 trillion higher than a year ago, and our $51 trillion in net worth is $5 trillion higher. Guess what: That’s not a negative rate.
Many thanks to Brian Wesbury for shedding bright light on the mystery of “negative savings.”
