Paul wrote:
The treatment of capital gains that Doug mentions creates serious distortions and is a larger example of the problem in a NIPA context (as well as CPS, but not SCF - as Doug shows, it pays to be specific). Since capital gains are not counted as income, *realized* capital gains are not income (just don't say that to the IRS). Sell assets to the Japanese and the realized capital gains don't show as savings. At a time when realized capital gains are proportionally going up, the personal savings rate is increasingly understated.
But there's a good reason for this treatment - the income from a capital gain has no offset in production: it's just a shift in existing assets, rather than the creation of a new one. As Keynes said, savings & investment "are merely alternative names for the difference between income and consumption" - income or product that's not consumed, but set aside for future use. A capital gain is a totally different ball of wax. Doug
