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A New Culture of Savings?

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"A New Culture of Savings?"

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I think Catherine Rampbell’s article on whether the slump-induced shift to higher savings rates in the United States is here to stay could have benefited from some more clarity. Here’s a chart:

personalsavingmarch2009-1

For a while in 2005 the savings rate was negative. And for a couple of years after that, it was extremely low. Then came the recession and the current leap up to about four percent. I think we can tell that the shift away from a savings rate of two percent or lower probably is quasi-permanent. That’s because it was never sustainable. And you can also tell that its roots in the structure of the American culture and economy can’t be all that deep since it’s a period that only started in 1998. But before reaching that point, the general trend in the 80s and 90s had been toward lower savings. So when we ask whether Americans will shift to a high-savings equilibrium are we talking about saving around 8 percent like in the sixties? Around 10 percent like in the seventies? The plateau around 7 percent we had in the late eighties?

In other words, there are a lot of different possibilities here. If we returned to saving around 4 percent that would be a big shift but would also be consistent with a low savings rate in historical and global terms.

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