:: Is the Negative Savings Rate a Negative for the Economy?
In 2006, the national personal savings rate calculated by the U.S. Department of Commerce was around negative 1%. It was the second straight year that the measure indicated Americans are spending all of their after-tax dollars and then some. In 2005, the savings rate was negative 0.4%.
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As a wave of baby boomers approaches retirement, some economists see significant risks in Americans' apparent inability to sock away any savings. Others argue that worries over scant savings are overblown and that the negative rate shouldn't necessarily be seen as a sign of impending economic shock, since official measures of savings don't account for assets like homes and stocks.
WSJ.com asked David Wyss, chief economist for Standard & Poor's, to discuss the slumping savings rate and what might it mean with Nariman Behravesh, chief economist for economic research firm Global Insight.
Nariman Behravesh writes: I agree with Dave that the distribution of both income and wealth has become more unequal in the last couple of decades. However, this is not the same as saying that a low/negative saving rate in the U.S. is a problem (which is where we started this discussion).
The policies aimed at improving the distribution of income and wealth (tax reform, fixing Social Security and Medicare, more investment in education, etc.) are different than the macroeconomic policies -- such as higher interest rates and an increase in consumption based taxes -- aimed at raising the household saving rates, if we think they are too low.
