Assorted links

by on April 2, 2013 at 12:30 pm in Uncategorized | Permalink

1 JasonL April 2, 2013 at 12:46 pm

Regarding savings rate – they correctly identify how the trend breaks for retirement vs. liquid savings, but I have to ask what the proposal is wrt boosting the desirability of liquid savings. It’s currently paying literally nothing.

2 anon April 2, 2013 at 1:26 pm

For why they are not saving I have recently heard a few acquaintances (who are not normally apocalyptic or doomsters) mention Cyprus, inflation, and fears of expropriation (see., e.g., see Aaron Cleary’s “Enjoy the Decline”).

3 Barkley Rosser April 2, 2013 at 1:26 pm

I would put Yellen at an even higher rate of probability than does Irwin. She is the leading candidate by far.

4 Donald A. Coffin April 2, 2013 at 1:27 pm

Are “Americans” saving enough? The linked article shows *personal saving* as a percentage of disposable income. And, sure enough, it’s declined. But if we look at *gross private saving* (easily available from FRED) as a percentage of gross domestic income (also easily available from FRED), we see a somewhat different picture. (I’d post the chart here, but that doesn’t seem to work.) To be sure, this saving rate did decline (beginning in about 1990), but is now at the same level as in 1975 and 1985. So maybe this is more about where in the private sector saving is occurring, rather than about how much private saving is occurring.

5 Spencer April 2, 2013 at 2:49 pm

Doesn’t “gross private savings” include corporate savings?

If so, you are adding crabs and apples to get crab-apples.

6 spencer April 2, 2013 at 2:51 pm

Doesn’t gross private savings include corporate savings?

If so, you are trying to add crabs and apples to get crab-apples.

7 Spencer April 2, 2013 at 3:06 pm

Gross domestic savings includes corporate savings, so it is a very different concept than personal savings.

And yes, ignoring corporate savings can create some serious misunderstandings about the flow of savings and investment in the economy.

But that addresses a very different question than the one of whether personal savings is sufficient to finance education, housing, emergencies and/or retirement.

8 Ray Lopez April 2, 2013 at 3:33 pm

So what is the effect of low personal US savings? The low savers take a hard landing in their golden years? I’ve fallen and can’t get back up? Is that it? If so, no big loss since from an economic point of view old people are not as productive in most occupations, no?

Whenever I hear dire predictions I always ask: so what? Savings is an inter-generational or inter-temporal transfer of money, and I suppose if low domestic savings, then you have to rely on foreigners savings, which with the US dollar being reserve currency of the world that should not be a hard problem. So the Chinese will, like the Japanese, own the iconic landmarks in the USA, is that it?

9 Hazel Meade April 2, 2013 at 4:16 pm

Personal savings are key to issues like social mobility.
Money forced into retirement accounts isn’t accessible to use for things like down payments on houses. Add student loan debt onto that and you end up with younger workers spending much longer renting, which ultimately reduces personal net worth. Moreover, the effect is worse the lower you are on the income scale, because you are incentivized to shield an even larger percentage of your income from taxes by putting it into 401(k)s. So even if you can put anything into savings, you’re going to put almost all of it into a 401(k), unless you have the stomach to pay taxes on it and simultaneously resist the temptation to spend it.

10 Finch April 2, 2013 at 4:36 pm

Parents are also afraid to hold liquid investments because colleges will take them. 401(k)s are a little more protected.

11 JasonL April 2, 2013 at 6:12 pm

As he said in the article though – there is a good set of objective reasons to be piling more into long term savings. You will at some point be unemployed for 30 years and rising. You will incur increasing medical expenses during that time. There is a number that is too high for long term tax advantaged saving, but we in the US are nowhere near that number.

The worry about liquid savings has mostly to do with ability to withstand shocks. Theres this idea about “if you had to come up with $10,000, how easily could you do it?” People who couldn’t come up with that amount are profoundly at risk of major life disruptions like losing their homes. Note: I may have the magic number wrong. Maybe it was $5k or $7k or something under 10.

So, yeah, you need to think to some degree about both liquid saving and long term saving, certainly above some deminimis threshold amounts.

12 The Anti-Gnostic April 2, 2013 at 10:58 pm

You will at some point be unemployed for 30 years and rising.

I don’t see how that will be the case for most people alive and working today. The money and the votes are running out. The “retirement age” will rise to the point of ZMP and society will decide between how to create smarter future-net producers and keeping old, net consumers alive. I’d bet on the former.

