Personal Saving and Corporate Saving
By Arnold Kling
Perhaps Jan Loeys and others at J.P. Morgan have the solution to some macroeconomics puzzles.
The real driver of this saving glut in recent years has been the corporate sector. Between 2000 and 2004, the switch from corporate dis-saving to net saving across the G6 economies amounted to over $1 trillion.
We tend to equate “saving” with personal saving, and so we think it is really low in the United States. However, corporate saving also counts as saving. And from a financial perspective (think Modigliani-Miller), corporations might as well be banks. Ultimately, consumers own corporations, just as they own bank accounts. So if corporations are saving a lot, then individuals are saving a lot, too–it’s just not showing up as personal saving in our national income accounts.
You could look at the higher corporate saving this way: since 2000, businesses have lost confidence in their ability to invest money profitably. They are borrowing less, and that leaves more room in the capital markets for consumers to borrow to finance houses. Maybe that is a conservative use of capital compared to throwing it at dotcoms. But it is not some horrible financial miscalculation that’s going to lead to people jumping out of windows, as in the silly cover story of the Atlantic recently.
Thanks to Daniel Gross for the pointer.