Well, that\’s a surprise, isn\’t it Bob?

A rigorous new analysis for the Rockefeller Foundation shows that Americans are more economically insecure now than they have been in a quarter of a century,

Given that we\’re in he worst recession in 25 years, that really is a surprise.

But that\’s just a cheap shot of course. What\’s more interesting is the measure used to detail \”economic insecurity\”.

The analysis was done by a team of researchers led by Professor Jacob Hacker of Yale University. They created an economic security index, which measures the percentage of Americans who experience a decrease in their household income of 25 percent or more in one year without having the financial resources to offset that loss.

Hmm, gosh, wonder what might influence that. Could it be the \”financial resources to offset that loss\”?

You know, savings?

In the first month that the BEA (Bureau of Economic Analysis) provided us with data (January 1959), the personal savings rate in the United States was 8.3%. So, this means that, on average, Americans were able to save 8.3% of their disposable incomes. ……..By January 2000, the average savings rate was 3.5% – it would end up falling below 1.0% multiple times between 2000 and 2010.

When the economy nearly collapsed in 2008, the savings rate started to trend higher, moving from 1.3% in January of 2008 to 4.2% in December of 2009.

Why the dramatic drop in the average rate of savings between 1990 and 2008?

Yup. Looks like it, doesn\’t it?

So, our measure of \”economic insecurity\” is really a proxy for a falling savings ratio. And, umm, is anyone suggesting that the cure might be more savings?

No, not really, everyone is screaming about how we\’ve got to get consumption moving again, aren\’t they? You know, this stimulus stuff?

Ho hum.

3 thoughts on “Well, that\’s a surprise, isn\’t it Bob?”

  1. It may be gormless but isn’t it a little less gormless than you suggest? You do quote “..Americans who experience a decrease in their household income of 25 percent or more in one year..” as being the people without savings who interest them. Mind you, a sneer at anyone who says “financial resources” when they mean money is always a justified sneer.

  2. You need a lot more saved up than you’d lose in income if you want to feel secure. It’s not one =-for-one. Even if I had 25% of my income saved up, losing that income would still make me feel thoroughly insecure. Maybe the maths helps: the NPV of 25% of a reasonably reliable income is probably about 400% of that income (depending on your model and expectations). If it was capital, you’d want savings of 500% of that total income to give you 25% of it as a 5% return. Either way, that’s a lot of savings – either way, a strong savings rate – 10%? – isn’t going to get you there for a very long time.

Leave a Reply

Your email address will not be published. Required fields are marked *