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Clues To A Savings Riddle

Economic Trends


Americans are poor savers, while the Japanese save a lot. According to economist Albert Ando of the University of Pennsylvania, one reason for the difference may be diverse reactions to the high prices of key commodities.

Ando notes, for example, that the decline in the U.S. savings rate over recent decades has closely paralleled the upward trend of medical outlays as a percent of national income. This spending boom has occurred despite skyrocketing medical inflation, which would normally curtail demand, in part because many Americans consider medical care a necessity at almost any price.

By contrast, whereas a national health system has kept Japanese medical outlays relatively low, the cost of housing in Japan is extraordinarily high. This has induced the Japanese to consume very little housing in real terms.

Thus, in each case, says Ando, the high cost of a key consumption item has affected household saving--reducing saving in the U.S., where high medical costs are no deterrent to spending, and enhancing saving in Japan, where high housing costs restrain housing outlays.

This issue bears upon current U.S. efforts to cut business and government health outlays by passing more of the tab directly to the public. While business has cut its spending, in part by requiring higher copayments from workers, the public's out-of-pocket health-care outlays as a share of consumption have risen sharply, from 5.7% in 1988-1989 to 6.9% in 1993. If the trend continues, it could dampen future U.S. household saving.BY GENE KORETZ

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