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I believe this. How many of us can actually save even if we wanted?
Well...many could if they put the principles of saving above immediate gratification and social status.
“The Savings Rate Has Recovered…if You Ignore the Bottom 99%”
By Andrew Kaplan, a hedge fund manager:
It has become fashionable among equities managers of the bullish persuasion to argue that a strong recovery in GDP will occur in 2010 because the “structural adjustment period” of moving back to a more normal savings rate has been completed. We’ve gone from a savings rate of barely 1% in 2008 up to 4.2% in July (ok, so the argument sounded better when the number was 6.2% in May, but still…).
The story goes something like, “consumers took a little time to recognize that their home equity had disappeared, but now they’ve adjusted their savings rates toward the desired level to reflect the fact that they need to save a larger proportion of income for retirement…so this effect will no longer be a drag on growth in coming quarters.”
This is the kind of conventional wisdom which could only emerge among folks in the 99th income percentile who spend their time primarily with other folks in the 99th income percentile. You don’t have to look at the data (mortgage delinquencies, foreclosures, credit card defaults, bankruptcies) all that hard to see a very different picture. In fact, it is almost certainly true that the savings rate for 99% of the US population is negative. These people (a/k/a “all of us”) are drowning. And to the extent that our savings rate is less negative than it was one or two years ago, that simply reflects the reality of reduced home equity and unsecured credit lines rather than any conscious effort to reach a “desired level” of savings.
A little data might help here. Unfortunately, there really IS no good data on PCE (personal consumption expenditure) and savings stratified by income percentile. There are a couple of surveys, the triennial “Survey of Consumer Finances” by the Federal Reserve and the “Consumer Expenditure Survey” by the Bureau of Labor Statistics, but the self-reported data is laughable. For 2007, the Consumer Expenditure Survey showed a personal savings rate of 18.4%. In the same year, the Bureau of Economic Analysis, which calculates the savings rate as a residual from actual income and expenditure data, showed a savings rate of 1.7%. Either the Consumer Expenditure Survey does a poor job of sampling, or people who fill out surveys are really big liars.
Fortunately, there IS some pretty good data on income stratification in the United States, and a few assumptions can help shed some light. Economists Thomas Piketty and Emmanuel Saez have made careers of studying US income inequality using IRS data, which goes back to 1913. The most recent data available (for 2007) showed that the top 14,988 households (0.01% of the population) received 6.04% of income, the highest figure for any year since the data became available. The top 1% of households received 23.5% of income (the second highest on record, after 1928), while the top 10% received 49.7% of income (the highest on record).
The fortunate 14,988 had an average income in 2007 of $35,042,705. They had an average federal tax burden, according to Piketty and Saez, of 34.7%, leaving them after tax income of $22.9 million. If you assume a 50% savings rate among this group, you get total savings of $171.5 billion. This is nearly ONE HALF of the total savings for the entire country implied by a savings rate of 4.2% ($365 bn) reported in this month’s Bureau of Economic Analysis data.
I’ve never actually had an after tax income of $22.9 million, so I couldn’t say for sure whether a 50% savings rate is a reasonable assumption, but I’m going to go out on a limb and say that it is, just based on the pure physics of spending money. Buying cars, clothes, and fancy dinners, even at Masa, won’t get you there…the math doesn’t work. Buying a private jet could get you there, but most people, even rich people, don’t buy one of those every year. The only EASY way to spend more than 50% of $22.9 million on an annual basis is to buy lots of houses…but the definition of “personal consumption expenditure” used by the BEA specifically excludes purchases of real estate. They use an imputed rent calculation instead. So I’m going to stick with my 50% number.
If we expand our survey to the top 1% of all households, we find an average income of $1.36 million for 2007. These folks had an average federal tax burden of just under 33%, so their after tax income averaged $916 thousand. If you assume this group had a savings rate of 33%, you get total savings of $452 billion (remember, $171.5 bn of this comes from the top 0.01%, we’re assuming a savings rate of around 25% of after tax income for the “poorer” 99% of the top 1%) This is more than 100% of the personal savings of the entire population, according to the BEA data. It implies that 99% of the US population still has, on average, a negative savings rate of around 1.3%. If you subtract the next nine percent, which likely still has a positive savings rate, the data for the bottom 90% becomes even more depressing, implying a negative savings rate of close to 5%.
I believe this. How many of us can actually save even if we wanted?
Well...many could if they put the principles of saving above immediate gratification and social status.
All of us.
Yup.
Shut off cable, internet, home-phone/cellphone
You just saved somewhere near $300 a month.
What were once considered luxuries are now necessities, at least in the American sense.
Not the top 1%'s fault if you don't know how to save.
The rich generally get rich by making smart moves. Not by doing as others do.
My problem with this article is this, it gives us one set of facts and asks us to come to a comparitive conclusion (has the savings rate recovered or not). It is impossible to compare one thing to . . . nothing. What was the savings rate overall, and the savings rate of the bottom 99%, lets say, 3 years ago. Has the savings rate recovered from that perspective? I would say that it has, though in its current form is still not at a sustainable rate. Also, lets compare the fact that a few years ago the savings rate was at or near 0. This INCLUDES all those rich individuals and their massive savings rates, so then, what was the savings rate of the bottme 99%? -10%? lower?
I am not saying this to dispute the overall conclusion - we need to save more, but I can't stand the way it is framed and it smacks of fear-mongering.
I know. That's why I also said...
"Well...many could if they put the principles of saving above immediate gratification and social status."
THERE was an article i read, the govt made $4B in interest from the bailout payments to the big banks who paid back the mula they were granted
But how much will they lose on those who don't pay back?
How much would we have all lost if the credit market had frozen and Wall Street collapsed?
Sweet. Just $200-somthing billion more to go and then we can cover what we spent on AIG and the auto industry.
There were other solutions than giving the bailing out the elitists involved. Our government rewarded bad behavior.
What other options? Really, this is an honest question. One idealistic thought that came to my mind is that they could have somehow allowed low rate loan guarantees to the "good" banks to help fund aquisition of the "bad" banks. Unfortunately, you get into the discussion of what is good, what is bad and how to determine which bank gets 100 million and which bank only gets 10 million, etc. I know this is flawed but the reason I like the idea is that the banks who did well get rewarded for doing well, you know, the way it should be.
Nobel prize winning economists are in disagreement, so I'm certainly not going to profess that I know the answer here. That being said I think there is a solid case to be made that if the government hadn't bailed out the banks that were in trouble, of which there were many but not all of them, that the smaller banks who had been lending responsibly could have stepped in and prevented an all out crash of the entire system. If we made it through we'd then be left with a financial industry where the banks who made bad decisions were gone, and those who had made good ones survived. We'd also have a financial industry that knew that they'd have to take steps to protect themselves as opposed to knowing that the U.S. government would be there to make the taxpayers backstop bad decisions made by the banks.
You let the investors of the bad banks lose their money and back the banks that did it right.
Just that simple.
Are you suggesting to let those bad banks go into bankrupcy? Also, how specifically do you back the banks that did it right??
Absolutely. Let them file chapter whatever. The stockholders pf any company make money or lose it upon the success or failure of their investments. Why should investors be bailed out?
You lend or guarantee them the capitol to make loans they would otherwise not be able to make.
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