The Saving Glut of the Rich

Atif MianPrinceton

Ludwig StraubHarvard

Amir SufiChicago Booth

June 2020

1

Motivation

1

1.5

2

2.5

3D

ebt t

o G

DP

rat

io

1960 1970 1980 1990 2000 2010 2020

Rising debt ...

−1

0

1

2

3

4

5

6

Rea

l int

eres

t rat

e (%

)

1980 1990 2000 2010 2020

... and falling rates

2

Two Research Studies

1. The Saving Glut of the Rich (facts)

• Measuring the rise in savings by the rich in a national accounting framework• Savings have been transformed into gov and hh borrowing, as opposed to investment

2. Indebted Demand (model)

• Model incorporating differential MPCs out of lifetime income (non-homotheticity)• Inequality, financial liberalization lead to rising debt and lower interest rates• Implications for monetary and fiscal policy, risk of debt traps

3

Saving Glut of the Rich: Findings

• Measuring the savings of the rich, and what it finances:

• using income flows (the NIPA)• using measures of debt and wealth (the Financial Accounts)• using state-level first-difference specification that approximates ideal experiment

• Findings

• Savings by the top 1% have risen 2.5 to 4 pp of national income comparing 1960sand 1970s to post-2000; same order of magnitude as global saving glut

• Savings associated with borrowing by non-rich and gov; not rise in investment• State-level analysis: Rise in top income shares explains all of the rise in household

debt held as a financial asset by household sector

4

Related Empirical Literature

• Income inequality: Katz and Murphy (1992); Piketty and Saez (2003); Autor, etal (2008); Atkinson et al (2011); Piketty, et al (2017); CBO (2019); Smith, et al(2019)

• Wealth inequality: Saez and Zucman (2016); Wolf (2017); Bricker, et al (2018);Batty, et al (2019); Kuhn et al (2020); Smith, et al (2020)

• Long-term rise in household debt: Bartscher et al (2020)

• Linking inequality and borrowing: Rajan (2011); Cynamon and Fazzari (2015);Bertrand and Morse (2016); Kumhof, et al (2015)

• Consumption: Slesnick (2001), Krueger and Perri (2006), Blundell et al. (2008),Heathcote et al. (2010), Aguiar and Bils (2015), Attanasio and Pistaferri (2016),Meyer and Sullivan (2017), Guvenen et al. (2017), Fisher et al. (2016), Guvenenet al. (2019), and De Nardi et al. (2018)).

5

Measuring the Saving Glut of the Rich

6

Savings in the NIPA

• Start with GDP

Y = C + G + I + (X −M) (1)

• National income: Z = Y − δ + W − ε; δ: consumption of fixed capital, W : netincome from abroad, ε: statistical discrepancy; F = (X −M + W )

Z − C = G + I n + F − ε (2)

• Using the government budget constraint Sg = T − R − G :

Θ = Z − T + R − C = I n + F − Sg − ε (3)

• Θ is the key concept of aggregate private savings (includes personal andbusiness savings)

7

Accounting for the Distribution

• Split savings by income or wealth distribution:

Θtop1 + Θnext9 + Θbot90 = I n + F − Sg − ε

• Central challenge is measurement of Θit : savings by group i in year t

• Two approaches:

• Income less consumption approach:

Θit = Zit − Tit + Rit − Cit

• Wealth-based approach

Θit =∑j∈J

(∆W j

it − πjtW

ji,t−1

)

8

Measurement: Income less consumption approach

• Zit − Tit + Rit :

• Piketty et al 2018; Congressional Budget Office

• Cit :

• Two inputs: (1) consumption share in a baseline year and (2) assumption onlong-run evolution of consumption to income ratio

• Baseline uses PSID, SCF (Fisher et al 2017)

• Consumption to income ratio assumption over time follows Straub (2019):

Cit

yt= K ∗

(yityt

)β

9

Consumption Share of the Top 1% of Income Distribution

.02

.03

.04

.05

.06

.07

Con

sum

ptio

n sh

are

1960 1980 2000 2020

β = 1, under−report β = 1β = 0.7, under−report β = 0.7β = 0.5, under−report β = 0.5

10

Measurement: Wealth-based approach

• W jit :

• Saez Zucman 2016; Piketty et al 2018; Distributional Financial Accounts• Careful consideration of criticisms in Bricker et al 2018; Smith et al 2020

• πjt :

• As in Saez Zucman 2016 (and others), with a few changes• Ensure that total savings adds up to national accounts• Take into account debt write-downs

11

How Large Is the Saving Glut of Rich?

