Saving in the USA

Lassie, the Lone Ranger, and Superman save damsels and others in distress. I have two dear friends who similarly are trying to save me from an inevitable date with JD and the devil. But that kind of saving is not what I am writing about today.

My favorite part of teaching macro is when we discuss trade deficits. A very unobvious point is how the imbalance between national saving and investment causes trade imbalances – deficient saving leading to trade deficits. President Trump is correct to try to stop unfair trade but what he may be missing is that we are our own worst enemy. Our distinct lack of saving in this country is the culprit behind our trade deficits.

Of course a lack of saving disturbs our internal domestic economy too when saving is insufficient to meet the demands of borrowers. We call this crowding out when saving insufficiency leads to constrained business investment and lower spending in the economy. If foreigners decide to save here, that helps, but then we get the problem above as foreign savers have to buy dollars to save here and that causes the value of the dollar to rise and leads to a larger trade deficit. If only Lassie, the Lone Ranger, and Superman could help us learn how to save money! What a wonderful world it would be.

The Bureau of Economic Analysis has lot of macro numbers, so I went there to find saving data. What I found is organized in some tables below.

My point today is that we have a major problem with saving in the USA. The top table is the main table as it presents net saving. Underscore the word net. Net savings are calculated when you subtract the uses of saving from the gross amount saved. (You will find uses of saving in the second table and gross saving in the third one.)

Gross savings is what happens when households, businesses, and governments don’t spend all their income. Think of them putting this excess in the bank. Uses of saving gets at the idea that households, firms, and governments want to borrow some of that money they put into banks. Tuna might have a good year and sock away some dough. Peter needs a new Tesla. Lady Diane won’t let him empty his piggy bank so he goes to the bank to borrow some money.

The top table shows you net saving – gross saving minus uses of saving. A nation likes to have a big positive number for net saving. The first column shows you contributions to net saving from households, firms, and governments in 2000.

When the gross amount of savings just equals the uses of saving, we have a nice balance. What I referred to above is the problems created in countries when the sources are always too low relative to the uses of saving.

Notice that net saving equaled $616 billion in 2000. Net saving as a share of Gross Domestic Product (GDP) was about 5.9% in that year. Most of that amount was contributed by households, but domestic businesses and the Federal Government each made positive contributions in 2000. State and local governments were the only scofflaws that year with net saving equal to -$41 billion.  

Let’s see what happened in the past 18 years. In 2018, net savings was less than in 2000 at $599.2 billion. Net saving shrunk to 2.9% of GDP.  That is, in terms of GDP it was half of its former self. It recovered from being -2.5% in 2009, but that was an unusual and tough year.

Look at the 2018 column of the top table. Notice what changed. Households and business firms were contributing much more to positive net savings compared to 2000. The government is the main reason we changed. The federal government went from plus $156 billion to minus $986 billion. What?! Hand me the JD barrel please. 

Is it really possible that the Federal government could have a $1.1 trillion swing in net saving? If you want to lump in state and local governments, then add another $200 billion to the swing – for a total swing of $1.3 trillion from 2000 to 2018.

Politicians in all your favorite parties are whistling in the wind as they get you riled up about how unfair China is and whether Trump didn’t pet his dog enough last week. Don’t fall for that crap. Your favorite pols are a bunch of spending fools who know we aren’t smart enough to catch them at their nefarious schemes. This is a scheme, and both parties are guilty. Why do we let them get away with all this? Huge government deficits! Huge trade deficits! When will it end?

Table. Source www.bea.gov

	2000	2009	2018	Change
Net Saving
Domestic Business	142.9	560.6	789.9	647
Households & Institutions	358.3	666.5	1037	678.7
Federal Govt	155.5	-1248.9	-985.9	-1141.4
S&L Govt	-40.6	-341.3	-241.8	-201.2
Total	616.1	-363.1	599.2	-16.9
Uses of Saving
Domestic Business	1004.6	1531.2	2139.6	1135
Households & Institutions	227	397.5	573	346
Federal Govt	163.1	233.6	283	119.9
S&L Govt	116.6	209.1	278.3	161.7
Total	1511.3	2371.4	3273.9	1762.6
Gross Saving
Domestic Business	1147.5	2091.8	2929.5	1782
Households & Institutions	585.3	1064	1610	1024.7
Federal Govt	318.6	-1015.3	-702.9	-1021.5
S&L Govt	76	-132.2	36.5	-39.5
Total	2127.4	2008.3	3873.1	1745.7