Posting on Canada’s Centre for Research on Globalization website (6/29/09), economic historian Michael Hudson notices that “Happy-face media reporting of economic news is providing the usual upbeat spin on Friday’s debt-deflation statistics. The Commerce DepartmentÃƒÆ’Â¢ÃƒÂ¢”Å¡Â¬ÃƒÂ¢”Å¾Â¢s National Income and Product Accounts (NIPA) for May show that U.S. ‘savings’ are now absorbing 6.9 percent of income”:
I put the word “savings” in quotation marks because this 6.9 percent is not what most people think of as savings. It is not money in the bank to draw out on the “rainy day” when one is laid off as unemployment rates rise. The statistic means that 6.9 percent of national income is being earmarked to pay down debt–the highest saving rate in 15 years, up from actually negative rates (living on borrowed credit) just a few years ago. The only way in which these savings are “money in the bank” is that they are being paid by consumers to their banks and credit card companies.
Explaining how “income paid to reduce debt is not available for spending on goods and services,” Hudson says “it therefore shrinks the economy, aggravating the depression”–leading back to his main question: “So why is the jump in ‘saving’ good news?”:
It certainly is a good idea for consumers to get out of debt. But the media are treating this diversion of income as if it were a sign of confidence that the recession may be ending and Mr. Obama’s “stimulus” plan working. The Wall Street Journal reported that Social Security recipients of one-time government payments “seem unwilling to spend right away,” while The New York Times wrote that “many people were putting that money away instead of spending it.”
For more on stimulus misreporting, see the FAIR magazine Extra!: “Stimulus Snake Oil: Media Promote Nonsensical GOP Talking Points” (3/09) by Peter Hart.