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When aggregates mislead

Official figures show that household savings are rising. This disguises some important variations, however
When aggregates mislead

One of the sillier ideas in economics is that of a “representative agent” household – the idea that consumer spending can be described as if it were the result of the decisions of a single person. This notion isn’t confined to academia – businessmen also talk of “the consumer” – but it stops us understanding what’s going on now, because in fact it is differences among households that are crucial.

This is especially true of saving behaviour. If next week’s numbers from the Bank of England are anything like last month’s, they’ll show that households have increased their cash savings and paid down some credit card debt. But this doesn’t mean we are all doing this. Such aggregate behaviour hides huge differences.

Some of us are forced savers. We’ve kept our job and salary, but we’ve been unable to spend as much as we usually would simply because so many shops have been shut. By default, therefore, our bank balances have increased and our credit card debt has fallen.

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