Tyler asks

many commentators argue that capital gains on homes and equities, as well as expenditures on education, should count toward the national savings rate. But are those savings “as good” — from a macroeconomic point of view — as plain old abstinence?

There are two separate issues here–one involving actual investment that is not measured and the other involving capital gains. Education is partly an investment and partly consumption. Clever national income accounting would get it right.

Let me focus on capital gains. Do capital gains count as saving? I think that an equivalent question is, do capital gains count as income?

For an individual, I am willing to count a capital gain as income. I am more or less indifferent between earning a capital gain and earning a dividend.

For a nation as a whole, to a first approximation I do not believe that a capital gain is possible. Suppose a corporation issues a bond, and a year later the market revalues the bond upward by 10 percent. It seems to me that the bond owners’ gain is the corporation’s loss. I think that is true in general for capital gains and losses in the economy–they net out.

Another way to arrive at the view that capital gains and losses ought to net out for the nation as a whole is to consider that national income equals national output. If a re-valuation of assets produces no output, then it produces no income. It seems to me that the ups and downs of financial assets are quite properly excluded from national income and therefore from national saving.