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Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to appear here today to discuss whether national saving is high enough to enhance future living standards and, within that context, whether saving by baby boomers is sufficient to allow them to meet their expectations in retirement.

The Congressional Budget Office (CBO) has advised the Congress for some time that the low rates of national saving that set in during the 1980s pose an increasing, cumulative threat to the growth of living standards for the people of the United States. CBO and other economists have done considerable research on the issues of how saving is best measured and how it contributes to future wealth, income, and living standards. After hacking through a thicket of technical problems, we and other economists can see clearly that national saving is too low, no matter how it is measured, and that federal deficits contribute significantly to low saving. It is equally clear to us that reducing federal deficits offers the most reliable way to remove the threat that low national saving poses to the growth of living standards.

Because baby boomers loom so large in the population, many people express concern about whether the boomers are saving enough now and will accumulate enough savings to meet their expectations in retirement. It is definitely too early to say much with certainty about the financial well-being of the baby boomers in retirement. The evidence available suggests that, even though the average income of boomers in retirement will most likely surpass that of their parents, a large proportion of baby boomers may not be able to maintain their preretirement standard of living once they retire.

Popular wisdom hints that the baby boomers played a large role in the decline of national saving during the 1980s, but the evidence suggests that the baby boomers were not responsible for that decline. In fact, as the boomers enter their high-earning and high-saving years over the next decade or two, their saving could lead to a modest increase in the personal saving rate. Higher saving rates by the boomers in the near term would lead not only to more comfortable retirement for baby boomers but also to a higher standard of living for all Americans in the years ahead. If strong action were taken to reduce federal deficits as well, the outlook would appear much brighter.

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