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December 26, 2004

The Clown Show at National Review

The Angry Bears descend on the clown show that is the National Review's economics commentary. They leave a few shreds and gobbets lying around, but nothing more:

Angry Bear: Low Savings Rate: Myth or Scare? The clown show at the National Review would have you believe that national savings has not been harmed by the fiscal recklessness of the Bush Administration. Its most recent offering... guest contributor John Tammy... maybe we should look at table B.100 from the Federal Reserve’s Flow of Funds accounts, which reports household net worth. Since the end of 1999, nominal net worth has increased by a mere 10.2% - less than the increase in the price-level. So, Mr. Tammy forgets to tell NRO readers that by his own measure, savings has been negative....

[A] Ricardian Equivalence type such as NRO’s Victor Canto would not include government debt held by the public as net wealth. Yet, Canto focuses on the same variables as Tammy even as his most recent NRO oped contradicts itself.... So the savings has fallen but it has stayed the same? And isn’t the sum of savings AND the increase in net worth double counting?...

Let’s make this simple for Mr. Tammy and Dr. Canto. Last year, the sum of consumption and government purchases was 89.4% of GDP leaving only 10.6% of GDP to cover depreciation and allow for increase in net worth. This compares with a sum of consumption and government purchases equal to less than 82% of GDP twenty-five years ago. And had Mr. Tammy and Dr. Canto bothered to check the real value of household net worth as of 2004Q3 v. the end of 1999, they would have noticed it had fallen. Not to scare anyone – but the lack of savings is a reality.... [That]... you’ll get an honest account of economics from the National Review is the only myth.

Posted by DeLong at December 26, 2004 10:22 AM

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One issue about how bad we are at saving:

Will someone do a survey that asks people: "Have you needed to withdraw money from your retirement savings because you have become unemployed or had your employment reduced? If so, how much?"

I fear that the answer to this question may produce a much more bleak picture of the future than is commonly drawn.

BTW, another issue not normally connected to projections about retirement security (besides Medicaid) is the projected reductions in HUD Section 8 housing subsidies that pay for low income housing for the elderly. The Bush administration is busily trying to figure out ways to reduce the expense in this area also.

Posted by: pragmatic_realist at December 26, 2004 01:18 PM

The news of Section 8 scares me. I have a family member living in Sec 8 housing and rent a house to a person qualifing for Sec 8 assistance.
Way to go gwb!

Posted by: dilbert dogbert at December 26, 2004 02:34 PM

Inquiry: When did the U.S. last have a " good" Savings rate ?

As recall in the 1980's we had a low savings rate then as well and the Japanese, who had very high rates of savings, were going to rule the world. Then in the 90's we had a very short very mild recession circa 1990-92 followed by another long boom.

Posted by: mark safranski at December 26, 2004 04:55 PM

Mark Safranski, U.S. savings reached its peak in the mid-1970s: around 15% or something? My memory is fuzzy, but I think that's when savings was last very high.

Posted by: Julian Elson at December 27, 2004 01:33 PM


a 15 % rate during the 1970's ? During an accelerating period of inflation ? Are you certain it wasn't mid 1960's during the post-JFK tax cut pre-LBJ tax increase phase ? You might be correct, I really don't know the answer here.

Posted by: mark safranski at December 27, 2004 04:19 PM

HUD Section 8 vouchers being 'whittled away'
LINDA STOCKWELL, The Tullahoma (TN) News Staff Writer
November 30, 2004

President Bush is expected to sign the appropriations bill passed by both the House and Senate soon, and it will provide some relief for Tennessee Housing Authorities and families who rely on the Section 8 voucher program.

However, the current method and level of funding will continue to carve away money each year and put families in jeopardy of losing their homes.

Tullahoma Housing Authority executive director Randy Meisel said while the cuts were not as deep as the Bush Administration requested, the lower funding and system of payment will eventually lead to a "downward" spiral of available assistance to the working poor.

Laura Swanson with the Tennessee Housing Authority in Nashville calls it a gradual "whittling away" of the Section 8 program.

"Essentially, HUD (Housing and Urban Development) used a three month period of time to calculate Section 8 funding and it was when we were closing out our fiscal year and our occupancy for Section 8 was down," Ms. Swanson said.

The Administration had proposed making deep cuts in Section 8 voucher funding and convert the program to a block grant but Congress elected to preserve funding for existing vouchers, locking in cuts that were made in 2004 that include a reduction of 60,000 families assisted nationwide.

"Waiting lists (for Section 8 assistance) will become enormous," Ms. Swanson said, adding that as families are dropped, or leave the Section 8 program now, 10 to 15 others are on the lists awaiting help.

"Another group impacted by the cuts will be landlords," Mrs. Swanson said. "They have to be able to raise their rents each year, but we may not be able to accommodate them."

In Tullahoma, 116 families are assisted with rent through HUD's Section 8 program. Designed to help the working poor, families rent approved apartments and pay one-third of their monthly income toward rent, with Section 8 vouchers paying the remaining amount per month to the landlord.

As the program is cut, fewer landlords will want to take part, and the ability of housing authorities to help low-income families, senior citizens and people with disabilities will be greatly diminished.

Congress, despite enormous pressure, is maintaining funding for Section 8 at last year's levels, but this will impact state and local housing authorities.

Its anticipated that many housing authorities will end up shelving vouchers, reducing voucher payment standards, imposing minimum rents or other cost-cutting measures that inevitably hurt families and make it more difficult to achieve goals like the de-concentration of poverty.

The Tullahoma News2004

Posted by: pragmatic_realist at December 27, 2004 06:34 PM

When did the US have a good savings rate? Our host here has posted very useful - as well as reliable information on this issue: (a) the private savings rate (net of depreciation) ranged between 9.5% and 10% of NNP for most of the post WWII period before 1981; and (b) the public savings rate (converse of the real deficit) was close to zero on average for much of this period. In other words, net national investment was near 10% for 30 years with no long-run current account deficit. I don't know if a 10% national savings rate (net of depreciation) is high but it is sure higher than a 2% national savings rate, which is about where we are now.

Posted by: pgl at December 28, 2004 02:08 PM