> The data include these as additions to savings.
Only the contributions, not the employer matches (which is not income at all!) and not the capital gains. It's not hard for someone who has been contributing the maximum to a 401k for five years to see the percentage of their account balance that is attributable to contributions (and thus accounted for in "the savings rate") to be 40% or less. This is a significant gap.
An example here might be helpful:
$100,000 salary
7,000 401k deferral ("savings" for "savings rate") -------- $ 93,000 "income" - "savings"
But, over in the 401k:
$ 7,000 contribution $ 2,000 employer match $ 2,700 gain from ~+30% S&P index mutual fund -------- $ 11,700 psychological value of "savings", 67% higher than
what is captured by the savings rate ...
Carry this out over five years and you can start to see the problem with how things are counted. And of course it's worse with higher-bracket salaries, since they are the most able to contribute the maximum and thus have the most to gain from being is a bull market and will thus be the most incented to *not* save in the taxable world. And it's precisely these people who would normally (without the glaring incentive of defined contribution plans) prop up a savings rate.
That's why I think we can't use the old analysis for this. The rules have changed and the incentives are different.
> On the other hand, a lot of this
> extra income is being spent, rather than
> saved, which goes the other way.
No. Capital gains count toward income if they are realized in a taxable account; subsequent purchases made with the proceeds also count in the savings rate (income - expenditures). It is the non-taxable gains that aren't part of it, and you can't spend that money whether the gains are realized or not (except to buy more stock!). You can withdraw cash from those accounts, but then it becomes income (the income status is deferred, not removed).
Roach makes a different point which you may be referring to: that many of the _taxable gains_ have been spent (or worse, I suspect, borrowed against through fraudulent home equity loans and margin lines, both interest payments that are deductible -- another tax loophole only able to be taken advantage of by the rich) which leaves us in a much more interesting situation: namely that the well-off are spending what they earn *and* believing (rightly or wrongly) that they are saving. Roach believes that once the market tanks, those who have leveraged themselves will find that at best their standard of living that they have become accustomed to will drop far and fast, and at worst the consumption-driven economy will reverse, setting off a chain reaction -- no more consumption, no more good earnings, drop in stock prices, margin calls, further drops in consumption, etc. ...
Like I said, I think it's a compelling story.
/jordan