Econ-Atrocity: Who got all of the 1990s boom?

By Michael Ash, CPE Staff Economist

A recent finding from two researchers at the Federal Reserve Board implies that rich people did all of the extra consuming during the 1990s “boom.”

They reached their conclusion by looking at savings, the flip side of consuming. While the historic pattern has been that the rich save and the poor eat hand-to-mouth, the pattern of savings stratified by income class reversed over the past decade. The savings rate of high-income households declined very sharply, and the increased savings of the poor partly paid for the upper-class consumption spree.

The overall savings rate (savings as a percent of income) fell from 5.9 to 1.3 percent over the 1990s. Table 1 shows savings stratified by income class.

Table 1. Savings rate by income class

Income class  Savings Rate
  1992 2000
Highest quintile 8.5 -2.1
Fourth quintile 4.7 2.6
Middle quintile 2.7 2.9
Second quintile 4.2 7.4
Lowest quintile 3.8 7.1

While in 1992 the richest Americans used to save $8.50 for every $100 of income, their savings rate of —2.1 percent by the end of the 1990s means that they were spending more than $102 for every $100 of income. Meanwhile, the poorest fifth of Americans nearly doubled their savings rate, from $3.80 per $100 earned to $7.10 per $100 earned. Because servicing debt counts as “savings,” we can speculate that the poor spent the 1990s digging out from under the accumulated debts of the previous recession.

Yet the thriftiness of the poor could not offset the profligacy of the rich. So high are the incomes of the richest Americans, that when they spend a lot rather than save a lot, the economy booms—at least for them. The authors calculate that the rich switched $240 billion per year from savings to consumption while the poor switched $40 billion from consumption to savings, for a net contribution of $200 billion to aggregate consumption from changed savings rates.

The authors rebut the view that “it would take implausibly large increases in spending by the richest Americans to generate the rapid growth rates observed in the aggregate expenditure data from 1994 to 2000. To the contrary, our direct investigation of saving rates across the income and education distributions…demonstrates that all of the consumption boom really can be attributed to the richest groups of households.”

So the rest of us will just have to wait for the next boom to enjoy implausibly large increases in our spending.


There is a brief description of the Federal Reserve report by Maki and Palumbo at, and the full text is available from

© 2002 Center for Popular Economics

Econ-Atrocities are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.