Will lack of saving precipitate US 'rainy day'?

Why aren't Americans as thrifty as they used to be? Indeed, why are they acting like spendthrifts? Economists are asking themselves those questions these days, particularly after it was reported that the personal savings rate plunged to 3.3 percent in the last quarter of 1979, from 5.4 percent during 1979's second quarter or 9.7 percent at the end of the 1973-75 recession. Even worse comparisons could be made with the high rates of personal savings rates in Japan or West Europe.

The decline in savings had its counterpart in continued strong consumer spending. That has helped keep the economic expansion going. The recession long predicted by economists keeps moving over the horizon.

But the decline in savings has a negative side.

"We probably do have a bias in our economy toward consumption and away from savings," say Jeffrey A. Nichols, chief economist of Argus Research Corporation, a Wall Street financial advisory company.

Inadequate savings, he argues, means insufficient amounts of capital for plant expansion and modernization. That in turn slows down improvements in productivity. In fact, if output per man-hour actually declines, as it has lately, then business must cover increased wage costs by raising prices and pushing up inflation even faster.

Another danger from the declining savings rate is that Americans might change their collective minds. They might save a higher percentage of their incomes, precipitating or worsening a recession by cutting back their spending.

The savings situation, however, may not be quite so bad as it seems at first glance, Mr. Nichols argues.

For one thing, personal savings aren't the nation's only form of savings. There has been a mushrooming of pension and insurance programs of private employers and nonprofit associations. The government's social security-welfare-medicare complex may reduce the need for individual savings, especially since the level of benefits provided or promised by these programs usually keeps up with inflation.

Mr. Nichols says that "the rate of total savings by households, businesses, and government is a more valid indicator than the personal savings rate by itself."

Here the statistics show that the ratio of gross savings to gross national product (the total output of goods and services) has in fact risen from 12.8 percent in 1975 to an estimated 15.4 percent in 1979.This ratio has been quite stable over the long term, ranging between 14 and 17 percent in all but three of the past 30 years.

Another factor, Mr. Nichols maintains, is the inflation-prompted tendency of Americans to put some of their "savings" into tangibles, such as gold, silver, paintings, antiques, rare books, and so on. In the statistics these are counted as consumption -- not savings. But the individual may with considerable justification regard such "expenditures" as a safer and more rewarding form of saving than a regular bank savings account, paying an interest rate that comes no where close to matching the ravages of inflation.

Some economists maintain that spending on housing or such consumer durable goods as cars or dishwashers may account for the decline in savings. But Mr. Nichols points out that consumers are actually spending a slightly smaller portion of their disposable income on consumer durables. Moreover, the higher price of homes does not necessarily mean an improvement in their average physical quality or quantity that would represent a meaningful long- term addition to the net wealth of the nation.

This Wall Street economists, however, sees some explanation for the declining personal savings rate in the assumed growth of the so-called "underground economy." These are economic activities, legal or illegal, not reported to the Internal Revenue Service. They range from the carpenter who installs some kitchen cabinets on weekends for cash to the professional gambler who does not report much of his income. In an inflationary period when incomes are being pushed into higher tax brackets, tax evasion may increase. Savings might thus be higher than the statistics indicate.

Mr. Nichols notes that "if disposable income [income after taxes] was, in fact, understated by as 'little' as 1 percent ($16.8 billion) in the last quarter's preliminary figures, while consumption was as reported, personal saving would have been 30 percent higher than the indicated figure, and the savings rate would have been 4.3 percent rather than 3.3 percent."

Despite these factors softening the savings problem, he still holds that the government must do more to encourage saving. He approves of legislation that would gradually remove the "Regulation Q" ceiling on interest rates paid by banks and savings and loan associations. He would like to see other measures to boost the financial rewards from savings.

Most important, however, is a reduction in inflation. As long as inflation makes being a debtor cheap, he says, other measures to stimulate saving are not going to have a significant impact.