12

Saving Glut of the Rich Relative to 1982(Income less consumption approach)

−.02

0

.02

.04

.06

Sca

led

by n

atio

nal i

ncom

e

1960 1980 2000 2020

β = 1, under−report β = 1β = 0.7, under−report β = 0.7β = 0.5, under−report β = 0.5

13

Saving Glut of the Rich over Time

Time Period Baseline

63-82 0.05783-97 0.07398-07 0.08608-15 0.099

14

Saving Glut of the Rich over Time: Robustness

PSZ CBODecade β = 1 β = 0.7 β = 0.5 β = 1 β = 0.7 β = 0.5

79-82 0.000 0.000 0.000 0.000 0.000 0.00083-97 0.015 0.016 0.018 0.017 0.018 0.02098-07 0.028 0.032 0.035 0.037 0.040 0.04308-15 0.041 0.046 0.049 0.031 0.035 0.039

15

Saving Glut of the Rich(Wealth-based approach)

−.02

0

.02

.04

Sca

led

by n

atio

nal i

ncom

e(r

elat

ive

to 7

7−82

)

63−67 68−72 73−77 78−82 83−87 88−92 93−97 98−02 03−07 08−15

16

Where Does the Saving Glut Settle?

17

Where Does the Saving Glut Settle?

• Re-arranging the NIPA equation and scaling by Zt yields:

θtop1,t =I nt + Ft

Zt− θnext9,t − θbot90,t −

Sgt

Zt

• Saving glut could be invested, could be sent overseas ...

• or could finance more borrowing by the bottom 99% and the government

18

Net Domestic Investment and the Foreign Account

0

.05

.1

.15S

cale

d by

nat

iona

l inc

ome

1960 1980 2000 2020

Net domestic investmentSaving of top 1%

Investment

−.05

0

.05

.1

Sca

led

by n

atio

nal i

ncom

e

1960 1980 2000 2020

Current account positionSaving of top 1%

Current account

19

Saving Glut of the Rich and the Global Saving Glut

−.02

0

.02

.04

.06

Sca

led

by n

atio

nal i

ncom

e

1960 1980 2000 2020

Foreign flows into U.S.Saving of top 1%

20

Traditional Channels of Absorption

Time Period Saving glut Investment Current Account

63-82 0.057 0.114 0.00383-97 0.073 0.088 -0.02098-07 0.086 0.091 -0.05008-15 0.099 0.045 -0.033

21

Saving Glut of the Rich and Saving of the non-Rich

−.1

−.05

0

.05

.1

Sca

led

by n

atio

nal i

ncom

e

1960 1980 2000 2020

top 1%next 9%bottom 90%

22

Using the Wealth-based Approach

−.1

−.05

0

.05

Sca

led

by n

atio

nal i

ncom

e(r

elat

ive

to 7

7−82

)

63−67 68−72 73−77 78−82 83−87 88−92 93−97 98−02 03−07 08−15

top 1%next 9%bottom 90%

23

Absorption by the Bottom 90%

Time Period Top 1% Next 9% Bottom 90% Gov Saving

63-82 0.057 0.043 0.040 -0.03083-97 0.073 0.043 -0.011 -0.05198-07 0.086 0.042 -0.055 -0.02608-15 0.099 0.044 -0.038 -0.089

24

Integrating to Obtain Accumulated Absorption• Start with:

θtop1,t + θbot99,t −(I n

Z

)t

−(F

Z

)t

+

(Sg

Z

)t

+ εt = 0

• For each of the 6 variables, construct

Vt = Vt − Vpre

• Obtain:

V =2015∑

t=1983

Vt

• Then:

θtop1 + θbot99 −(I n

Z

)−(F

Z

)+

(Sg

Z

)+ ε = 0

25

Absorption of the Accumulated Saving Glut of Rich

Top1%

Saving Glut

Next 9% Saving

F

I

Bottom 90% Saving

Government Saving

ε

−2

−1

0

1

26

Linking the Saving of the Rich to the Borrowing of the Non-Rich

27

The Rich Financing the Non-Rich

• Goal is to measure how much of the wealth of the rich represents a claim on theborrowing of the non-rich

• Matrix representation:A1

A2...AI

=

ω1,1 ω1,2 · · · · · · ω1,C

ω2,1 ω2,2 · · · · · · ω2,C...

