karl-henrik pettersson


Filosofiska tankar om företagande och ekonomi

Vilket samhälle vill vi ha? Hur mycket marknad? Hur mycket politik? Varför dessa ekonomiska orättvisor?

Notes on a society in crisis (8): Why Americans save so little, and consume so much

On April 1st 2012, my book,” Dagbok från USA”, came out in Sweden. It will also soon be published in English (as an e-book for Kindle and for other readers) with the title: “Diary from the United States – Notes on a society in crisis“. As an appetizer for English speaking readers, I will the coming weeks publish some excerpts from the book.

Leave it to the markets!

The personal savings ratio, the proportion of disposable income that a person saves, has been falling in the U.S. since the early 1980s, which this graph from FRED Economic Data, Federal Reserve Bank of St. Louis, shows. Americans save too little, everyone seems to agree on that, but what does it actually mean? It’s no coincidence that the savings ratio began to decline around the time when the U.S. trade with the outside world began to show a minus around 1980. The current account was thoroughly negative for the first time a few years into the 1980s (and so it has been with some dips in the curve ever since). A negative current account balance in a given year means, in simple terms, that the country must borrow from abroad to balance its books. An economist would say that the domestic savings are insufficient to finance the domestic investments.

There were several reasons why the average American household began to save less than before in the 1980s:

First, households’ disposable income, measured in nominal dollars, has increased for each year that passed. For example, it was becoming increasingly common for a family to have two incomes. In the 1960s, only 12% of married women with children under six had a job. By 1990 that figure had risen to 50%. Having two wage earners in the family could be seen as an insurance arrangement that decreased the need for an economic buffer.

Americans also worked more hours per year. A graph of actual working hours in OECD countries would show that the curve for the United States bends upward from about 1980 with a tendency to rise throughout the period leading up to the crash a few years ago. For the European OECD countries, the picture is quite different. In the same period, Europeans worked significantly fewer hours per year with a falling trend. The actual annual working time for full time, e.g. in Germany, was in 1980 1,751 hours. In 2010 a German worked on average 1,409 hours compared to an American working 1,778 hours. According to one report (Reich, 2011), the average American household today works 500 more hours than in 1979. This is equivalent to twelve weeks of full-time work.

Second, interest rates have been low during the last 2-3 decades compared to what they had been during the high-inflation years in the 1970s, and it was easy to borrow. The percentage of the U.S. household’s disposable income used for debt service was relatively constant from the early 1980s until the mid-1990s, at around 11-12%. Then it rose to a high of 14% just before the financial crisis in 2008-2009. Even so, it wasn’t a very high figure. One understands that the U.S. households felt that savings could be kept down. In case of an emergency, one could always borrow.

There was an even more important factor. The U.S. household’s wealth began to increase, and households got a taste of borrowing to increase their wealth further. Stock prices continued to rise during the 1990s, especially towards the end of the decade, and more and more American households borrowed to buy shares. But most of all, households borrowed to buy their own homes or to buy a bigger house than the one they already had. This was true for the entire period from 1980 up to the crash of 2008. It was a seemingly safe, lucrative business. Although prices rose rapidly, it was more or less “guaranteed” that a house, even an expensive one, could be sold at a profit. And if the house was not sold, the equity, the difference between the house’s market value and the value of the mortgage, rose. And equity could be borrowed against. Especially in the last decade up to the crises, American households made extensive use of their houses as a kind of ATM with seemingly inexhaustible resources.

Against this background, one cannot blame U.S. households for not saving as much as before. In essence, it was rational behavior, not least because they felt richer. For each year that went by, households saw the gap between the market value of what they owned in real assets and what they had borrowed to acquire these assets, increase. They felt confident about the future. The good times during those decades, from 1980 until 2008, were also evident. Corporate America earned more money for each decade that passed, and unemployment went from levels around 8-10% in the early 1980s to a low of around 4% during the early part of the last decade.

A falling personal savings ratio is, in simple terms, an indication of increased consumption, and U.S. consumption did increase over the years – as a share of GDP from the level of just over 60% in 1980 to just over 70% today. This is a very large increase. Most Western countries have not increased their consumption share since 1980. In addition, the level of consumption as a percentage of GDP is much lower in other OECD countries. Germany and France consume today just under 60% of their GDP, Sweden only 48%.

High consumption, and corresponding low savings, is problematic for the U.S. economy partly because the country must borrow from abroad to financially balance its books as I mentioned before, in fact the current account deficit has tended to increase with time. Partly due to the existence of domestic imbalances. The U.S. federal budget does not balance. Since the early 1980s, the federal budget has more or less regularly had a deficit of 2-4% of GDP. This year, 2011, the deficit will be in the range of 10% of GDP.

