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The Decline in Saving

The Decline in Saving: A Threat to America's Prosperity?

Barry P. Bosworth
Copyright Date: 2012
Pages: 135
  • Book Info
    The Decline in Saving
    Book Description:

    Longtime Brookings economist and former presidential adviser Barry Bosworth examines why saving rates in the United States have fallen so precipitously over the past quarter century, why the initial consequences were surprisingly benign, and how reduced saving will affect the future well-being of Americans.

    The Decline in Savingprovides an extensive and unparalleled account of the complexity of present saving patterns, an issue made even more serious by the 2008-09 global economic and financial crises. It objectively examines saving at both the individual household and the aggregate economy levels to understand whether the U.S. decline in saving is truly a threat to American prosperity.

    Highlights fromThe Decline in Saving:

    "The magnitude of the two-decade-long fall in household saving has been truly astonishing; it is even more surprising in view of the fact that the large cohort of baby boomers should have been in their peak saving years."

    "If Americans save so little, why are they so rich? This divergence emerges because the conventional measure of saving excludes all forms of capital gains...."

    "Saving behavior appears to be influenced in important ways by country-specific institutional factors along with a few common determinants, such as income growth, demographic changes, and variations in private wealth."

    "In the aggregate, the United States has had a negative net national saving rate since the onset of the financial crisis, and it now relies on foreign resource inflows to finance all its capital accumulation and a portion of its consumption."

    "The optimistic projections of just a few years ago about the future well-being of retirees now seem seriously dated."

    eISBN: 978-0-8157-2136-9
    Subjects: Marketing & Advertising, Finance

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Foreword
    (pp. vii-viii)
    Karen Dynan

    The large decline in the U.S. household saving rate over the past quarter-century has puzzled many economists. Americans have long been known for having a relatively low rate of saving, but the depth to which saving fell in the middle of the first decade of the twenty-first century was unprecedented among modern industrial economies. Why don’t Americans save? While a variety of hypotheses have been advanced, considerable disagreement persists. At the same time, many observers were surprised that the consequences of low household saving seemed so benign. The rate of capital investment and economic growth actually accelerated in the 1990s...

  4. CHAPTER ONE Introduction
    (pp. 1-9)

    Over the past quarter-century, rates of saving in the United States have fallen precipitously, and in the aftermath of the 2008–09 financial crisis, the nation’s saving rate has turned negative. Even before the onset of the crisis, net national saving amounted to only 2 percent of the nation’s income, while the average was 11 percent in the three decades before 1980. In effect, Americans have been engaged in a long-running spending spree, consuming their incomes at an unsustainable rate in both the public and private sectors. The shift toward a consumption-based economy is evident in the rising share of...

  5. CHAPTER TWO Measuring Saving
    (pp. 10-31)

    Much of the controversy and confusion about the adequacy of current rates of saving centers around different notions of what constitutes saving. Most simply, “saving” is defined as the portion of income that is not spent on consumption, but that definition still leaves room for considerable argument over precisely what should be included.

    The standard measures of national saving and its components—government and private saving and, within the private sector, household and corporate saving—are all derived from the national accounts. The national income and product accounts (NIPAs) are designed to provide a coherent framework for measuring the nation’s...

  6. CHAPTER THREE Why Don’t Americans Save?
    (pp. 32-62)

    The effort to explain the decline in saving has generated a large volume of research over the past several decades. Despite that effort, a consensus on the reasons for the falloff has yet to emerge. As shown in chapter 2, problems of measurement do not appear to be a sufficient explanation, and most researchers would agree that the reduced rate of saving is a real phenomenon. The theoretical emphasis on life-cycle theories of consumer behavior led to an initial focus on demographic change and the aging of the U.S. population, but the reduced saving preceded the retirement of the baby...

  7. CHAPTER FOUR Global Saving Patterns
    (pp. 63-94)

    Concerns about the balance of saving and investment at the global level have motivated research on saving for several decades. In the 1990s, studies of the impact of population aging on public budget balances and private sector saving generated worries about a looming scarcity of saving in the global economy, with its attendant pressures for rising real interest rates.¹ Institutions such as the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) issued reports on what they perceived to be a potential crisis. However, in the first decades of the 2000s, the attention of government policymakers...

  8. CHAPTER FIVE Consequences of Low Saving
    (pp. 95-120)

    How troubled should we be about the decline in saving? To begin, there are several broad areas of concern. First, at the level of the total economy, saving has long been seen as a primary determinant of a nation’s capacity to finance investment. Thus, low rates of saving have been associated with depressed rates of capital accumulation and inadequate rates of economic growth. Low saving is also considered dangerous to U.S. economic interests, because it implies an unwelcome reliance on foreign capital flows, which has been associated with financial instability in many other countries. However, these concerns relate primarily to...

  9. References
    (pp. 121-130)
  10. Index
    (pp. 131-135)
  11. Back Matter
    (pp. 136-137)