Market Value Vs. Financial Accounting Measures of National Saving
NBER Working Paper No. 2906 (Also Reprint No. r1826)
Although National Income and Product Account (NIPA) saving measures, and especially NIPA saving rates, are widely used in both scholarly and journalistic treatments, they are seriously defective as representations of the variables derived from economic analysis, either for measuring economic performance or as elements of the explanation for consumption behavior. The cost-based value of a restricted class of assets recorded in the national income and product accounts is a version of the financial accounting for the tangible assets of a business firm. Economic analysis calls instead for the current asset market value of business enterprises (and their equivalents) as the measure of wealth, and the annual change in that value as the measure of saving. National Balance Sheet data on wealth at asset market value presented in this paper show that NIPA saving measures are not good proxies for market value measures. The picture of recent national saving experience that emerges from market value data is quite different. Various conceptual and data quality issues are discussed.