We’re Spending Down Our Savings to Prop Up Our Economy

Facts matter: Sign up for the free Mother Jones Daily newsletter. Support our nonprofit reporting. Subscribe to our print magazine.

Consumer spending can increase if (a) wages go up, (b) borrowing goes up, or (c) savings are spent down. Jed Graham reports that last quarter it was Option C that saved the day:

U.S. households saved just 3.9% of disposable income in Q1, the lowest since the last cycle’s peak in Q4 2007. In fact, the decline in saving from 4.5% in Q4 financed half of all personal consumption gains in Q1, adding one full percentage point to real GDP growth.

Needless to say, saving rates can’t decline forever, and borrowing isn’t likely to increase much either. That leaves disposable income as our main hope for future economic prosperity, and with job growth picking up, so should disposable income. So why isn’t it?

This time, government policy is the main culprit. Real disposable income growth has trailed real private wage growth by nearly 3% the past two quarters as fiscal stabilizers have gone into reverse….The drag on disposable income comes, in large part, from three factors: flat total wages for government workers; roughly flat government social benefits; and a normal cyclical boost in income and payroll tax payments (up a combined $151 billion from Q1 2011).

….The bottom line is that fiscal policy is leaning too hard against recovery based on present conditions. The question is whether such austerity is avoidable right now amid trillion-dollar deficits and pressure from the ratings agencies.

Oh, I think it’s avoidable. The problem isn’t either short-term deficits or Standard & Poor’s. It’s an excess of politicians who don’t really care much about the real-world economy. There’s no point in trying to blame anyone else.

THE END...

of our fiscal year is Thursday, June 30, and we have a much larger fundraising gap than we can easily manage with only days left to go.

Right now is no time to come up short: If you value the hard-hitting, democracy-protecting, justice-advancing journalism you get from Mother Jones, please help us keep charging as hard as we possibly can with a much-needed and much-appreciated donation today.

payment methods

THE END...

of our fiscal year is Thursday, June 30, and we have a much larger fundraising gap than we can easily manage with only days left to go.

Right now is no time to come up short: If you value the hard-hitting, democracy-protecting, justice-advancing journalism you get from Mother Jones, please help us keep charging as hard as we possibly can with a much-needed and much-appreciated donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate