Tuesday, May 12, 2009
Paradox of Thrift: Update
This graph from the BEA shows the US personal savings rate since Q1 of 2000. From it you can clearly see both the sharp decline in savings rates in the US in the 2005-2008 period and the sudden and strong retrenchment. This is what we speak of when we speak of the Paradox of Thrift. But what does this look like from an historical perspective? Here is the savings rate since 1947 (but before this recent uptick).
During most of the second half of the 20th century we were saving 8 to 10 percent of our disposable income. We are still pretty far from that, but it is the recent sudden reversal that has helped fuel this recessionary cycle.