Chart of the day: Negative net national savings

By Felix Salmon
January 4, 2010
Mike Mandel is doing a great job at uncovering telling charts these days. Here's his latest:

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Mike Mandel is doing a great job at uncovering telling charts these days. Here’s his latest:


The personal savings rate might be going up, but that’s just thanks to the hundreds of billions of dollars which the government is borrowing and transferring to the private sector to save. (Not the most efficient use of borrowed funds, it must be said.) Overall, the net national savings rate is at its lowest level since the Depression, and it’s falling: it’s now an astonishing -2.5% of national income. Any guesses for when it might be positive again, and who’s going to repay all of this borrowing?


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I don’t quite understand these charts. Net national saving presumabling is the counterpart of the current account position, ie a surplus in saving would mean a current account surplus and a defict a current account deficit. Yet the chart doesn’t look much like a chart of the US current account surplus/deficit. So what is missing?

Posted by mjturner | Report as abusive

Net national saving is the sum of Personal saving + Business saving + Net government saving.
The degradation comes entirely from the increased govt deficit.

Posted by alea | Report as abusive

oh my, who is going to be on the receiving end of all these debt payments? hope it’s me.

Posted by q_is_too_short | Report as abusive

Within a sector, all balances net to zero. In a closed economy, for the private sector to net save, the government must net spend, by definition. Government spending funds private saving. But that’s fine and is exactly as it should be.

Posted by vimothy | Report as abusive

Funny thing — the chart leaves out the ’30s.


As the BEA tables make clear, normalized net national savings were much, much more negative for 1932-3. Net savings as percent of national income was around -7.5% for both years. 09Q3 registers -2.5% there, hardly a historic low, though the Great Recession I am happy to report doesn’t hold a candle to the Great Depression, either.

More briefly, I’m guessing that datum will be positive soon, and that the US will not default on its debt, meaning the US will be repaying all that borrowing.

Posted by wcw | Report as abusive

The pre-1949 part of the chart would be informative.

The downward trend in the above-referenced period began in the late 1960s. Government spending as % of GDP rose pretty much continuously, though gradually, throughout the previous century, but precipitously in absolute numbers since the 60s. Expansion of government looks like the culprit here.

Of course, matters haven’t been helped by the tidal wave of incoming foreign funds — largely recycled dollars — over the last decade. That obviated the need for domestic saving, hence the sharp drop in the above graph for that period. The economy was anything but “closed.” Government spending wasn’t funding private saving — foreign investment was funding private and public consumption, with the paltry leftovers making up the “savings.”

Posted by Mega | Report as abusive

May be there is nothing to fear here because Prof. Krugman says so. The rate is -ve because of Fed borrowing and Prof. Krugman wants us to avoid 1937 meaning Fed needs to continue to borrow more to provide stimulus. So the rate will be -ve for long, definitely for 2010, since we will be borrowing.

How great it will be if our Public Intellectuals (Prof. Krugman) face this chart head on and supply the ‘cool aid’ for we ignorant?

Posted by umeshgeeta | Report as abusive

S=Y-(C+T) and Y=C+G+I+NX imply that S+(T-G)=I+NX. In other words, national savings is equal to investment plus trade surplus. Overall, investment is relatively stable over time– there is no discernible trend in the investment share of GDP since 1949. On the other hand, net exports have fallen at an average rate of one percentage point of GDP every decade (though that almost entirely since the mid-1970′s.

What we are actually seeing in the chart is the worsening of the balance of trade.

Posted by D2R2 | Report as abusive

For the non-government sector (incorporating the foreign sector) to run a surplus, the government must run a deficit. That’s just logical fact–and basic accounting. If the non-government sector wants to increase its net savings, the government must increase its deficit (i.e. G-T), since within a sector everything nets to zero.

The implication of Felix’s post confuses me (“Not the most efficient use…”), because it suggests that the private sector’s net saving is bad because it involves government’s net spending. But it must, by definition. The government must close the spending gap left by the private sector’s decision to net save for output to remain constant. Furthermore, it seems entirely appropriate to me that the private sector pay down some of its debt at this time (it is overleveraged, and this is unsustainable). The problem is that the non-government sector wanting to increase its saving is recessionary, ceteris paribus. The solution is simple: the government runs a deficit until the non-government sector achieves its desired savings rate.

Posted by vimothy | Report as abusive