Must We Save for Our Grandchildren?
According to conventional wisdom among economists and policy makers, Americans do not save enough. The suggested remedies include tax incentives for saving and policies ensuring that government programs, such as Social Security, do not discourage saving. But Americans save more than many believe, and in any case, future generations will be better off than the current ones even if saving does not increase.</br></br>It is true that by official measures, U.S. net national saving has been low, by both historical and international standards. For a decade at least, the high measured saving rates in Japan were cited to explain why Japanese economic growth was so much greater than the U.S.'s. Japan still has a higher saving rate, but its growth has stopped. Most developed economies would be envious of the U.S.'s 4% economic growth rate and its unemployment rate of less than 5%. It seems a bad bargain to change places with Japan, or any of the other nations with purportedly higher saving rates.</br></br>But by appropriate measures, the U.S. saving rate is not really so low. The official measure of net national saving begins with gross saving, which has been rising. Gross saving reached 17.3% of gross domestic product in 1997. To calculate the net saving, usually viewed as national saving, one must subtract depreciation or "consumption of fixed capital." This brings the rate of net national saving down to $555 billion, or 6.5% of GDP. That $555 billion would add about 2.8% to the current net stock of tangible capital, public and private. Thus it implies a growth in capital somewhat higher than commonly forecast long-run growth rate of the economy.</br></br>Even this net rate might not be an adequate measure of growth in a period of rapid technological advance. The depreciated capital might be replaced by more productive new capital, so that even without adding to the measure of net capital stock the capacity for growth would increase. A better perspective could be gained by looking at real gross domestic investment, private and public. That total, financed in part by foreign net investment equal to 2% of our GDP, comes to 19.5% of GDP.</br></br>This higher real percentage reflects the falling price of much investment, particularly in computers; relatively more investment goods than consumption goods are being bought for each dollar. The net real domestic investment of $592 billion (1992 dollars) in 1997 was thus 8.2% of real GDP, suggesting that real capital stock was growing even more rapidly relative to real output.