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Spendthrift nation?

The personal savings rate for the United States has been trending down since the 1980s. This rate, as computed by the Bureau of Economic Analysis from the national income and product accounts, averaged about 9 percent in the 1980s. Then in the 1990s, the average rate was around 5 percent, and in the first part of this millennium, it has been close to zero.

As a result of this trend, in "The Decline in the U.S. Personal Saving Rate: Is It Real and Is It a Puzzle?" (Federal Reserve Bank of St. Louis Review, November/December 2007), Massimo Guidolin and Elizabeth A. La Jeunesse write, "One naturally wonders whether it really can be true that the United States has become a spendthrift nation."

In their article, Guidolin and La Jeunesse investigate whether the decline in the measured savings rate is real or if the measured rate is deviating from the true, underlying rate of personal savings. They consider various factors such as the treatment of capital gains in the measure, and they conclude that the "the recent decline in the U.S. personal saving rate is likely to correspond to a key economic phenomenon." They suggest that there is reason to be concerned about the decline. One possibility is that there could be a sudden increase in the savings rate as households try to adjust their consumption habits, and this could lead the economy into a recession. Finally, the authors conclude that the existing theories are insufficient to explain the savings rate decline, and it remains a puzzle.
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Title Annotation:Precis
Publication:Monthly Labor Review
Article Type:Brief article
Geographic Code:1USA
Date:Dec 1, 2007
Words:259
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