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Minyan Mailbag: The Bartleby Generation May Prefer Not To


I prefer not to.


Hi Kevin,

I was fascinated to learn from your article that we have had a negative savings rate in the US for 16 months. Haven't we also had roughly the same number (can't remember exactly) of Fed rate increases? More on this later.

I was thinking, "what is a negative savings rate?" Commentators talk about consumers dipping into their savings. Is this like a squirrel that eats from its pile of saved nuts? Or like the patriotic Americans during the Great Depression who took a nickel out of a jar to buy a pencil from some poor guy on the street to stimulate the economy?

The problem is that I hardly know anyone who has dipped into their savings, because I don't know many people who have any savings. Most of the people that I run across have one or two cars with payments, a house with a mortgage, some used furniture, a lot of stuff made in China that they bought at Wal-Mart, and if they are lucky some retirement accounts. I have not heard of people looting their retirement accounts en masse (or any other state), so where is the flipping dipping?

Maybe the 'negative savings rate' is in fact, good old fashioned 'living beyond one's means,' i.e. living on borrowed money. The big difference between true dipping and borrowing dipping, is that when you dip into someone else's pile of money--you have to pay it back--with interest every month! Yikes.

Now, if the Fed is supposed to stimulate the economy by lowering interest rates, i.e. by increasing consumer and business borrowing, then if consumer borrowing increases when the rates go up, then, hmm, something doesn't make sense here. It's upside down. Does this mean that when the Fed lowers interest rates people might not borrow more? It they are busy paying back their last few years of "dipping," they might not. In fact, they might even be in bankruptcy.

I suppose that if the dollar falls low enough (due to falling Fed rates) foreigners might buy up US real estate, keeping the prices up long enough to allow homeowners to keep on dipping on. If no rescue comes and they lose everything they can always go for one last skinny dip before the house and pool get foreclosed.


Minyan Bill


You have described why a central bank could potentially find itself powerless to stimulate borrowing and spending during a deflationary spiral. Secular risk aversion is a psychological phenomenon, not a physical (or fiscal) one.

As an example of what this might look like, the Jump$tart Survey linked to in Five Things this morning noted the following question from the survey of high school seniors:

Kelly and Pete just had a baby. They received money as baby gifts and want to put it away for the baby's education. Which of the following tends to have the highest growth over periods of time as long as 18 years?

44.8% a) A U.S. Govt. savings bond
34.8% b) A savings account
6.3% c) A checking account
14.2% d) Stocks

Minyan G pointed out the following, which was noted on the Buzz and Banter:

Look at the phrasing of the question, does it reveal a bias in the questioner? I think it does; e.g. "tends to have" is not language you would use if you "believed" in the statistics, although you can make an argument for the statistical preference for stocks over extended period of time, it seems to me that whomever phrased this question didn't believe in it. If you believed in it I think you'd use "historically" instead.

One would expect the secular shift in time preferences, consumption and risk appetites to first gain stronger (even if subconscious) expression from those who are forming the basis for their opinions and beliefs in the 7-8 years between 1999 and the present. The students taking the survey were 10-11 years old in 1999. Since 2000 T-bills have outperformed the S&P 500. So while they may be historically incorrect about the growth of stocks versus U.S. Government bonds over time, experientially they are absolutely right and as human beings we all tend to weight more heavily our recent experiences, rightly or (mostly) wrongly.

Another key to this survey is that the students are being asked how they would handle their own money. Until now the vast majority have been handling the money given them by their parents, explicitly through allowances in some cases, but implicitly overall in terms of food, shelter, clothing and security. Once the onus of providing those things shifts to this age group, their attitudes toward consumption and spending are likely to be far different than their current expression via teenage pop culture, fashion and spending trends.

This suggests to me precisely what you point out could happen once the Fed finds it necessary to lower interest rates to stimulate borrowing and spending. The people charged with borrowing and spending that cheap money, call them tomorrow's Bartleby's, may prefer not to.

No positions in stocks mentioned.

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