The Great Savings Debate; A Smoke Screen-Personal savings rates are down, but business rates are up.
Our economic policies are often promoted like a new car or deodorant: that is, they are oversold. So it is with the latest economic fad-greater saving. We're spendthrifts. We need to save more. George Bush says so. The Democrats say so. Gosh, Americans hardly save anything. In 1989, the personal savings rate amounted to a meager 5.5 percent of disposable income.</br></br>Now for the less startling truth. Of course, all prosperous nations must save and invest for the future. And Americans do. Indeed, the private savings and investment rates have been remarkably stable since the late 19th century. Even if government could easily induce Americans to save more-and that's not clear-higher living standards and faster economic growth wouldn't quickly result.</br></br>The great savings debate is mostly a political charade. President Bush and congressional Democrats are proposing separate plans to promote savings. Everyone wants to be seen as spurring the economy. The idea is to create a respectable pretext for enacting new tax relief for the middle class. If there's a savings "problem," then tax "incentives" to cure it are justified. The trouble is that the new tax-free savings accounts would almost certainly end up reducing national savings.</br></br>Saving means putting off consuming today to invest in something that will enrich us tomorrow. The logic works for both nations and individuals, and our collective individual savings provide the funds for the nation's investments. But three myths mar the savings debate. Consider them.</br></br>Wrong. Between 1980 and 1988, the private savings rate averaged 16.7 percent of gross national product, down negligibly from the 16.8 percent average between 1950 and 1979. The main motive for distorting this trend is political. It is to create a "problem" that then must be "solved." The most common misrepresentation is to cite the personal savings rate-savings by individuals-which dropped from an average of 8 percent of disposable income in the 1970s to 5.4 percent in the 1980s.