Arnold Kling  

Personal Saving and Corporate Saving

Eminent Domain... Acting "As If" Hanson's Right...

Perhaps Jan Loeys and others at J.P. Morgan have the solution to some macroeconomics puzzles.

The real driver of this saving glut in recent years has been the corporate sector. Between 2000 and 2004, the switch from corporate dis-saving to net saving across the G6 economies amounted to over $1 trillion.

We tend to equate "saving" with personal saving, and so we think it is really low in the United States. However, corporate saving also counts as saving. And from a financial perspective (think Modigliani-Miller), corporations might as well be banks. Ultimately, consumers own corporations, just as they own bank accounts. So if corporations are saving a lot, then individuals are saving a lot, too--it's just not showing up as personal saving in our national income accounts.

You could look at the higher corporate saving this way: since 2000, businesses have lost confidence in their ability to invest money profitably. They are borrowing less, and that leaves more room in the capital markets for consumers to borrow to finance houses. Maybe that is a conservative use of capital compared to throwing it at dotcoms. But it is not some horrible financial miscalculation that's going to lead to people jumping out of windows, as in the silly cover story of the Atlantic recently.

Thanks to Daniel Gross for the pointer.

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CATEGORIES: Macroeconomics

COMMENTS (5 to date)
dsquared writes:

On the other hand, aggregate national saving must be negative, or why the big current account deficit?

Jim Glass writes:

Yesterday it was the Chinese, today it's the big corporations...

spencer writes:

Another part of the same story is the growing importance of dividends rather then earnings in the stock market. The market is demanding higher dividends because they are losing confidence in growth.

One of the greatest constants in stock market analysis is that the market Pe plus the dividend yield averages 19 -- it higher right now but not by much. As the market shifts to favor dividends the market pe is falling.

spencer writes:

Good point dsquared, but the savings does not have to be negative to require a current account deficit, it just has to be less then investments.

English Professor writes:

I recently saw a piece that said that deposits in things like pension funds and 401-k's don't count in the official tally of "savings": is that true? I put a considerable amount of money in my retirement account every month, but I don't put a penny in my savings account. In fact, over the past several years I've transferred money from the savings account to mutual funds. Does this mean that I appear as a negative saver to the government's statisticians?

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