If you cannot blame households for saving less and consuming more, who does bear the responsibility? The short answer is – the politicians. Ever since Ronald Reagan’s presidency in the 1980s, economic policy has been strongly market-friendly. Reagan introduced an important paradigm shift in economic policy, a kind of return to classical economics. The market was put first in a new way. Specifically, this new paradigm has meant a generous monetary policy with low interest rates (which has been excellent for anyone who must borrow), and no attempt by the authorities to offset speculation and bubbles. Alan Greenspan, chairman of the Federal Reserve from 1987 to 2006, held the view that it’s not the responsibility of politicians or the central bank to try to deal with the overheating of the stock market or housing market (although, as he said, the market was characterized by “irrational exuberance”, another way of saying “unreasonable risk”). The new market-friendly paradigm has meant deregulation, particularly in the financial markets. The repeal of the Glass-Steagall Act in 1999, which since 1930 had kept U.S. banks and investment banks organizationally separated, is a concrete example of deregulation.

“Leave it to the markets!” has become the motto of the new paradigm. In addition to falling savings and rising consumption, the price of this policy was the severe financial crash in 2008-2009.


Reich, R. B., 2011, Aftershock, Vintage Books, New York;


First published (in Swedish): September 28, 2011




  • Facebook
  • Twitter
  • Print
  • email

231 Kommentarer

  1. Wonderful postings. Many thanks!
    writing helper buy essay essay helper online free writing assistant

  2. Hello there! I simply would like to offer you a huge thumbs up for your excellent information you have here on this post.
    I am coming back to your web site for more soon.

  3. Hello! This post could not be written any better! Reading through
    this post reminds me of my old room mate! He always kept talking
    about this. I will forward this write-up to him.
    Pretty sure he will have a good read. Thank you
    for sharing!

  4. Spot on with this write-up, I truly think this website needs a
    great deal more attention. I’ll probably be returning to see more,
    thanks for the information!

  5. Very good stuff. Thanks a lot!
    [url=https://ouressays.com/]proposal writing[/url] buy term paper [url=https://researchpaperwriterservices.com/]thesis proposal[/url] research proposals

  6. Helpful write ups. Many thanks!
    paper writer essay writer free how to write a response paper professional essay writers
    [url=https://essaypromaster.com/]paper writer online[/url] best essay writers [url=https://paperwritingservicecheap.com/]pay for paper[/url] do my paper
    words to use in college essays https://studentessaywriting.com

  7. Helpful data. Cheers!
    essay writing service cheap last minute essay writing service writing an informative essay essay writing sites

  8. Whoa plenty of superb tips!
    [url=https://topswritingservices.com/]write essay service[/url] cheap essay writing services [url=https://essaywriting4you.com/]buy essay service[/url] assignment writing service

  9. Thanks a lot. Quite a lot of posts.
    college admissions essay writing service college application essay writing service essay writing companies essay paper writing service
    [url=https://studentessaywriting.com/]best college paper writing service[/url] buy essay online writing service [url=https://essaywritingserviceahrefs.com/]cheap assignment writing service[/url] writing essay service
    define dessertation https://writingthesistops.com

  10. Incredible all kinds of good facts!
    write essay persuasive essay writer write an essay write paper for me

  11. Awesome posts, Appreciate it!
    [url=https://dissertationwritingtops.com/]writing a dissertation[/url] what is a phd [url=https://helpwritingdissertation.com/]what is a phd[/url] dissertation meaning

  12. Helpful stuff. Thanks a lot.
    write my term paper buy research paper research paper services custom research paper writing services
    [url=https://dissertationwritingtops.com/]dissertation help[/url] dissertation writing service [url=https://helpwritingdissertation.com/]phd weight loss[/url] writing help
    business writing services https://customthesiswritingservice.com

  13. Wonderful goods from you, man. I’ve understand your stuff previous to and you’re just too
    excellent. I actually like what you have acquired here, really like
    what you’re saying and the way in which you say it.

    You make it enjoyable and you still take care of to keep it wise.
    I cant wait to read much more from you. This is actually a great

  14. Nicely put, With thanks.
    executive resume writing service essay writing companies custom writing service college admissions essay writing service

  15. Arousal, This is a good website Arousal

  16. Sildenafil, This is a good website Sildenafil

  17. Areola, This is a good website Areola

  18. Penis, This is a good website Penis

  19. Mammary, This is a good website Mammary

  20. Tadalafil, This is a good website Tadalafil

  21. Performance, This is a good website Performance

  22. Adult, This is a good website Adult

  23. Labia, This is a good website Labia

  24. I’ve read several good stuff here. Definitely value bookmarking for revisiting.
    I wonder how a lot attempt you put to make this type of magnificent informative website.

  25. These are genuinely impressive ideas in on the topic of blogging.
    You have touched some pleasant factors here. Any way keep
    up wrinting.

  26. Just desire to say your article is as astounding. The clarity in your post is simply great and i can assume you
    are an expert on this subject. Well with your permission let me to grab your
    RSS feed to keep up to date with forthcoming post.
    Thanks a million and please carry on the rewarding work.

  27. Pretty section of content. I just stumbled upon your weblog and in accession capital to assert that I acquire
    in fact enjoyed account your blog posts. Anyway I’ll be
    subscribing to your feeds and even I achievement you
    access consistently fast.

  28. whoah this weblog is excellent i like reading your posts.

    Stay up the good work! You realize, a lot of individuals are looking round
    for this info, you could aid them greatly.

  29. We are a group of volunteers and opening a new scheme in our community.
    Your website offered us with valuable info to work on. You’ve done
    an impressive job and our whole community will be grateful
    to you.

Skriv kommentar