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Friday, February 17, 2006

Stats Cannot Tell All

Are Americans saving less now than ever before? Are we a massive debtor nation as individuals? Read the NYT and other MSM economic commentaries and that is your conclusion.

Sometimes the numbers cited by economists need further analysis. That is because statistics can only measure some things and not others. There is not some all-encompassing statistic that measures economic status and certainly not economic health.

Alan Reynolds provides many examples of how the economic doomsayers are plain wrong on savings rates. One is that when someone spends considerable money on his home to add a bedroom, for a new car or college tuition, these costs go into the ledger as a reduction of savings. However, these are assets that do not make it into the savings side of the ledger while increasing outr net worth. An increase in the value of old assets does the same thing as savings. It inmcreases our net worth. And household net worth as of last year's third quarter is $51.1 trillion---up $5 trillion from a year earlier.

Read more here.

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