Charges the US lags in saving and investing appear to be inaccurate
FOR years, foreign and domestic critics have called the United States a spendthrift nation. The US, they say, consumes almost all its income. At least since World War II, it has saved and invested relatively little compared with most other industrial nations. Americans buy a lot of houses, refrigerators, and cars, but not so much new plant and equipment to produce goods in the future. Their standing in the world savings league is low.
``This berating of the American people is misplaced,'' says Robert E. Lipsey, a research associate of the National Bureau of Economic Research. ``Americans have not suddenly become indifferent to the future, not able to think beyond the present.''
In fact, the US is not terribly different from other industrial countries in the proportion of its income it saves and invests. That conclusion, however, hangs on the definition of what economists term ``capital formation.'' Mr. Lipsey, in a paper written with Irving B. Kravis, an emeritus professor of economics at the University of Pennsylvania, define these capital investments broadly. They include expenditures on education, research and development, consumer durables, and military construction and equipment. Their calculations also take account of the relatively low prices of capital goods in the US.
Since the US has such a high income level, its 1980 per capita spending on capital formation by this broad definition was higher in absolute terms than that of Japan, Belgium, West Germany, Denmark, France, Italy, the Netherlands, and Britain. Even by traditional definition of capital formation as investments in industry or construction, US per capita expenditures were surpassed only in Japan (by 14 percent) and in Germany (7 percent) among the eight mentioned above. Canada, Luxembourg, and Norway also beat the US by this narrow definition.
When many years of capital formation are taken into account to consider a country's total stock of capital, the US remains relatively rich in capital. Even by the conventional definition, the US had in 1980 the largest real capital stock per person. A few of the smaller countries may have since moved ahead of the US. But the US remains well ahead of Japan and several other major developed countries in capital stock per capita.
Lipsey and Professor Kravis justify their broad definition of capital formation by noting that these expenditures outside conventional capital spending also yield some form of income beyond the current period. They are not immediately consumed.
For instance, house purchases are already part of the definition of capital formation in the present systems of national accounts. But such items as cars and major appliances owned by households are not included, though they provide services over time. If a business owns a car and leases it to an individual for his personal use, it is counted as capital formation. If a person buys a car directly for his personal use, it is not. If a business rents an apartment to someone fully furnished, including a refigerator, freezer, and laundry machinery, it counts as capital formation. If an individual buys such goods for his own home, it is not capital formation.
Since Europeans tend to live in rented quarters relatively more than in the US, the conventional definition distorts the numbers.
Education also is an investment in ``human capital,'' though not included in conventional capital formation. Expenditures in education yield a return over a long period of time in the form of higher earnings in the labor force, probably better care of children, and greater efficiency in consumption. The educated are, or at least should be, more likely to figure out good buys.
Because the US has a higher proportion of youths in higher education, adding spending on education to capital formation improves its position in relation to other nations. It trims the gap between the US and the average by one-quarter.
Research and development is probably more forward-looking than much of investment in equipment, the two economists argue. Since the US spends relatively more on R&D than other nations, its inclusion further narrows the gap.
Lipsey and Kravis also hold that government spending on construction and equipment for defense should be included, since the aircraft, tanks, ships, and buildings will provide ``defense'' in the future.
``If we are interested in the extent to which a country sacrifices present consumption for future gains, these expenditures are as relevant as those for civilian consumption.''
Under the conventional definition of capital formation, US expenditures as a proportion of total national output were 84.1 percent of a 1980 average that included eight other industrial countries. Taking account of lower prices of capital goods in the US boosts this share to 90.2 percent. Using the broader definition raises it to 98.9 percent.
The two conclude: ``The US has not been a particularly extravagant nation.''