Agreed. There is "good reason" (i.e. internal coherence) - but doesn't
that still leave the savings rate figures as unreliable? The savings rate,
like many economic statistics, is drawn from a source that is designed to
calculate something very narrow and entirely different (the National
Product, an arbitrary concept).
Of course it doesn't end there. Such fragmentary data should be used in
modest, broad ways combined with qualitative assessments that encourage
others to reflect on the issues. Instead, as is too typical, vast efforts
are made to give the savings rate a panache of scientific proof and then
"drive" policy. Sometimes whole armies of econometricians regress numbers
that are shadows on a wall.
And we also see the typical sin of omission. An obvious and more plausible
theory - new inequality drives the newly disfavored to borrow - is
neglected, partly because meaningful "wages vs profits" data are not
published by the government. Heck, we can't even get adequate inequality
statistics any more.* Like the drunk who lost his car keys in the dark
middle of the parking lot, we wind up looking for the keys only at the edge
of the lot...because the light is better there.
Paul
* On covering up the rising inequality:
The once-standard source for income inequality was the CPS (created by the
WPA). It has been allowed to atrophy - its approach was not revised to
include the big changes that, since the '80s, have increasingly brought to
the well-off "new" amounts and sources of income that bypass the old
definitions of income (see previous posts). The BEA estimates that in 2001
the CPS had fallen so far behind that the $6.4 trillion it reports in
income leaves out $1 trillion in annual property income (!), (plus another
$1 trillion in other income).
As a result, inequality has been increasingly understated (for the same
reasons the savings rate was understated). The CPS would have been the
easiest and most logical place to track rising inequality. For reasons
Doug points out, it is harder (although still entirely do-able) to tack
this task on to the NIPA.
Some might say that the handling of the CPS was a defining moment for the
Clinton economic team (I know...they did much, much more). People who, in
Academia, had been devoted to "better" government statistics stood by as
the public was slowly statistically blinded by omission. Worse, when the
CPS inequality numbers turned sharply against them a "statistical break"
was declared...after the results were known (!) and with a fairly contrived
explanation.
A 'West Wing' junkie economist friend pointed out that there was even a
segment in an episode on this "statistical break". The show consultant was
Gene Sperling.
Paul
Doug H., citing me, writes:
The treatment of capital gains that Doug mentions creates serious
distortions and is a larger example of the problem in a NIPA context (as
well as CPS, but not SCF - as Doug shows, it pays to be specific). Since
capital gains are not counted as income, *realized* capital gains are not
income (just don't say that to the IRS). Sell assets to the Japanese and
the realized capital gains don't show as savings. At a time when realized
capital gains are proportionally going up, the personal savings rate is
increasingly understated.
But there's a good reason for this treatment - the income from a
capital gain has no offset in production: it's just a shift in
existing assets, rather than the creation of a new one. As Keynes
said, savings & investment "are merely alternative names for the
difference between income and consumption" - income or product that's
not consumed, but set aside for future use. A capital gain is a
totally different ball of wax.
Doug