.... . .

. . ....

ωI ,1 ωI ,2 · · · · · · ωI ,C

F1F2...FC

• The vector Fc requires us to “unveil” the financial system; the rich hold household

debt through banks, non-financial businesses, mutual funds, etc.

28

Unveiling the Financial System

• Start with household debt (mortgages and consumer credit) in Financial Accounts

• Use linkages in Financial Accounts to unveil the holdings in a series of rounds

• Series of rounds

1. Start with GSEs, ABS issuers, banks, REITS, finance companies2. Unveil GSEs, ABS issuers, REITS, finance companies3. Unveil mutual and money market funds4. Unveil banks5. Unveil corporations

• Proportionality of ownership claims is crucial assumption

29

START

Total HH Debt

Pass-Through

Agency,ABS, REITs,

Finance Comps

FEDMutual/Money

Market Funds

DepositoryInstitutions

Non-Fin. CorpBusinesses

Non-Fin.Non-CorpBusinesses

FINAL

HH DebtHeld by U.S.Households

Pensions

0.18

Life Ins.Reserves

0.04

Mutual Funds

0.05

MoneyMarket

0.03

Bonds

0.05

Equity

0.08

CheckableDeposits

0.01

Time De-posits

0.25

Total HHDebt

1.00

Pass-Through

0.62

DepositoryInstitutions

0.46

FED

0.00

MMF/MUFU

0.09

NF Corp

0.08

NF NCBusinesses

0.03

30

START

Total HH Debt

Pass-Through

Agency,ABS, REITs,

Finance Comps

FEDMutual/Money

Market Funds

DepositoryInstitutions

Non-Fin. CorpBusinesses

Non-Fin.Non-CorpBusinesses

FINAL

HH DebtHeld by U.S.Households

Pensions

0.18

Life Ins.Reserves

0.04

Mutual Funds

0.05

MoneyMarket

0.03

Bonds

0.05

Equity

0.08

CheckableDeposits

0.01

Time De-posits

0.25

Total HHDebt

1.00

Pass-Through

0.62

DepositoryInstitutions

0.46

FED

0.00

MMF/MUFU

0.09

NF Corp

0.08

NF NCBusinesses

0.03

30

START

Total HH Debt

Pass-Through

Agency,ABS, REITs,

Finance Comps

FEDMutual/Money

Market Funds

DepositoryInstitutions

Non-Fin. CorpBusinesses

Non-Fin.Non-CorpBusinesses

FINAL

HH DebtHeld by U.S.Households

Pensions

0.18

Life Ins.Reserves

0.04

Mutual Funds

0.05

MoneyMarket

0.03

Bonds

0.05

Equity

0.08

CheckableDeposits

0.01

Time De-posits

0.25

Total HHDebt

1.00

Pass-Through

0.62

DepositoryInstitutions

0.46

FED

0.00

MMF/MUFU

0.09

NF Corp

0.08

NF NCBusinesses

0.03

30

START

Total HH Debt

Pass-Through

Agency,ABS, REITs,

Finance Comps

FEDMutual/Money

Market Funds

DepositoryInstitutions

Non-Fin. CorpBusinesses

Non-Fin.Non-CorpBusinesses

FINAL

HH DebtHeld by U.S.Households

Pensions

0.18

Life Ins.Reserves

0.04

Mutual Funds

0.05

MoneyMarket

0.03

Bonds

0.05

Equity

0.08

CheckableDeposits

0.01

Time De-posits

0.25

Total HHDebt

1.00

Pass-Through

0.62

DepositoryInstitutions

0.46

FED

0.00

MMF/MUFU

0.09

NF Corp

0.08

NF NCBusinesses

0.03

30

START

Total HH Debt

Pass-Through