13 Hazel Meade April 3, 2013 at 11:19 am

JasonL : Thing is that many people use their houses as their long-term savings.
Buy a house, sell it when you retire, move into a 1 bedroom apartment in a retirement complex, and live off the equity.
I’m guessing this is a plan for many boomers.

14 Anon. April 2, 2013 at 1:31 pm

#5 Surely, there is no great stagnation!

15 John Thacker April 2, 2013 at 1:43 pm

Does the reversal of 2.2% Medicare Advantage rate cuts into a 3.3% increase say anything about the stability of PPACA cuts? I’ve long believed that, like the Sustainable Growth Rate and its “doc fix,” any cuts would be repealed when they were about to bite.

16 mulp April 2, 2013 at 2:43 pm

Yet another Republican health care cost control, MA, falls like the other Republican health care cost control, SGR, which then leads to the fall of yet another Republican health care cost control, Obamacare.

Clearly what is needed is to get around to picking one of national health care systems from Canada, Japan, UK, France, Israel, Germany,…, which have lower costs and overall better outcomes. How much longer can the US try things that don’t work until picking one that “old Europe” has shown to work?

The SGR would not mean a 25%-30%+ cut in doctor pay in 2014 if it had been used in 2000, 2001, 2002, 2003,…2012 instead of kicked down the road by the Republican Congresses until 2007.

And the SGR suggests the fate of Paul Ryan’s changes to SS and Medicare to cut that spending – just kicked down the road.

17 derek April 2, 2013 at 4:03 pm

Sorry to disappoint you, but this was Democrat legislation with no Republican support. The Republicans have voted numerous times to repeal it.

I find this quite amusing, similar to Obamacare being considered an epithet.

18 JWatts April 2, 2013 at 4:16 pm

the fall of yet another Republican health care cost control, Obamacare

These type of comments sound desperate.

19 Benny Lava April 2, 2013 at 5:57 pm

Sorry to disappoint you but the ACA was invented by the Heritage foundation and first signed into law by the Republican Presidential nominee. The lack of Republican votes was crass partisan politics. Which seems to have worked on you but failed at the ballot box.

20 Roy April 2, 2013 at 7:55 pm

Do you know the difference between a think tank or PAC and a real political party?

Political parties consist mostly of people who were actually elected by their constituents. If I had a pile I could set up a think tank that would promote all my half baked ideas, it would be pretty conservative and very libertarian, but it would just be me spending money. However I can’t really imagine anyone actually electing me to anything. This is the difference between a political party and its activist base. This is why no one except idealogues ever cares about what is in party platforms.

21 John Thacker April 2, 2013 at 4:28 pm

Clearly what is needed is to get around to picking one of national health care systems from Canada, Japan, UK, France, Israel, Germany,…, which have lower costs and overall better outcomes.

Except that Medicare itself is run like one of these national health care systems, and suffers from the same cost issue relative to those other countries itself. Actually quite a few of those are run more like Medicare Advantage than like regular single-payer, but some are single-payer. US 65+ care is as much more expensive than other nations’ 65+ care as the under 65 care, with no evidence of timing of care either. The solution is not so easy. (Outside of silly easy “solutions” like reducing doctor pay in exchange for paying for their education, then reclassifying the spending as “education” instead of health care. But that would just be shifting money around.)

The SGR would not mean a 25%-30%+ cut in doctor pay in 2014 if it had been used in 2000, 2001, 2002, 2003,…2012 instead of kicked down the road by the Republican Congresses until 2007.

Yes, in the same sense that lowering the growth rate for Social Security now would not mean a sudden 20% cut when the trust fund runs out (the current kick the can plan), but the end point would be the same.

Note that all the pay fors in PPACA are being similarly kicked down the road, including the Cadillac plan tax (since unions and others don’t like it).

22 JWatts April 2, 2013 at 4:36 pm

The SGR would not mean a 25%-30%+ cut in doctor pay in 2014 if it had been used in 2000, 2001, 2002, 2003,…2012 instead of kicked down the road by the Republican Congresses until 2007.

For most of those years Democrats controlled the Senate. I’m not sure the actual facts matter to your narrative, but there you go.

23 JWatts April 2, 2013 at 4:37 pm

That’s in response to Mulp’s original post.

24 Bender Bending Rodriguez April 2, 2013 at 5:36 pm

Yes, let’s copy Japan’s system, where pregnancy is a voluntary condition and not covered. Maybe we can find binders full of women to run it.

