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A Slip in Savings
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For the first time since the Great Depression, Americans’ personal savings rate dropped into the negative, meaning last year more and more of us spent all of our disposable income and we dipped into savings from prior years. The trend has many economists worried that we’ve become too carefree with our money. We’ll look at why we’re putting less of what we make aside and ask just how big of a problem it really is. Laura is joined by Russ Thibeault, President of Applied Economic Research in Laconia, and Annamaria Lusardi, Professor of Economics at Dartmouth College. Web resources:
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The comments I would have made if I had gotten on the show.
Listening to Michelle Singleton a few days ago on NHPR, her comment that an asset is something that earns money and that anything that doesn't earn money is a liability, the light went on.
Your house is not an asset! My house is a BIG liability!
That point is particularly relevant to the comment on the show that maybe savings isn't negative because increased value of assets isn't counted, and of course, a house is the biggest asset of many people.
If we look at government policy, and Bush administration policy, the last thing that they want is savings, or for anyone to realize that a house is a liability. Bush crows about the largest number of people owning homes, so what he is saying is "my administration has managed to get people to take on massive liabilities better than any prior administration".
A few years ago Bush was calling on people to spend, basically saying, "be patriotic, spend the tax cut that I promise (but really deliver to most people) to get the economy going."
We also have a propganda campaign going on, especially loud under Bush, that says "you have an excuse for not savings - it is taxed too heavily to saves, so spend to save taxes."
If Bush were really interested in not taxing money that has already been taxed, then he would be working to eliminate property taxes. I paid lots of taxes on my income and I invested it in my house, which is now my largest cost of living due to the $8000+ taxes (my house cost $185,000 when I bought it and inflation would only raise that to less than $250,000 - that isn't its assessment today. I figure my income last year was less than $1000, so my tax rate was 800% - I see Bush changing my marginal tax rate from 30% to 800% ;-)
Overall, Bush economic policy has been to sacrifice savings for having a mediocre economy: gross economic growth with stagnant personal income. Savings has been sacrified to boost the economy by building and selling liabilities to individuals, in many cases the second big liability, and encouraging spending on anything now and on credit to keep the economy going.
And went the matter of the savings comes up, the Bush administration trots out excuses - increased value of liabilities (house) aren't counted, savings is taxed, and besides, who knows if it matters. It is the same with savings as it is with global warming.
Anyway, I would have made abbreviated comments to that effect if my call had gotten on....