Agency,ABS, REITs,

Finance Comps

FEDMutual/Money

Market Funds

DepositoryInstitutions

Non-Fin. CorpBusinesses

Non-Fin.Non-CorpBusinesses

FINAL

HH DebtHeld by U.S.Households

Pensions

0.18

Life Ins.Reserves

0.04

Mutual Funds

0.05

MoneyMarket

0.03

Bonds

0.05

Equity

0.08

CheckableDeposits

0.01

Time De-posits

0.25

Total HHDebt

1.00

Pass-Through

0.62

DepositoryInstitutions

0.46

FED

0.00

MMF/MUFU

0.09

NF Corp

0.08

NF NCBusinesses

0.03

30

START

Total HH Debt

Pass-Through

Agency,ABS, REITs,

Finance Comps

FEDMutual/Money

Market Funds

DepositoryInstitutions

Non-Fin. CorpBusinesses

Non-Fin.Non-CorpBusinesses

FINAL

HH DebtHeld by U.S.Households

Pensions

0.18

Life Ins.Reserves

0.04

Mutual Funds

0.05

MoneyMarket

0.03

Bonds

0.05

Equity

0.08

CheckableDeposits

0.01

Time De-posits

0.25

Total HHDebt

1.00

Pass-Through

0.62

DepositoryInstitutions

0.46

FED

0.00

MMF/MUFU

0.09

NF Corp

0.08

NF NCBusinesses

0.03

30

START

Total HH Debt

Pass-Through

Agency,ABS, REITs,

Finance Comps

FEDMutual/Money

Market Funds

DepositoryInstitutions

Non-Fin. CorpBusinesses

Non-Fin.Non-CorpBusinesses

FINAL

HH DebtHeld by U.S.Households

Pensions

0.18

Life Ins.Reserves

0.04

Mutual Funds

0.05

MoneyMarket

0.03

Bonds

0.05

Equity

0.08

CheckableDeposits

0.01

Time De-posits

0.25

Total HHDebt

1.00

Pass-Through

0.62

DepositoryInstitutions

0.46

FED

0.00

MMF/MUFU

0.09

NF Corp

0.08

NF NCBusinesses

0.03

30

START

Total HH Debt

Pass-Through

Agency,ABS, REITs,

Finance Comps

FEDMutual/Money

Market Funds

DepositoryInstitutions

Non-Fin. CorpBusinesses

Non-Fin.Non-CorpBusinesses

FINAL

HH DebtHeld by U.S.Households

Pensions

0.18

Life Ins.Reserves

0.04

Mutual Funds

0.05

MoneyMarket

0.03

Bonds

0.05

Equity

0.08

CheckableDeposits

0.01

Time De-posits

0.25

Total HHDebt

1.00

Pass-Through

0.62

DepositoryInstitutions

0.46

FED

0.00

MMF/MUFU

0.09

NF Corp

0.08

NF NCBusinesses

0.03

30

Who Holds Household Debt as a Financial Asset?

0

.2

.4

.6

.8S

cale

d by

nat

iona

l inc

ome

1960 1980 2000 2020

Who holds HH debt?

0

.1

.2

.3

Sca

led

by n

atio

nal i

ncom

e

1960 1980 2000 2020

Relative to 1982

U.S. Households Rest of worldGovernment Residual

31

The Rich Financing the Non-Rich

• Matrix representation:A1

A2...AI

=

ω1,1 ω1,2 · · · · · · ω1,C

ω2,1 ω2,2 · · · · · · ω2,C...

.... . .

. . ....

ωI ,1 ωI ,2 · · · · · · ωI ,C

F1F2...FC

• The weights ωi ,c come from capitalization technique (SZ 2016, Smith et al 2020)

or Distributional Financial Accounts (Batty et al 2019)

32

Who Holds Household Debt across the Income Distribution?

0

.2

.4

.6S

cale

d by

nat

iona

l inc

ome

1960 1980 2000 2020

Who holds HH debt?

