Following up on my earlier post on the fall in American consumer spending: The flip side of the declining spending numbers is that the personal savings rate increased in January. Households had a saving rate of 5.8 percent (measured as the share of disposable income not spent), up from 5.4 percent in December.
Isn’t that a good thing, you might ask? Don’t we want Americans to start budgeting more responsibly?
In the long term, yes: it would benefit the economy to be less dependent on consumer spending and more reliant on exports. That requires a higher saving rate, at least to the levels seen before the credit bubble.
But as St. Augustine of Hippo might say, Lord, make us thrifty, but not yet. In other words, we want Americans to start saving more in the future — that is, sometime after the economy has fully recovered. In the near term, though, businesses need consumer spending, not saving, to help them grow and eventually hire.
And this was the exact calculus behind the temporary payroll tax cut: to get consumers to pick up the pace of spending in the near-term only.
One month’s worth of data does not a bulletproof verdict make, but the policy does not look promising.
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Economics and Democracy in Egypt // Following up on my earlier post on the fall in American consumer spending: The flip side of the declining spending numbers is that the personal savings rate increased in January. Households had a saving rate of 5.8 percent (measured as the share of disposable income not spent), up from 5.4 percent in December.Isn’t that a good thing, you might ask? Don’t we want Americans to start budgeting more responsibly?
In the long term, yes: it would benefit the economy to be less dependent on consumer spending and more reliant on exports. That requires a higher saving rate, at least to the levels seen before the credit bubble.
But as St. Augustine of Hippo might say, Lord, make us thrifty, but not yet. In other words, we want Americans to start saving more in the future — that is, sometime after the economy has fully recovered. In the near term, though, businesses need consumer spending, not saving, to help them grow and eventually hire.
And this was the exact calculus behind the temporary payroll tax cut: to get consumers to pick up the pace of spending in the near-term only.
One month’s worth of data does not a bulletproof verdict make, but the policy does not look promising.
Public-sector unions in Wisconsin and their allies are mounting an articulate opposed to Republican views of budget-cutting and workers’ rights, an economist writes.
For-profit colleges may play a useful role in forcing traditional colleges to innovate and to re-examine institutional practices, an economist writes.
We’re not broke, an economist writes, but a long-term solution will require bipartisan action on financial regulation, health care costs and tax reform.
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Multimedia Breaking Down the BailoutAn accounting of the government’s rescue package.
How the Government Dealt With Past RecessionsThree economists explain what worked and what didn't.
Geography of a RecessionA map of unemployment rates across the United States, now through January.
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Special Features The Debt TrapA series about the surge in consumer debt and the lenders who made it possible.
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An accounting of the government’s rescue package.
Three economists explain what worked and what didn't.
A map of unemployment rates across the United States, now through January.
Faces, numbers and stories from behind the downturn.
A series about the surge in consumer debt and the lenders who made it possible.
A series exploring the origins of the financial crisis, from Washington to Wall Street.
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