Isn’t this just fascinating?

The consumer-driven momentum that has kept the British economy afloat since the Brexit vote is declining rapidly, with new data showing households in the grip of the most protracted squeeze on living standards since the economic crisis of the mid-1970s.

Against a backdrop of rising prices and stagnant wage growth, incomes adjusted for inflation have now fallen for three successive quarters, the first time this has occurred since the International Monetary Fund had to bail Britain out in 1976.

We should obviously be celebrating then, no? Because 1976 was when we were most equal, also when the Labour Share of the economy was at its highest ever. And yes, I really have seen articles from some, including Polly, making exactly that argument, that 1976 was the best year for just those reasons.

At the same time, the amount being set aside as savings has now slipped to just 1.7% of disposable income – the lowest level on record, and a fraction of the near-10% average for the last 50 years. Just a year ago, it was more than three times the current rate.

And isn’t that actually the point of Keynesian economics? Recession are when people are saving too much, so to get out of one we should encourage people to stop saving?

Or is that all in reverse now we’ve Tories in office?

10 comments on “Isn’t this just fascinating?

  1. Since nothing has changed in terms of Brexit actually happening yet–what is the source of these economic woes?

    Assuming the figures aren’t just Gladrag lies.

    We are still part of the EU’s corrupt empire–as is Italy where two more banks collapsed last week.

    What we have is the classic socialist sneer. Hailing the damaging results of statism in general and socialism in particular as evidence for why more of both are needed.

  2. I can’t figure out how that savings ratio is calculated. It seems to me that long term the average should be 0 with periods when it is a -ve number. Assuming that on average savings get spent and on average people die with nothing.
    Does anyone have a link to a good explainer on this?

  3. The cure for low savings is a rise in interest rates. Yeah, that should fix everything…

  4. is it possible that interest rates of ~0.01% on cash savings acts to discourage saving? (Asking for a friend.)

  5. Polly and her chums love 1976 because that was the high point of the National Front. They simply want to return to the days when this was a country in which ‘the blacks’ were second class citizens.

  6. Bongo, I was going to ask the same.
    Long average = zero or long term growth rate of something (GDP, money supply).

    Does growth of savings (good) = growth of debt (bad)?

    And does savings rates include building yourself a house, buying shares or is it simply a measure of cash stuffed into mattresses?

  7. Thanks for that Dave C
    I found this which says “the savings rate is calculated as savings divided by disposable income plus pension payments”
    From the article the savings rate in Japan has turned negative. I checked the OECD which has New Zealand and Denmark as having close to nil savings rates in 2015. Hardly places that are schitholes on average.
    If I’ve understood the formula correctly the compulsory workplace pensions minimum wage earners now have is not recorded as savings. Nor would investment in your house like a greenhouse, second garage or a new bathroom, even if it adds value to your house.
    I still don’t see it as a number we should be worried about, but my understanding of it is tentative.

  8. Guys,
    While there is such a thing as inflation (aka systemic debasement of the currency) the reported savings rate needs to be positive in order to maintain the individual’s safety net savings at a constant real level.
    So the reported savings ratio needs to average i (inflation) times (savings)/(disposable income).

    You just cannot expect the average journalist to understand the difference between real and reported savings ratios – nor can you expect most of those who do understand it to be honest with their listeners/readers.

    That is separate from Tim’s habitual point that we need to invest to make machines to make life easier for all of us as we grow older and feebler.

  9. A savings rate of 1.7% is presumably about right then – it’s not that far off the inflation rate?

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