On the Myth of U.S. Savings and Investment
PETERSON, WALLACE C.
ON THE MYTH OF U.S. SAVINGS AND INVESTMENT BY WALLACE C PETERSON It is the conventional wisdom these days that the American economy is suffering from a chronic shortage of savings. As a...
...And it shows that overall the proportion of total saving in the economy in relation to the gross national product has not fallen...
...During the next decade (the 1960s) the percent rose to 6.3, followed by a further rise to 7 per cent during the 1970s...
...Personal Gross Period Saving Saving 1950-59 4.7% 15.9% 1960-69 4.5 16.3 1970-79 5.0 17.1 1980-82 4.3 17.6 All of the information above comes from the latest "Economic Report of the President...
...The table below shows personal saving and gross saving (the sum of personal saving and business saving) as a percent of the gross national product for three postwar decades and the last three years (1980-1982...
...Most evidence cited to "prove" that we as a society do not save sufficiently is based on very recent data of one kind...
...From the viewpoint of growth, the most important type of investment by business is in new equipment...
...As a consequence, there is not sufficient investment and our economic growth is faulty...
...If we include the latter and look at the long term, an entirely different picture emerges...
...True, as observers like Thurow contend, there has been a decline in the personal savings rate...
...If investment is inadequate and economic growth is lagging, the source of our trouble is primarily the inept policy-making that has put the economy through four recessions since 1969...
...To illustrate, in the 1950s the nation invested 5.9 per cent of its gross output in new equipment...
...Over the last three years (1980-1982), equipment investment as a percentage of the GNP averaged 7.2...
...Actually, the "pool" of private savings that finances both business investment and the public debt consists of two kinds of savings: savings by individuals and households, and savings by business...
...In a "Newsweek" column not long ago, he argued that the trouble lies with our system of easy consumer credit, which makes it possible to get most anything without saving first...
...Here too, however, the facts fail to support the conventional wisdom...
...But this is more than offset by the relative increase in the business part of the savings pool...
...The contention that we face a serious and chronic shortage of savings isa myth...
...New technology works its way into the economy as business firms buy new and better machines...
...The other half of the argument about an alleged shortage of savings and its impact on the economy concerns investment and growth...
...In each decade since the end of World War II, the ratio of new equipment investment to the GNP has been going up, hardly a case of decline and stagnation...
...Once again, the long-term picture is exactly the reverse of what has been claimed...
...Therefore, if there were any truth to the argument that a shortage of savings was hurting the economy, we would expect it to show up in a decline in the rate of equipment investment...
...On the contrary, it has risen, going from an average of 15.9 percent of GNP in the 1950s to 17.6 per cent in the last three years...
...Even so renowned an economist as Lester Thurow of MIT has joined the chorus of voices proclaiming that Americans don't save enough...
...Thurow is partly right, but he also tells only part of the story...
...This has not happened...
Vol. 67 • January 1984 • No. 1
