Personal Savings Past And Present

In a previous post, I asserted (without linking) that the personal savings rate and overall economy once upon a time was higher than it is today. So I checked it out.

In the U.S.:

The drop in the saving rate of the United States in recent Years has stimulated considerable Public discussion. The net national saving rate fell from an average 8.2 percent of the net national Product over 1950-79 to Only 2.4 percent in 1985-89 Concern about this trend arises from fears that it foreshadows lower income growth. it is also seen as having contributed to the widening of the US trade deficit in the 1980s.

So I was right. I was also right to assert the economy in the 1950s was stronger (though sluggish) which led to an expansion in spending:

Economically speaking, the 1950's was a relatively stale period of time, that is, compared to the 30's and the 40's. The 1950's, being an uneventful period, explains why the economy did not experience any major problems or breakthroughs. However, this gradual growth led to the US being at peak economic strength in the early 1960's. There were also a significant number of occurences and trends that were important both during this decade and as a contributor to future events.


And:


One of the basic principals of the Eisenhower administration was fiscal responsibility; that is, the government has a duty to stimulate economic growth and raise productivity without benefiting any one special interest. Moreover, he was relentless in emphasizing the belief that an unbalanced budget promoted inflation, which increased domestic problems and weakened national defense. Prosperity was unattainable at the sacrifice of wage and price stability.

A commitment to classical budget principles was adopted by the Federal government in an attempt to reduce the size of the Federal budget, improve operating efficiency of departments, and to reduce waste. A reliance was put on private investment in the belief that economic growth would therefore take care of itself. Government expenditures on military and defense declined slightly following the end of the Korean War and those funds were redirected into highway and airport grants as well as into social welfare programs. The expanding role of government in the economy led to huge increases in taxes, especially income taxes, and a corresponding increase in the amounts of services that the Government was providing. Tax rates continued to climb during this period as the government needed ever increasing funding to finance new activities.


Eisenhower, as far as I can tell, basically avoided spending by focusing on fiscal responsibility for fear of inflation whereas Obama is spending in hopes of spurring growth.

As for personal savings, it's actually on the rise and reaching 1950s levels. More data here. Now, of course, the debate becomes how does that affect the overall economy?

The picture is not all that different with Canada:

"...the path of the national saving rate. Though the time path of national saving over the past half century is not smooth, there is a clear downward trend (albeit interrupted by a general increase from 1970 to 1980). From 1950 to 1955, the saving rate averaged about 12 percent; from 1960 to 1965, it averaged just under 10 percent; but from 1985 to 1995, it averaged only about 5 percent.19."

The 1950s in Canada, in short, was a boom and high personal savings didn't seem to damper growth. Canada was essentially under construction in the post-war era.