New Atlantic Article - "Stop Saving, it's Killing The Economy"

[CJ]

https://www.theatlantic.com/ideas/archive/2021/06/pandemic-savings-threaten-economic-recovery/619303/

Apparently, increased savings rates over the pandemic is stalling economic growth, forcing the government to pay out in stimulus to keep the engine going.

The way I read it, the article is practically a confession.

They told us Millenials we weren't saving enough and spending too much on avocado toast... and now you're finding out what happens when we stop buying avocado toast (take that, boomers)

The system was never resilient enough for individuals to make it to retirement by their own personal responsibility. An 18% savings rate (the dangerous amount Americans went up to during the pandemic) only allows for retirement after 40-45% years- the normal retirement window assuming someone starts working enough to save at age 20. The system always relied on stimulus and social welfare, meaning it was unstable, and it was always disingenuous to tell people that personal responsibility was the (only) reason they couldn't retire.

A fetish for "growth" has had exactly the economic effect you might expect... surprise! Systems don't grow forever.

[zolotiyeruki]

The system was never resilient enough for individuals to make it to retirement by their own personal responsibility. An 18% savings rate (the dangerous amount Americans went up to during the pandemic) only allows for retirement after 40-45% years- the normal retirement window assuming someone starts working enough to save at age 20. The system always relied on stimulus and social welfare, meaning it was unstable, and it was always disingenuous to tell people that personal responsibility was the (only) reason they couldn't retire.

The Shockingly Simple Math shows about 38 years of working with an 18% savings rate.  I'm guessing there's an assumption there of no SS income.

If workers were saving the 15% currently taken for FICA, that'd push that up to 33%, enabling a 25-30 year career.

[Abe]

Economists can lecture us on not saving “too much” when they convince the government to provide a decent safety net. Otherwise they can go take a long walk off a short pier.

[CJ]

You're right about the 38%, @zolotiyeruki , I misread the chart by one column. There definitely is an assumption of no social security in the simple math because it makes no assumptions about when the timeline starts.

Just for clarification and my learning, FICA is 15? My understanding was that FICA was only 8ish percent, with only 6% of that going towards Social Security: https://www.ssa.gov/thirdparty/materials/pdfs/educators/What-is-FICA-Infographic-EN-05-10297.pdf

I'm curious if the Atlantic author's numbers include FICA as personal savings or not. If it does, he holds an untenable position: if everyone were to save enough for retirement (45 years at a 10-12% savings rate), he's saying that's enough to dangerously slow the economy. If it does include FICA, then he's talking about a personal savings rate of 4-6%, which wouldn't be too bad.

[Abe]

The 7.5% is your half. Employer pays the other half (which maybe they would’ve given to you directly, or just pocket it - either way theoretically part of “your” savings).

[Dicey]

One of the things this forum is known for is relative civility. (See Rule #1, and the shitshow that reddit can be, among others.) A number of folks hang around post-FIRE in order to help others get there more easily. Given that no one has any choice when they are born, your use of the term, "boomer" even if you meant it in jest, is inappropriate and unwelcome. Even if you were paraphrasing something that was in the article you quoted, it isn't cool, so please stop.

[maizefolk]

I believe the personal savings rate referred to int he article (https://fred.stlouisfed.org/series/PSAVERT) is inherently a NET savings rate across the whole population. So people who are retired and spending more than they earn (by drawing on savings/selling investments) offset people who are working and putting money aside. As a result, a population wide 18% savings rate indicates a significantly greater than 18% savings rate among people who are still in the pre-retirement accumulation phase.

"Personal saving as a percentage of disposable personal income (DPI), frequently referred to as "the personal saving rate," is calculated as the ratio of personal saving to DPI. Personal saving is equal to personal income less personal outlays and personal taxes" <-- thus the 12.4% that goes towards social security is not included in the personal savings rate since 6.2% would show up in personal taxes and 6.2% gets paid by your employer and doesn't even make it into personal income to begin with.

[frugal_c]

Income went down during covid, that is also part of the issue.  You have less money made and a lower percentage spent. Double hit to the economy.

[maizefolk]

Income went down during covid, that is also part of the issue.  You have less money made and a lower percentage spent. Double hit to the economy.

