Thanks Doug for this. A very interesting article. However, I am still
somewhat perplexed. What did the upper income spend their newly
non-saved income on and why did it not lead to inflationary pressure?
Paul P
Doug Henwood wrote:
On Jun 5, 2007, at 5:03 PM, Paul Phillips wrote:
Now, if I remember correctly, Doug recently commented that in the
US the
biggest decline in the savings rate in the recent consumption-led boom
was amongst the highest income earners and not among the middle and
lower income earners. Two questions. Is my recollection of Doug's
comment correct?
I got that from a Fed paper, which was based on 1990s data (see link
& abstract below). It seems highly likely that the trend has
continued into the 2000s, though the housing boom also probably
encouraged borrowing among the 50th-80th percentiles too.
Doug
----
<http://www.federalreserve.gov/pubs/feds/2001/200121/200121abs.html>
Disentangling the Wealth Effect: A Cohort Analysis of Household
Saving in the 1990s
Dean M. Maki and Michael G. Palumbo
2001-21
Abstract: In the U.S., household net worth rose substantially in the
latter half of the 1990s and the personal saving rate dropped
sharply. Researchers do not agree about just what behavior links
these two events, or how to interpret the negative correlation
between wealth and the saving rate over a longer time span. In this
paper, we combine household-level data from the triennial Survey of
Consumer Finances with quarterly, aggregate data from the Flow of
Funds Accounts to estimate net worth and saving for different cohorts
of households in the 1990s. We find that the groups of households
whose balance sheets were boosted the most by surging equity prices
were also the groups that substantially decreased their saving rates.
Further, econometric analysis of these data produces propensities to
consume out of wealth in the range of typical estimates obtained from
aggregate data. Taken together, our results corroborate a direct view
of the wealth effect on consumption.
Keywords: Consumption function, wealth effect, household saving behavior
Full paper <http://www.federalreserve.gov/pubs/feds/
2001/200121/200121pap.pdf>
--
Paul Phillips Professor Emertus, Economics University of Manitoba Home
and Office: 3806 - 36A st., Vernon BC, Canada. ViT 6E9 tel: 1 (250)
558-0830 email: [EMAIL PROTECTED]