The French system would be great: You pay the doctor, and the insurance company, when they pull their f**king head out of their ass*, might reimburse you for 80% of the cost. Sure hope you don’t get sick out of the country, as reimbursement rates ignore geography. My wife had some emergency outpatient work done while we were away, and not only did I have to put that $4K on the credit card, I’m supposed to be grateful that I got $1000 back from the insurance company. Not to mention that the insurance company only recognizes one brand of the medicine she needs: The one that’s full of lactose and pretty rough on someone who is severely lactose intolerant. The lactose-free version is just one of those copy-cats. No value in it for anyone /sarc.

*Our insurance company is Genassur/Allianz who have allegedly been “upgrading” their website for more than a month. Without it, we have no insight into whether they’ve received our paperwork, whether they’ve decided to pay, or even how much they’ve decided to pay. I’m not their customer, so they really don’t give a shit about me. Don’t suppose this sounds a little like some North American country of 300 million?

25 Brian Donohue April 2, 2013 at 1:53 pm

1. Americans aren’t saving enough.
2. Americans aren’t spending enough

Only an economist can save us.

26 Claudia April 2, 2013 at 3:34 pm

You don’t need an economist to square that circle. Depends on who you ask, when you ask them, and what they expect for the future. [I’ll spare you the economist laundry list of considerations.] The article makes many statements that may be true but are intensely debated…it’s not even clear that households in general are saving ‘too little.’

27 Brian Donohue April 2, 2013 at 5:29 pm

Don’t really understand your reply other than that you are suggesting inserting the word ‘some’ at the start of #1 and ‘other’ at the start of #2, in which case it reduces to a banality as well as going against the grain of treating the American people as an aggregate.

Perhaps you’re saying both sentences are true without this out, in which case maybe the youthful White Queen could square this circle before breakfast, but I can’t.

Anyway, some combination of you being cryptic and me being dense may be interfering with normal channels of communication here.

28 Claudia April 2, 2013 at 6:13 pm

Translation: There is no lump of Americans and the economy is not sitting still so the answer depends.

Some people such as the young are not saving much (nothing new) … actually going in debt which makes sense because they have a lifetime of higher earnings ahead of them. For many years prior to the recession, wealth holders were getting richer, so their low saving out of income didn’t seem so bad…they had assets. And finally as saving rates declined, credit relaxed a lot due to changes in regulation and risk pricing, so households may have felt they did not need to save for so much of a buffer in liquid assets to get through temporary tough spells…they could borrow. There were some puzzles to be sure in the declines in the saving rate, but there were also serious studies saying in general, on average households were on track with their saving goals. And you could say that the recession changed the landscape and with less wealth, less access to credit, and demographics that it is pretty dire. I suppose in the last five years more households moved from #2 to #1 but as the economy continues to improve there will be some shifting back.

Also I was no less cryptic than you and I dare say less snarky.

29 Brian Donohue April 3, 2013 at 8:39 am

Well yes, if by ‘snarky’ you mean ‘witty, with a dash of erudition’.

My original comment, which I stand by, is, I daresay, pretty easy to unravel.


30 Claudia April 2, 2013 at 7:11 pm

“… interfering with normal channels of communication here.”

what exactly is “normal” about communication here? this is by far the most abnormal place I try to talk to people…even my twitter feed is more normal. if I understand 1/4 of the post and comments, I consider it a good day and if it’s less that doesn’t bother me. I don’t want to apologize for adding to the noise but I was not trying to annoy. plus if this had been a normal conversation, you would have just wrote “Don’t really understand your reply.”

31 Curt F. April 2, 2013 at 7:52 pm

Claudia, you are among the wisest and most effective of MR commenters in my book.

32 Claudia April 2, 2013 at 8:03 pm

Thanks. What’s difficult for me is that Brian’s comments are some of the ones I enjoy most. (Except when he’s being anti-economist, but even I do that sometimes …) And yet, I’ve had these mis-communications a few times with him. I think I am best off in a little blurb by myself which is fine that’s much of my productive day too. I have been incapable of being a quiet observer, but I can ‘try’ to pick a few less fights.

33 Mark Thorson April 2, 2013 at 8:09 pm
34 Brian Donohue April 3, 2013 at 8:24 am

Heh. Just to stay ‘meta’ for a minute…I think ‘enigmatic commenting’ is a strategy that has evolved here in response to the brutal environment. I know I do it…or do I?

