What underlies this paradox of a lower savings rate coupled with increased wealth? As Leonard Nakamura states in this article, the short answer is capital gains. Stock-market capital gains are excluded from our measures of national income, yet they account for about half of the increase in American households’ net worth in the past two decades. Nakamura discusses the pros and cons of including capital gains in national income accounts.

This article appeared in the Fourth Quarter 2001 edition of Business Review.

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