Friday, May 24, 2013

Reasons for the fall of the saving rate

From The saving decline: Macro-facts, micro-behavior (PDF) by David Bunting in the Journal of Economic Behavior & Organization:

Between 1952 and 1984 the aggregate personal saving rate as calculated from National Income and Product Account (NIPA) data by the Bureau of Economic Analysis (BEA) averaged 9.0 percent... However, after 1984 the personal saving rate collapsed as the BEA rate fell nine percentage points ...

Reasons for this rise and fall remain controversial. While relatively steady saving rates facilitated development of “permanent” spending theories during the 1950s and 1960s (Modigliani and Brumberg, 1954; Friedman, 1957), these theories have been unable to explain shifts in saving behavior in the 1980s and the collapse in saving rates thereafter.

Thought it was interesting: Bunting opens a door to the rejection of Friedman 1957.

But before that, he writes: "Reasons for this rise and fall [of the saving rate] remain controversial." And that brings me to this resolution of that controversy:

From American Standards of Living: 1918-1988 (Google book) by Clair Brown, describing differences between 1973 and 1988:

As earnings failed to continue their rapid upward climb, families sought to augment income through more hours of employment, especially for wives... Because spending rates were lower [and saving rates were higher] in 1973 than in 1988, emulation of 1973 consumption patterns would have required families to reduce their consumption in many areas, including shelter, household operations, and food (per capita).

Instead, families increased their spending rate rather than reduce their consumption standards. Overall, expenditures rose faster than incomes... The difference was financed by reduced savings and a smaller family size along with employer-provided health insurance covering more health care expenses and energy-saving advances in fuel and utilities.

A google search turned up the two links and I happened to read them one after the other. They seem to fit together like question and answer.

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