As American as Buying Apple Pie on Credit
Robert Samuelson isn't too worried about Americans' seemingly-dismal savings rate:
The trouble with the official savings rate is that it excludes some items that people intuitively count as savings, notes Susan Sterne of Economic Analysis Associates. A big omission is the capital gains -- aka profits -- on housing or stocks, both realized (if you sell) or on paper (if you don't). If your home or stocks increase $10,000, you may feel comfortable borrowing $4,000 to spend. You've still got an extra $6,000 in savings. But the savings statistics ignore these value changes; all they show is that you've saved less by spending another $4,000.
Over two decades, these value changes have soared. Lower interest rates -- mainly reflecting lower inflation -- have driven up stocks and home prices. Stocks became more appealing next to interest-bearing deposits; lower mortgage rates made higher home prices more affordable. From 1985 to March of this year, Americans' mutual funds and stocks rose from $1.3 trillion to $10 trillion; over the same period, real estate values jumped from $4.6 trillion to $17.7 trillion. Once you consider these value changes, most Americans don't look so irresponsible. Sure, they've borrowed heavily. But their net worth -- what they own minus what they owe -- continues to grow. Compared with income, it's higher than in most years since 1950.
I know I've made some pretty gloomy economic predictions here on VodkaPundit. But "gloomy" isn't how I've invested, and it certainly isn't how I've spent. Is there an explanation for this discrepancy?
You bet there is: I'm American.
Going back to our Puritan roots, it's all-too American to worry all too much about what our neighbors are doing. But going back also to our all-so American optimism, it's all-American to behave as optimistically as circumstances warrant. We seem to enjoy spending as though everything will always get better, while worrying that the other guy is, too.
Those two attitudes are so ingrained into our characters, we often don't recognize when they're in conflict with one another.
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