July 07, 2012
They may not realize this fact, but that is the logical implication of comments in both the NYT and Washington Post articles on the Friday jobs reports. Both papers complained that high debt burdens are depressing consumption, which would otherwise lead to more demand and more jobs.
In fact, the saving rate is currently under 4.0 percent. In the decades prior to the stock and housing bubbles the saving rate averaged over 8.0 percent. A 4.0 percent saving rate implies that workers are accumulating very little wealth for retirement. It is difficult to see why it would be viewed as a positive development if they saved even less, especially since both papers have repeatedly argued for cuts in Social Security in their news sections.
The NYT article included a quote from Andrew Tilton, a senior United States economist at Goldman Sachs, claiming that the euro zone’s problems have shaved a percentage point off U.S. growth. This is a dubious claim. U.S. exports to euro zone countries are less than 2 percent of GDP. Even if the crisis reduced exports by 10 percent the direct impact would be less than 0.2 percentage points of GDP.
Furthermore, the euro zone crisis has caused investors to turn to dollar assets as a safe haven. Interest rates on long-term government bonds plunged last summer in response to the flaring up of the crisis in Italy. It is likely that long-term rates in the United States are at least 50 basis points (0.5 percentage points) lower as a result of the euro zone crisis. This would offset much, if not all, of the loss in demand due to reduced exports to the euro zone.
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