at record lows ... and record
Other economists, such as Daniel E. Laufenberg, vice president and chief economist for Ameriprise Financial, say this disconnect between statistical measurements proves that the official method of calculating savings is itself a flawed measurement.
"The official measure of savings is only as good as the government's ability to measure income and outlays," Laufenberg says. "Both are subject to large revisions."
Beyond shortcomings in data collection, Laufenberg adds that he believes the BEA's definition of savings is itself fatally flawed. That's because the BEA designed its calculations to reflect income earned during the production of some good or service during the period being measured. This strict definition means some big income sources get excluded.
gains does not fit that definition, and therefore are
excluded from the measure. ... Benefits from private pension
plans are not counted as income because some portion of
the benefits are paid from capital gains," Laufenberg
says. "How meaningful are such exclusions?"
Rather than looking at the savings rate as the amount consumers put away for a rainy day, an alternate but useful way to look at what economists call "savings" is to see it as a reflection of spending.
And in that interpretation, all economists agree: We are spending more as a nation than ever before.
In 2005, Americans spent a record $9.07 trillion, up 6 percent from 2004 when consumers spent $8.5 trillion.
Spending alone would not be a problem if incomes were keeping pace. In 2005, disposable incomes rose to only $9.03 trillion, compared with $8.68 trillion the previous year.
And if we look at spending as the economists
do -- as a percentage of incomes, we see that we have
been spending a bigger and bigger percentage of our
salary at the end of every month and have been doing
so since the mid 1980s.
We are now at a point where we are spending slightly more than we are earning.
Where's it all coming from?
Since our spending is outpacing our earnings, the money
obviously has to come from somewhere. By definition,
if you aren't earning enough money to pay your bills,
you are forced to either sell something, such as stocks,
or borrow against something, such as a mortgage, to
make up the difference.
And that is exactly what has been happening for the past few decades.
It just so happens that stocks began a meteoric run in price appreciation at just about the same time as our savings rates began declining in the late 1980s.
Many economists believe that the increase in "paper wealth" made people feel free to spend more than they otherwise would.
After stocks crashed in 1999 and 2000, homes took over as the appreciation darling.
Again, flush with paper wealth after
the value of their homes ballooned,
families had easy access to
cash through cash-out mortgages,
enabling the buying binge to
And since Americans are spending more
than they are earning, it is largely foreign investors
who are buying up the stocks we are selling and who
are financing the debt we continue to rack up.