−.1

0

.1

.2

.3

Sca

led

by n

atio

nal i

ncom

e

1960 1980 2000 2020

Relative to 1982

Top 10% Bottom 90%Rest of world GovernmentResidual

33

Net Household Debt across Wealth Distribution Relative to 1982

−.2

0

.2

.4

Sca

led

by N

I, re

lativ

e to

198

2

1960 1980 2000 2020

Top 1% Next 9% Bottom 90%

34

State-level analysis

35

Advantages of State-level Analysis

• Ideal thought experiment: holding all else equal, how does an increase in topincome shares affect the accumulation of household debt held as a financial assetof the rich?

• State-level first-difference specification is closer to this ideal thought experiment

• Advantages:

• Removes other aggregate secular trends (demographics, current account deficits, etc)• Helps more directly tie rise in top income shares to accumulation of household debt

as financial asset

36

Change in Top 1% Share of Income Across States

WV IA M

S ND LA A

KK

Y AR OH

IN MI

ME W

IN

CR

IK

SM

O NM HI NE

VA OK

MD

PA

VT MT

OR

NH MN

GA

AL DE

TN SC SD N

J ID UT CO DC

TX IL W

A AZ M

A CA

FL CT

NY

WY

NV

0

.05

.1

.15

.2

.25

Cha

nge

in to

p 1%

sha

re, 1

982

to 2

007

37

State-level data

• Benchmark: same as Saez-Zucman, with state-level identifiers to create bothwealth and income shares across the income distribution

• Key difference: state-level identifiers missing in micro-data for those with AGIabove $200K

• Ameliorate this problem using state-level aggregates for all individuals with morethan $200K from SOI (new dataset!), but then top income group cannot be toonarrow (top 6%)

• Novel data allows us to create:

AHHDi ,s,t =

∑c

πc,i ,s,t ∗ AHHDc,t

38

Percentage of Filers with AGI Above $200,000

0

2

4

6

Per

cent

of f

ilers

with

AG

I abo

ve $

200,

000

1980 1990 2000 2010

39

State-level specification

• Let

∆82,07Yis =AHHDis,2004−07

AGIs,2004−07−

AHHDis,1982

AGIs,1982

• Key specification:

∆82,07Yis = α + βi ∗ ∆82,07Top6Shares + Γ ∗ Xs + εs

• Notice:

• ∆82,07Ys =∑

i ∆82,07Yis , and so sum of βi gives total effect of ∆82,07Top6Shares• Controls Xs allow us to fix initial household debt ownership (valuation effects),

average income growth, initial income levels, etc

40

Change in Household Debt Holding Against Rise in Top Income Share

AL

AKAZ

AR

CACO

CT

DE

DCFL

GA

HI

ID

IL

IN

IA KS

KY

LA

ME

MD

MA

MIMN

MS

MO

MTNE

NV

NH

NJNM

NY

NC

ND

OH

OKOR

PA

RISCSD

TN

TX

UT

VT

VA

WA

WV

WI

WY

0

.1

.2

.3

.4

∆ 82

−07

Y T

op 6

,s,1

982

.05 .1 .15 .2 .25∆ Top 6% share

Top 6%

AL

AK

AZ

AR

CACO

CT

DE

DC

FL

GA

HI

ID

IL

IN

IA

KSKY

LA

ME

MD

MA

MI

MN

MS

MO

MT

NE

NV

NH

NJ

NM

NY

NCND

OHOK

OR

PA

RI

SC

SD

TN

TX

UT

VT

VA

WA

WV

WIWY

−.05

0

.05

.1

.15

∆ 82

−07

Y B

ot 9

4,s,

1982

.05 .1 .15 .2 .25∆ Top 6% share

Bottom 94%

41

Back of Envelope Aggregate Calculation

• Rise in the share of the top 6% is 14.9% in aggregate

• Coefficient implies: 14.9% increase in top income share associated with a 29.1percentage point increase in the holdings of household debt as a share of income

• Total rise in household debt held as a financial asset by households as a share ofnational income at the U.S. level between 1982 and 2007 is 30.3 percentagepoints

• State-level coefficient estimate implies that rise in top 6% income share explainsalmost all of the rise in household debt held as finacnial asset by households

42

Post Recession: The Rise in Government Debt

43

The Rise of Government after Great Recession

0

.05

.1

.15

.2

.25

Sca

led

by n

atio

nal i

ncom

e(r

elat

ive

to 2

007)

2006 2008 2010 2012 2014 2016

Top 10% Bottom 90%Rest of world GovernmentResidual

44

Conclusion

45

Implications

• Saving glut of the rich may be linked to decline in interest rates and rise inhousehold debt across advanced countries (see model paper)

• Because they ignore distribution, national saving rates can be misleading

• Financial system is channeling funds to households and governments, whileinvestment is weak. Why?

