02/01/92
CONTACT: Stanford University News Service (650) 723-2558
STANFORD -- The U.S. economy's most important long-run problem is neither the federal deficit nor the savings-and-loan fiasco but the "lack of national saving, and thus our collective failure to provide adequately for the future," Stanford economist John Shoven says.
Shoven is director of the Center for Economic Policy Research at Stanford. In a new analysis, he found that the net national saving rate - constant at about 7 percent of the gross national product from 1950 to 1980 - had dropped to 2 percent by the end of the 1980s.
"This enormous collapse of 5 percentage points of GNP has led to a decrease in net national wealth per worker and is consistent with the observed decline in the real earnings of blue-collar workers over the past 18 years," he has written in the center's Policy Paper Number 263.
Taken together, government, businesses and households spent 102 percent of their income in the last half of the 1980s. That was accomplished by borrowing from and and selling assets to foreign investors, who will take abroad a share of future profits, he said.
Reversing the fall in the national savings rate of the 1980s, Shoven concluded, would make the real wages of American workers 15 percent higher in the year 2020.
"Additional savings, translated into more domestically owned capital, will ultimately raise capital per worker, worker productivity and real wages," Shoven said. If government, businesses and households don't save, they have nothing to invest in tools or training for the nation's workers.
"Almost all of our social concerns - from the decay of our cities to the state of our public schools to our ability to help the countries of Eastern Europe - require massive economic resources," Shoven said. "The only way that we will have the ability to address these problems is if we first secure our economic future by increasing current saving."
To economists who argue that the federal deficit is a bigger problem, Shoven points to Japan. There, large government deficits in the 1980s were more than offset without problem by savings by citizens and corporations.
The net national savings rate in the United States from 1980 to 1987 was one-fifth of Japan's rate and less than half of Europe's.
"The conclusion is obvious," he said. "The U.S. saving rate in the 1980s was low both by historical standards and by international standards."
Shoven recommends reversing some government policies that, he says, have attempted to cut the federal deficit at the expense of private saving. For example, he said, law should encourage the only "bright spot" in Americans' accrual of wealth - pension plans.
"This growth combined with the collapse of other saving vehicles led to an incredible fact - in the 1980s the real assets of pension funds grew by more than the increase in the nation's wealth," Shoven said. "In this sense more than 100 percent of all national saving was accounted for by pensions." (See chart on reverse side.)
"Even in the pension area, however, there were signs of weakness. Corporate pension contributions declined throughout the decade. Public policy turned against pensions as lawmakers tried in vain to balance the budget by curtailing the tax deductions associated with pensions."
And the proportion of the work force with pensions declined as job growth occurred in small, predominantly service-sector firms. Simplifying pension regulation would encourage small firms to help their employees save through pensions, Shoven said.
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