Newspaper article The Christian Science Monitor

US Personal Savings Haven't Gone to Ruin

Newspaper article The Christian Science Monitor

US Personal Savings Haven't Gone to Ruin

Article excerpt

IT would be no surprise if many Americans were suffering from a mild guilt complex because they don't have much money stowed away in bank accounts, certificates of deposit, pension funds, and so on. Economists and politicians have been accusing them for a decade of not saving enough. Tch, tch!

The Bush administration's forthcoming budget reportedly will propose a new "Family Savings Account," giving tax advantages to those who put some money aside for a rainy day. In Congress, various Democrats have been calling for an enlargement of the tax breaks in Individual Retirement Accounts (IRAs).

Now along come two economists, Alicia Munnell and Leah Cook of the Federal Reserve Bank of Boston, saying (1) the personal savings rate "per se is not a very interesting notion; rather, the crucial issue is investment - that is, the share of current output put aside today to enhance living standards tomorrow;" and (2) this savings rate was understated during the 1980s. A more appropriate measure of saving shows the personal savings rate declining from a high point in the 1970s back to levels experienced in the 1950s and 1960s, not to all-time lows.

"It does not appear as if any fundamental shift has occurred in the nation's attitude toward thrift," they write in their bank's New England Economic Review.

What prompts concern is a drop in personal saving as a percentage of disposable income from nearly 10 percent in the early 1970s to a low of 2.7 percent in 1987. In 1990 saving equaled 4.6 percent of disposable income; it was running around 4.1 percent in the first three quarters of last year.

"We have got to get our savings rate up," a former commissioner of the Social Security administration, Dorcas Hardy, commented typically last week. "Four percent is rather dismal."

On top of the drop in personal saving was an even more dramatic decline in government and business saving. From the 1950s through the 1970s, government saving hovered around minus 0.5 percent of national income, business saving averaged plus 3.5 percent of national income. Then in the 1980s, the federal deficit rose from 1 percent to 3 percent of national income after the massive tax cuts and jump in defense spending under President Reagan. …

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