But consumer spending means consumers save less. I've also read that US consumers don't save enough—is this a problem?

It is true that the U.S. consumer enjoys spending and saves very little out of current income, but most economists seem to give them little credit for what we view as their rational actions. For nearly 30 years now, we have read about the irrational consumer overindulging and spending with no regard for the future. However, the measure of "savings" that the government, reporters, and most economists use ignores the substantial realized gains in property, financial assets, and pension plans during this period. Adjusting for these increases in realized gains, the average savings rate by consumers has been about 10% for the past 30-plus years.

U.S. consumers are maximizing their net worth-not looking to save a preset amount from current income. Because most Americans have seen their parents' homes and their own homes appreciate virtually every year since WWII, they have "spent" by investing heavily in this appreciating asset. They have also been the beneficiary of nearly 20 years of strong stock and bond market performance, seeing their net worth climb. Finally, the tax policies of the past 20 years have discouraged savings and encouraged spending, particularly by way of mortgages. If household net worth were to stagnate or decline for a few years, we would expect the consumer to show the same ability to behave rationally and increase his out of pocket savings.

Such a change in savings behavior would be the result of some larger structural problem that caused a marked decrease in net worth where consumers would then attempt to rebuild net worth from current income, driving up the savings rate, as traditionally measured. Instead of focusing on this notion of "savings," we watch for changes in activities that build net worth. The "irrational" or "indulgent" behavior of borrowing to attend college, start a business, or own a home should not stop despite the warnings from our spendthrift government.

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