46

Top income shares and rising household debt across countries

8

10

12

14

16

Top

1%

inco

me

shar

e (%

)

50

100

150

200

Hou

seho

ld &

gov

ernm

ent d

ebt t

o G

DP

(%

)

1960 1970 1980 1990 2000 2010 2020

Household & government debt to GDP (%)Top 1% income share (%)

47

Extra Slides

48

Instruments through which Household Debt Held by Households

−.1

−.05

0

.05

.1S

cale

d by

NI,

rela

tive

to 1

980

1980 1990 2000 2010 2020

Pensions EquityAnnuities Mutual funds

More equity−like

−.1

−.05

0

.05

.1

Sca

led

by N

I, re

lativ

e to

198

0

1980 1990 2000 2010 2020

Checking deposits Time depositsLife Ins Reserves BondsMoney market funds

More fixed income−like

49

Through What Instruments Does Top 10% Hold Household Debt?

0

.05

.1

.15

.2S

cale

d by

nat

iona

l inc

ome

Time deposits Bonds Pensions Equity Mutual funds

Top 10%, 2007 level

0

.02

.04

.06

Sca

led

by n

atio

nal i

ncom

e

Time deposits Equity Bonds Mutual fundsPensions

Top 10%, 1992−2007 change

50

Non-financial business deposits and money market fund holdings

.08

.1

.12

.14

.16

.18

Sca

led

by n

atio

nal i

ncom

e

1960 1980 2000 2020

51

Who Holds Household Debt across the Wealth Distribution? Details

0

.05

.1

.15

Sca

led

by n

atio

nal i

ncom

e

1990 1995 2000 2005 2010 2015

Top 1%

−.05

0

.05

.1

Sca

led

by n

atio

nal i

ncom

e

1990 1995 2000 2005 2010 2015

Next 9%

DFA PSZ

52

Robustness of household debt holdings of the rich

−.1

0

.1

.2

.3

Sca

led

by n

atio

nal i

ncom

e(r

elat

ive

to 1

982)

1960 1980 2000 2020

Top 10% (baseline)Top 10% (UST10y)Top 10% (100 bp spread)Top 10% (50 bp spread)

53

Household debt holdings of the rich, DFA

0

.02

.04

.06

.08S

cale

d by

nat

iona

l inc

ome

(rel

ativ

e to

198

9)

1990 1995 2000 2005 2010 2015

Top 1% incomeTop 1% wealth

DFA: HHD

0

.05

.1

.15

.2

Sca

led

by n

atio

nal i

ncom

e(r

elat

ive

to 1

989)

1990 1995 2000 2005 2010 2015

Top 10% (PSZ)Top 10% (DFA)

DFA & PSZ: HHD

54

Change in Top 1% Share Against Change in Top 6% Share

AK

AL

AR

AZCA

CO

CT

DC

DE

FL

GAHI

IA

ID IL

IN

KSKY

LA

MA

MDME

MI

MN

MO

MS

MTNC

ND

NENH NJNM

NV

NY

OH

OK OR

PARI

SCSD

TN

TX

UT

VAVT

WA

WI

WV

WY

0

.05

.1

.15

.2

.25

Cha

nge

in to

p 1%

sha

re, 1

982

to 2

007

0 .05 .1 .15 .2 .25Change in top 6% share, 1982 to 2007

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Note: Survey Data Misses Many Sources of Income

• The measure of saving used here includes both personal and business saving

• Survey data misses all of business saving, and many sources of personal saving

• Business saving (undistributed corporate profits) averaged 4.2% of nationalincome from 2012 to 2015, completely ignored in survey measures of income

• Survey data misses 21% of personal income (Heathcote, et al 2010) includingemployer-contributions to pensions and income on pensions that is not yetdistributed

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