Andrew Samwick sees a sunny day with dark clouds on the horizon:
Vox Baby: The End of Personal Saving?: Today's GDP report gives some very good news in the top line number--a real growth rate of 4.8 percent in the first quarter of 2006. As this is the advance report, we'll expect revisions to the number at the end of May with the preliminary report and at the end of June with the final report. But an annual growth rate of 4.8 percent is a very nice place to start.
The GDP report also contains information on personal income and saving, and this continues to be more and more puzzling:
Personal saving -- disposable personal income less personal outlays -- was a negative $50.5 billion in the first quarter, compared with a negative $15.8 billion in the fourth. The personal saving rate -- saving as a percentage of disposable personal income -- decreased from a negative 0.2 percent in the fourth quarter to a negative 0.5 percent in the first. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods.
In a free society with a market economy, we have choices about whether to save or consume our resources today, and I don't presume to tell people which choice to make. But it's a very simple truth that we cannot consume the same resources both today and tomorrow, and so it is with an eye toward the ability to consume in the future that economists generally believe that the savings rate should be high rather than low.
I wonder how it can be that with the Baby Boom generation in the high-income and presumably high-saving part of its economic life cycle, we can possibly have negative saving rates for the population as a whole, if we are making decisions with any attention to the amount of consumption we will be able to do in the future.
If households are myopic and are saving too little, the government should offset this and save for them--i.e., we should raise taxes to fund big budget surpluses.