Shouldn’t any “economist” who confuses stocks … with flows …
Of course, Tamny is not an economist and few of the NRO econopundits are. But there may be a consistent definition of savings coming from Lawrence Kudlow and David Malpass:
Not only are we not running out of household savings, it is growing fast both in terms of the annual additions and the cumulative buildup of American-owned savings. Household net worth, one good measure of savings, reached $48.5 trillion in 2004.
Malpass’s March 29, 2005 op-ed was better timed than a claim made by Kudlow a year earlier regarding record household net wealth. The series they focus on can be found here as line 42 in table B.100. While nominal wealth was $44.583 trillion at the end of 2003, real wealth in terms of 2000$ (I’ll use the GDP deflator throughout) was $41.853 trillion versus $42.933 trillion at the end of 2003. By the end of 2004, however, real household net wealth had risen to $44.478 trillion.
While one could argue that this definition of wealth is incomplete as it leaves out factors such as the increase in deferred tax liabilities from the Bush fiscal irresponsibility, if we compare this 3.6% increase in real household net wealth to 5.2% rise in total population over the same period, real per capita wealth was lower at the end of 2004 than it was at the end of 1999. The following chart compares real per capita wealth using the end of 1998 = 100 as its index. What we see is a noisy series that increased by over 10% during 1999, fell as stock market valuations declined, but then recovered with a reversal in stock market valuations as well as rising values for home equity. Our diagram, however, does not square with the Kudlow-Malpass-Tamny claim that households have saved a lot during the last five years.
I’m not sure how the Clinton bashers of NRO might view this diagram? They have in the past argued that it was Clinton’s tax cutting tendencies that led to the late 1990’s booms. They have also suggested irrational exuberance was the reason for the surge in market valuations in the late 1990’s, but note the housing boom argument put forth by folks like Calculated Risk.
So what is the NRO’s out here? Maybe it comes from the one person there who has a Ph.D. – Victor Canto. Rather than the usual NRO quibbling with whether their measure of some national income accounting measure is correct, Canto simply sums the two:
Is it the actual savings (an income statement) or the change in net worth (a balance-sheet item)? When one thinks about it, both will result in a higher net worth. If you take the sum of private savings and the change in net worth as a percent of GDP as the approximation of the true savings rate, by my account, that rate is on the order of 10 to 15 percent today
The clever reader might go “aha – you are double counting”. But his sleight of hand is more than that. Earlier in his op-ed, Canto says net savings but his calculation is based on gross savings, which fails to deduct depreciation. Yes, if one NRO approach to defining savings fails to yield a Bush cheerleading result, concoct another.