By William G. Gale , Senior Fellow , Economic Studies Program Dismal saving rates are just about the only bad news from the economic front these days. Although alarms of a crisis in savings have been sounded repeatedly over the past 20 years, the data are poorly understood, and the latest downturn has led to an astonishing variety of contradictory views.
Some analysts think low personal saving signifies dangerously low levels of capital accumulation.
Other observers think the decline in saving is good news because the accompanying rise in consumption spending has helped fuel the economic expansion in the United States as well as prop up the global economy. They worry that most households are now stretched thin and will soon retrench, driving the U.S. and global economies into a tailspin. A third group of pundits point to the record capital gains of recent years and conclude that both saving and consumption are robust. All of these views make the mistake of misusing the figures on savings. An accurate read is a little more complex and much less extreme than any of the sides would argue.