Junk Economics

The Stupidest Statistic -- Savings Rate Baloney

by Hanno Beck

What's the stupidest economic statistic of all? My guess is the "national savings rate." Nobody uses this statistic except to promote their own private companies; it's just a fancy, official- sounding advertisement.

I hold in my hands a typical example. It's a magazine article written by a Senior Vice President and General Counsel. He works for a mutual fund company that wants, not surprisingly, more tax incentives for Individual Retirement Accounts. That way more people would place more funds under his company's management.

Fine, no surprise so far. But one-third of his article is devoted to the personal savings rate in the U.S.A. and how good it would be to increase that rate. He gives us a chart showing other industrialized nations with much higher savings rates -- this is supposed to frighten us -- although his very sloppy chart actually compares different years and includes some corporate data for certain nations. (And for a 1997 article, why does the author rely on a mix of 1993 and 1994 data? Makes me suspect that more recent data don't help his sales pitch, so he simply omits them.)

Mr. Senior Vice President insists "Our low personal savings rate is reducing American productivity and competitiveness by restricting available capital to construct new facilities and create more jobs." That's self-serving baloney. Interest rates in the U.S. are a function of our business climate compared to business climates in other nations, and the interest rates in those other nations. We live in a worldwide marketplace; "available capital" is not restricted. There is no reason to think that more savings in this country would be a key factor that drives down domestic interest rates. Interest rates are influenced by much larger factors. One of those factors is the Federal Reserve Board, which has, with a few exceptions, brought interest rates lower and lower during the last nine years. So why does Mr. Senior Vice President try to make us worry that interest rates are too high and that our "low" savings rate is to blame? He simply wants you to help his company profit, even for sloppy reasons. It's baloney.

The easiest way to test for baloney is to try on the opposite of what somebody says. Let's make up a new statistic that is the opposite of the savings rate. Suppose our nation's manufacturers and retailers started talking about it; we'll call it the "buy-through" rate. If the savings rate is 7%, then the buy-through rate is 93%, get it? Now imagine reading this: "A high buy-through rate is necessary for our economy's growth. Any decline in our buy-through rate could indicate slackening demand, and therefore will reduce construction of new facilities and creation of new jobs. A high buy-through rate is a sign of strong demand, satisfied and prosperous consumers, effective advertising communications, and general economic health."

Well? Doesn't this sound just as plausible as Mr. Senior Vice President's plea about the savings rate? The statistics are equally meaningful. But as long as they're used as fancy cover-ups for plain old sales pitches, they are nothing but self-serving propaganda. Shame on anyone who tries to bamboozle people using official-sounding statistics -- it's an insult to the American citizen.