Once you take into account government transfer payments (stimulus + enhanced unemployment), total personal income is actually up since the start of during the coronavirus lockdown, not down.

[OtherJen]

The 7.5% is your half. Employer pays the other half (which maybe they would’ve given to you directly, or just pocket it - either way theoretically part of “your” savings).

Yes. And when you're self-employed or a contractor, you pay both halves yourself.

[Sanitary Stache]

The repeated emphasis on "expansion" in the article turned me off and I stopped reading.

Our economy does not need to focus on expansion. It needs to focus on a stable and robust safety net of health care, food, shelter, and education with likely supporting utilities of transportation, electricity, and internet connectivity. 

This economist is very clearly talking about what is good for the 1% and not what is good for the nation.

[frugal_c]

Good points maize. Kind of politics but if this is the case why is the federal reserve saying interest rates need to remain low to support the economy?  It doesn't jive with what you are showing.

[dougules]

Once you have an adequate emergency fund, saving is bad.  I spend virtually 100% of my income.  Most of it is spent on index funds, but that is still spending.  The cash is immediately going to somebody else.  Saving and investing aren't the same thing. 

[StarBright]

The repeated emphasis on "expansion" in the article turned me off and I stopped reading.

Our economy does not need to focus on expansion. It needs to focus on a stable and robust safety net of health care, food, shelter, and education with likely supporting utilities of transportation, electricity, and internet connectivity. 

This economist is very clearly talking about what is good for the 1% and not what is good for the nation.

Your (excellent) post inspires me to make my semi annual recommendation of Doughnut Economics by Kate Raworth.

It basically asks the question - how do you set up an economy when you have to acknowledge boundaries and that infinite growth is an impossibility. 

It is good stuff.

[zolotiyeruki]

Good points maize. Kind of politics but if this is the case why is the federal reserve saying interest rates need to remain low to support the economy?  It doesn't jive with what you are showing.

There's all sorts of issues entangled with raising interest rates, especially at the same time you're trying to turn off the federal firehose of cash.  For one, there are a whole lot of people who just purchased homes at highly-inflated prices, enabled at least significantly by low interest rates.*  Raising interest rates will immediately put downward pressure on home prices.  It would also (hopefully) tamp down the inflation we're seeing, but at the risk of also tamping economic growth (which has been rather robust lately).

* Running the numbers through a mortgage calculator, I found that a 3% interest rate allows a 13% higher purchase price on the same payment than a 4% rate, assuming a 30-year mortgage.  I.e. if your budget allows you to buy a $200k house at 4%, your same payment will allow you to buy a $226k house at 3%.

[windytrail]

And they're saying its us Millennials who should be reviving the economy? Hmm......

[zolotiyeruki]

That's a fascinating chart. Here's what I'm wondering, though:  The baby boomers are now 55-75 years old, and so their death rates will increase.  Statistically speaking, at least half of that generation's wealth will pass down to younger generations, in one form or another, over the next 15 years.

[maizefolk]

Good points maize. Kind of politics but if this is the case why is the federal reserve saying interest rates need to remain low to support the economy?  It doesn't jive with what you are showing.

Well a significant part of the increase in personal income over the last year has come from government transfer payments (the big increase in the size and length unemployment payments, stimulus checks), so that's not a great long term solution for KEEPING income growing.

But if interest rates go up three things will (probably) happen: housing prices will come down, stock valuations will come down, the interest on the national debt will increase. All those things would scare people a lot and probably convince them to increase their savings/cut their spending even more. <-- I'm not saying this is necessarily a GOOD reason to keep interest rates low just a plausible set of motives one could imagine a person having for wanting to do so.

[Chris Pascale]

I wonder which advertiser in the Atlantic was afraid of the lower spending.

The "4 Reasons I'm Wearing a Mask Again" piece (emphasis on piece) has a nice Saks banner, but did you know that the new Nissan Rogue is "turning heads"?

TLDR on the 4 reasons:
1. Masks Work (to save me from COVID)
2. Masks Work (to save others from COVID)
3. Vaccines Have Their Limits (I mean, hey, get them, but they aren't as good as a mask, right?)
4. It's Not a Sacrifice to Accessorize