Saving and the Fear of Nuclear War

Abstract

The hypothesis of this article is that the performance and, in particular, the rate of saving in the postwar U.S. economy has been influenced by the changes in the public perception of the threat of a catastrophic nuclear war. An increased threat shortens the expected horizon of individuals, and thus reduces their willingness to postpone present consumption in favor of investment. The hypothesis is tested by expanding a standard savings function estimation technique to include a measure of the perceived threat of nuclear war. Several alternative measures of the perceived threat are considered, based either on the setting of the “doomsday” clock published monthly in Bulletin of the Atomic Scientists, which reflects the editors' judgement about the likelihood of a nuclear conflict, or on an index of the extent of press coverage of nuclear war issues. The tests all support a large and statistically significant impact of the threat of nuclear war on the rate of private saving. These tests are not viewed as conclusive evidence in favor of the economic impact of the perceived threat of nuclear war. Nevertheless, this research suggests that economists may have been overlooking an important source of influence in the postwar, postnuclear U.S. economy. Conceivably, it could affect not only the private savings rate but also other economic variables such as the level of investment in human capital, the level of asset prices, the term structure of interest rates, and the rate of inflation.