Borrowing Our Way To Prosperity……NOT!

There you have it. During Q3 2023 the net national savings rate was negative. And if you don’t think that is a really big deal, riddle us this. Back in the heyday of main street prosperity the net national savings rate oscillated in the 6% to 12% of GDP range. So how does it work when the rate goes to -0.1%?

To estimate what might be falling through the macroeconomic cracks, take a conservative stab at it and call 7.5% of GDP the healthy minimum. At today’s economic scale, that would amount to $2.0 trillion in annualized net savings available for investment in productivity and real economic growth but, of course, we are actually getting less than $0.0 trillion.

Therefore, what the politicians and the Keynesians, and we do repeat ourselves, want you to believe is that we can have historic levels of economic growth, productivity gains and living standard increases with no net savings to fund them. Just borrow our way to prosperity, instead.

Then again, the laws of economics have not been repealed. Consequently, real net private investment is still at year 2000 levels and productivity growth has literally pooped out. The proof that the trend depicted below is actually a veritable economic disaster is thus already in the pudding.

Net National Savings As A % Of GDP, 1955 to 2023

To be sure, there is no mystery as to where all the savings have gone. To wit, the Leviathan on the Potomac has consumed them with reckless abandon.

Thus, if we go back to 1964, a year in which real GDP rose by 5.2%, inflation was 1.9% and real family income increased by 4.1%, the purple area (total private saving) and the black area (net national saving) pretty much converged, and at a high level relative to GDP.

Indeed, America experienced a low public sector deficit at –0.2% of GDP and a high private savings rate at +12.9% of GDP. Consequently, after public sector deficits were subtracted from total private savings, the resulting figure for net national savings amounted to a robust 12.7% of GDP.  In turn, this cash flow was available for investment in productivity and growth, and it was no mean amount in dollar terms.  At today’s economic scale, in fact, the 1964 ratio would amount to $3.3 trillion.