May 09, 2016
It really is amazing what you can find in the Washington Post’s opinion pages. The latest is Robert Samuelson complaining that the problem with the weak recovery is that people are saving too much. This is amazing for two reasons: first, it is not true, and second if people saved less they would have even less money to support themselves in retirement.
Starting with the first point, the saving rate is actually quite low by historical standards. It is just over 5.0 percent. The only periods in which it was lower was when the wealth generated by the stock bubble in the 1990s and the housing bubble in the last decade pushed the saving rate somewhat lower. For most of the 1960s and 1970s it was over 10.0 percent. Even in the 1980s it averaged more than 7.0 percent. (No, there should not be a downward trend in saving rates, unless you think that people will eventually have zero money in retirement.)
If we want to see the origins of the economy’s shortfall of demand, the trade deficit is the obvious place to look. If the trade deficit was 1.0 percent of GDP, as opposed to its current 3.0 percent of GDP, this would have the same impact on demand as a drop in the savings rate of 2.5 percentage points. The standard route for getting a lower trade deficit is a lower valued dollar, but apparently no one is supposed to make this point in the Washington Post’s opinion pages. (The savings rate is likely overstated at present. There is a large gap between the income side measure of GDP and the output side. This likely reflects some amount of capital gains wrongly being recorded as ordinary income. If income is overstated, it would cause the reported savings rate to be higher than the true saving rate.)
The other reason why the complaint about excessive savings is bizarre is that Samuelson, like most of the rest of his colleagues in the opinion section, regularly calls for cutting Social Security and Medicare. So apparently Samuelson both wants retirees to have less personal savings to support themselves at the same time they have less support from public social insurance programs: only in the Washington Post.
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