35 derek April 2, 2013 at 2:11 pm

#3. Why did the euro authorities sell an optical backstop for 6 billion Euros in Cyprus?

36 Mark Thorson April 2, 2013 at 2:26 pm

No bird flu found in 34 samples from the dead pigs.

On the other hand, the number of people infected by H7N9 flu has risen to 7. Two are dead, five are in critical condition.

37 Mark Thorson April 3, 2013 at 5:17 pm

Today, two more cases, one of whom died.

38 ad*m April 2, 2013 at 3:05 pm


About “equity mortgages” (beleggingshypotheek):
“Instead of paying off the loans, borrowers normally put some of the money into an investment fund, month after month, hoping for a profit. The money was to be used eventually to pay off the loan, at least in part. But it quickly became customary to expect the value of a given property to increase substantially. Many Dutch savers expected that the resale of their homes would generate enough money to pay off the loans, along with a healthy profit. ”

15-10 years ago, almost everyone I knew, colleagues and friends, took out such equity mortgages at > 100%, since reduced. Even after I explained these people were convinced nothing could go wrong with such loans.

Dutch banks must be littered with these underwater loans, which so far are mostly unrecognized.

39 Brian Donohue April 2, 2013 at 3:15 pm

The 21st Century, in which Humanity Relearns the Joys and Sorrows of Leverage

40 Cliff April 2, 2013 at 3:06 pm

#6: Ha! My law review case note was about this- glad to see it made its way to the Supreme Court. Sadly, I don’t even remember my own conclusion. That’s how much effort I put into it, I guess. But it was 55 pages long!

41 Enrique April 2, 2013 at 3:34 pm

Yeah, most law review articles are just too long … bloated, normative monsters

42 Harry K April 2, 2013 at 4:19 pm

Maybe I’m “apocalyptic” but what is the point of saving money denominated in U.S. currency if it has a high chance of becoming a Zimbabwean dollar? Wouldn’t it be smarter to spend on physical assets? Please cheer me up.

43 Hazel Meade April 2, 2013 at 4:23 pm

#2. I can’t see how the supreme court can strike down the raisin program without overturning much of the New Deal commerce clause jurisprudence. I think we’d all love it if that were to happen, and it’s telling that even the government prosecutors seems to be embarrassed by the program, but you know that the liberal justices aren’t going to vote that way, and Roberts has already revealed himself to be in the “deference to congress” camp, so I’d expect the court to once against decide it’s Congress’s job to clean up after itself. Not that a favorable ruling is likely to prompt any action from the legislative branch on such an obscure issue. As usual, the logic of public choice will work against any change to the program. it already has, for 65 years.

Still, i can’t help but wonder if the sale of boutique “wine grape raisins” is some sort of market effort to get around the barriers in the regular raisin market.

44 zbicyclist April 2, 2013 at 5:09 pm

#4 “the average retirement account balance for people between 55 and 64 is $291,000, which will only provide about $12,000 a year in inflation-indexed income”.

Another good example where the average is completely misleading. The real issue is what the income distribution for, say, 68 year olds looks like now, 10/20 years ago (e.g. for people turning 68 in 1993), and in particular 10/20 years in the future.

I certainly wouldn’t be buying any housing stocks. The baby boomers will have to pull their equity out to pay expenses, and the much smaller number of households two generations later will already be saddled with student loan debt. (see “The Great Senior Sell-Off”,0,5436034.column )

45 Hazel Meade April 3, 2013 at 11:25 am

Exactly, seniors are going to sell their homes. Their house is their retirement account.
Sadly, 401(k) regulations prevent later generations from doing the same thing by disincentivizing people from keeping savings in liquid savings accounts.

46 ThomasH April 3, 2013 at 12:34 pm

“The Hague will violate the EU deficit criterion, which forbid new borrowing of more than 3 percent of gross domestic product (GDP).”

This is clearly a counterproductive rule (which I understand Germany broke at one time). Given a central bank that cannot mainatain ngdp growth in the country, more active fiscal policy is called for. “Austerity” is inappropriate under the circumstances.

47 Floccina April 5, 2013 at 11:12 am

#2 if you do not know that Government is crazy and why you should probably not vote.

48 Floccina April 5, 2013 at 11:19 am

What is personal saving? If I borrow to buy a home is that negative saving (debt) or is it just saving because I will not consume the home in year? If I buy stocks is that spending or saving? If I buy a stock and the company retains earnings is that personal savings?

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