A Penny Not Saved...

Last week I was pondering some new data about mutual fund inflows that were truly remarkable (but did not blog on it as I was in a NyQuil-induced haze). The tsunami of money going into mutual funds these days would seem to contradict the conventional line that we repeatedly hear in our mainstream media that Americans are terrible savers. Indeed, the national savings rate seems to be the most popular economic metric in the MSM these days precisely because it tells a negative story - the actual rate is, in fact, negative - beautifully aligning with the theory that Americans are profligate spenders, spending our way to economic catastrophe. There are ample criticisms of statistical methodology that goes into the National Savings Rate. (Here is just one.) But beyond such nitty gritty, you can suss out the silliness of this profligacy meme by asking yourself just some simple, intuitive questions, like, 'How did we get to be the richest nation in all of human history if no one saves any money?' Which leads me back to the mutual fund inflows. Dr. Ed Yardeni looks at the numbers...

1) Net inflows into equity mutual funds totaled $201 billion. (2) Net inflows into bond mutual funds totaled $76 billion. (3) Savings deposits rose $117 billion. (4) Time deposits rose $432 billion. (5) At the end of 2004, Individual Retirement Accounts totaled $3.5 trillion, up from $3.1 trillion in 2003 and $2.5 trillion in 2002

...and rightly concludes that "something doesn't add up." Where the hell is all this money coming from if Americans don't save? Let me break it to you folks, Arab sheiks don't plow their oil riches into the Fidelity Small Cap Growth Fund. This money is coming from Americans. Americans don't save, they invest. Americans are not interested in hording cash, they are interested in building wealth by owning things. Yet, to the government statistics mandarins, none of this counts, investments and investment gains are not savings in their world.

So the savings rate is both intuitively hokey and, upon further analysis, methodologically dubious, and yet it is widely cited in the mainstream press, probably because it is one of the few metrics left that can even remotely support ominous reporting on the economy. Well actually that's not true - on the very day, yesterday, that the ISM reported increasing US manufacturing, CNN had a headline story that slowing manufacturing activity could hurt the economy. So it is not beyond the MSM to talk about bad things that aren't happening but that COULD happen in order to spread glumness about the economy. Nonetheless there are MSM outfits that restrict themselves to statistics that actually are not blindingly positive, thus the popularity of the savings rate.