Looks Like I Got Volunteered to (Find Someone Else to) Talk About the Savings Rate

Thanks, Matt.

I’ll delegate dealing with the reported problem to the Wall Street Journal editorialists at OpinionJournal.com, who also had other choice words Saturday for those who won’t accept the fact that the economy is in pretty good shape at the moment, and has done pretty well for several years.

In the process, you’ll also notice that the OpJ writers caught the insufferable bias and ignorance of one of BizzyBlog’s favorite targets, the Associated Press’s Martin Crutsinger (three of many previous BizzyBlog takedowns are here, here, and here):

So moving right along, this week’s bad news is said to be the U.S. “savings rate,” which according to the official measure was “negative” for a whole calendar year for the first time “since the Great Depression,” as Martin Crutsinger of the Associated Press helpfully put it. Hooverville, here we come!

As a statistic, however, the official “savings rate” is nearly as useless a guide to prosperity as the trade deficit. In the government accounts, what is called the savings rate is literally income less consumption. But the government defines income too narrowly and consumption broadly. For example, “income” doesn’t measure capital gains (whether realized or not), the rising value of your home, or even increases in your retirement accounts.

Think about how you calculate your own personal “savings rate.” Do you merely add up what you make in salary in a year minus what you spend? Or do you sneak a peak at whether your IRA increased in value, or check the sale price your neighbor got on his home to figure out what you might be able to get for yours? By any normal definition, “savings” should include your increase in total assets–in other words, your gains in overall wealth.

For our part, these columns long ago began to watch a far more instructive figure known as “household net worth.” That number, released by the Federal Reserve, includes all assets (tangible and financial) held by individuals less their liabilities (mortgage and other debt). At the end of last year’s third quarter, U.S. household net worth had climbed to $54.1 trillion. That was an increase of more than $3 trillion over the previous four quarters. Rest assured, that’s a much higher figure than during “the Great Depression,” AP notwithstanding.

I’m not as sunny as the OpJ folks are about net worth justifying completely waving off the question of whether Americans are saving enough (just watch net worth plummet if the globlarmists or high-taxers ever get their way), but ignoring net worth and the statistical problems inherent in how the goverment calculates the savings rate is pretty negligent — that is, if your purpose is to inform readers and not merely preach to them.

The editorial wraps by discussing things we really should be worrying about when it comes to the economy:

There are two genuine clouds on the horizon–namely, inflation risk and political risk. Inflation remains somewhat higher than is comfortable, and we still expect the Fed will consider further interest-rate hikes if today’s weak dollar and soaring commodity prices lead to a jump in the official inflation indicators later this year. As for politics, the Democrats now running Congress explicitly reject the tax cuts and freer trade that have helped to propel the current prosperity. If history is any guide, sooner or later this is a recipe for trouble.