The savings rate and the investment rate

By Felix Salmon
September 1, 2009
Andrew Kaplan has taken IRS data from 2007, showing the income of the top 0.01% and top 0.1% of the population, and, making conservative assumptions about the savings rates in those sections of the population, has managed to come up with total savings larger than the $365 billion which the BEA says that the nation as a whole is now saving each year. He concludes that the other 99% of the population (still) has a negative savings rate.

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Is it kosher to compare two very different data series to come up with a startling conclusion? Andrew Kaplan has taken IRS data from 2007, showing the income of the top 0.01% and top 0.1% of the population, and, making conservative assumptions about the savings rates in those sections of the population, has managed to come up with total savings larger than the $365 billion which the BEA says that the nation as a whole is now saving each year. He concludes that the other 99% of the population (still) has a negative savings rate.

I think there might be a whopping great flaw in this argument: rich people don’t save their money, they invest it, in things like stocks. And, at least in 2006, the purchase of stocks and bonds was classified as consumption, not savings. If you assume that the rich are buying stocks and bonds with their excess money, rather than just keeping it in cash, there’s a real risk that Kaplan’s argument rather falls apart.

Kaplan unfortunately provides no hyperlinks in his blog entry: can someone clear up whether stock and bond purchases still count as consumption, rather than savings?

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