A remarkable change occurred recently in the nation's savings data: overnight it jumped by $135.2 billion for 1994. Savings increases were even higher in some prior years. This change is due to the fact that the Bureau of Economic Analysis (BEA) now incorporates government investment along with private investment and net foreign investment in arriving at the total.
When businesses purchase assets with long lives, such as buildings or computer systems, the BEA treats the purchase as an investment to be written off yearly over the life of the asset. But prior to January of 1996, when our government made similar purchases, they were treated as current expenditures, written off 100 percent in the year of purchase. The effect was to understate the nation's total saving and to overstate the overall government deficit.
In January the BEA corrected this anomaly. By recognizing government investment, the national savings increased by $135.2 bn for 1994, $151.1 bn for 1993, $182.6 bn for 1992, and comparable amounts for prior years. 1995 data are available only on the new basis.
The revised data now show gross government saving (or surplus) of $49.9 bn for 1994 and gross saving of $79.1 bn for 1995. The 1995 data reflect a federal deficit of $88.7 bn offset by state and local government surpluses of $167.9 bn. The 1994 data show a federal deficit of $119.3 bn offset by state/local surpluses of $169.2 bn.
There are additional facts to consider. In 1995 federal grants-in-aid to state and local governments totaled $206.1 bn and in 1994 they totaled $195.9 bn. If the federal government kept 65% of the grants-in-aid it makes neither federal or state governments would be in deficit.
Another way to look at the federal deficit is to consider that state and local governments repaid $43.4 bn of prior borrowings in 1994, and $51.5 bn in 1995. Should not these repayments really be viewed as offsets to the federal deficit? After all, without the grant-in-aid, there would have been no state/local surpluses and no state/local repayments.
Despite all the rhetoric about deficits and the need for budget-balancing, the facts reveal that overall American government accounts have been in surplus for most of this decade. Perhaps it is time to consider whether it is these surpluses rather than remnants of the dreaded deficits of the Reagan years that now restrain our economy from greater prosperity.
NOTE. The foregoing data can be verified in the Survey of Current Businesses for Jan.-Feb. 1996, p.13, Economic Indicators p.34, and the Federal Reserve Bulletin table A-40.Copyright © Andrew Caughey, 1996