This is a letter that I sent to the Editor of the Worcester Telegram & Gazette on 02/02/2007. It was published on 02/11/2007.
Editor:
I am waiting for the news media to wake up to the fallacy in stories about the low savings rate as published in your business section today.
At least in this article there are the seeds of destruction for the credibility of the main thrust of the article. There is a weak attempt to explain how wealthy individuals have become very wealthy and yet are saving less. I still wonder how this is possible.
Unlike most such articles at least this one has an explanation of how the savings rate is calculated. However, the devil is in the details.
Calculating the savings rate starts with personal income left after taxes. Does personal income include dividends and capital gains? Dividends and realized capital gains are just as spendable as salary.
The calculation then finishes by subtracting the amount of people's spending. Does spending include the buying of capital goods such as a house or a business or stocks? One way to save for retirement is to buy a house that will increase in value. Another is to buy a business that will provide a steady income. A third way is to buy a stock that will pay dividends and increase in value at the same time.
You'd think a business reporter would stop to ask about a definition of savings rate that can be negative while people grow richer. As Louis Ruykeyser used to say, "The one thing we can guarantee is that they can't both be right."
/Steven Greenberg
This is what it looked like in print.
