Measured?
A2.1. Just as for people, saving for the national economy is the act of setting some of current income aside for the future instead of spending it for current consumption. In NIPA, saving is measured as current income less current consumption expenditures. National saving is the sum of saving by households, businesses, and all levels of government (federal, state, and local). For the economy as a whole, national saving is the portion of the nation’s income not used for private and public consumption. The sum of national saving and saving borrowed from abroad represents the total amount of resources available for investment, that is, the purchase of capital goods—plant, equipment, software, houses,1 and inventories—by businesses and governments.2 Saving and investing today increase the
nation’s stock of capital goods to be used in the future—the capital stock— and thus the nation’s capacity to produce goods and services in the future. National saving is measured in two ways—gross national saving or net
national saving. Gross national saving is a nation’s total income minus its consumption and represents resources available for domestic or foreign investment. Some portion of gross national saving pays for replacing capital goods that have been worn out or used up in producing goods and services—consumption of fixed capital in technical terms, or hereafter simply depreciation.3 The other portion of gross national saving, which is
used to add to the nation’s stock of capital goods, is net national saving. Net national saving is the measure commonly used to gauge whether the nation’s capacity to produce goods and services in the future is increasing or decreasing.
By itself, the dollar amount of national saving is not a particularly meaningful indicator of the portion of the nation’s income that is not consumed. National saving is usually expressed as a share of the nation’s
1
Investment in owner-occupied residential property is defined as business investment.
2
This represents the current NIPA definition of investment used throughout this primer unless otherwise stated. Other ways of thinking about national saving and investment are discussed in Q2.4 and in sections 3 and 4.
3
For more information on how depreciation is measured in NIPA, see Arnold Katz and Shelby Herman, “Improved Estimates of Fixed Reproducible Tangible Wealth, 1929–95,”
Survey of Current Business, Bureau of Economic Analysis, Vol. 77, No. 5 (May 1997), pp. 69–92, and Barbara M. Fraumeni, “The Measurement of Depreciation in the U.S. National Income and Product Accounts,” Survey of Current Business, Bureau of Economic Analysis, Vol. 77, No. 7 (July 1997), pp. 7–23.
current income—or its economic output.4 Because the primary measure of the nation’s economic output is gross domestic product (GDP), saving is often shown as a percent of GDP. Text box 2.1 compares GDP to another measure of economic output—gross national product (GNP). In 2000, gross national saving as a share of GDP was 18.3 percent. After subtracting depreciation, which was 12.6 percent of GDP, net national saving was 5.7 percent of GDP.
4
The nation’s income is the sum of all the payments made to those who produce output. This income equals the total spending on the economy’s output of goods and services; thus, the nation’s income and output are the same.
Text Box 2.1: Gross Domestic Product and Gross National Producta
GDP is the output of goods and services produced by labor and property located in the United States, while GNP is the output of goods and services produced by labor and property supplied by U.S. residents, regardless of where they are located. The difference between GDP and GNP is income receipts from the goods and services produced abroad using labor and capital of U.S. residents less income payments for the goods and services produced in the United States using labor and capital supplied by foreign residents. Because both GNP and national saving include these income receipts, net of payments, the Bureau of Economic Analysis (BEA) presents national saving as a share of GNP. However, since 1991, BEA has featured GDP as the primary measure of economic activity because GDP is consistent in coverage with indicators such as domestic investment and productivity. GDP is also the measure cited in economic trend analyses and for cross-country comparisons by many, including the President’s Council of Economic Advisers, the International Monetary Fund, and the Organization for Economic Cooperation and Development (OECD). Because this report deals not only with national saving but also with other measures such as investment and the federal budget position, we express saving, investment, and federal government spending as a share of GDP. Expressing all of our analysis as a share of GDP provides a consistent frame of reference for comparing economywide shares for the United States and for comparing U.S. saving rates to those of other countries.
In the United States, the difference between GDP and GNP is small. For example, in 2000, GDP was $9,963 billion and
GNP was $9,959 billion.b Given the relatively small difference between the two measures, the denominator has little effect
on calculating saving as a share of the economy. Regardless of which measure is used, saving as a share of the U.S. economy was 18.3 percent in 2000.
a“Gross Domestic Product as a Measure of U.S. Production,” Survey of Current Business, Bureau of Economic Analysis,
Vol. 71, No. 8 (August 1991), p. 8.
bIn 2000, GNP was less than GDP because income receipts from the rest of the world were less than U.S. payments to the
Gross national saving is a good indicator of resources available both to (1) replace old, worn-out capital goods with new, and sometimes more productive, goods and (2) expand the capital stock.5 The share of gross