"In his Labor Day weekend address on the American worker, President Obama, with little fanfare, announced some initiatives to help Americans save more money. One such step will allow employees to receive their tax refunds in the form of US Savings Bonds instead of in cash. Another will promote automatic enrollment in retirement funds for workers at medium and small firms so that employees will have to opt out of saving, rather than opt in. ... The American consumer kicked the borrowing habit more than a year ago. The country, you may have noticed, is in an economic crisis, and most economists say the only way out is for consumers to start spending money. ... Since consumer spending accounts for 71 percent of gross domestic product, an enduring rise in personal saving would make for a weaker recovery with fewer jobs. ... The government's mixed message may sound grossly inconsistent, but it isn't. Economists often give different answers for the short term and the long term. What is unusual is that the financial crisis has brought these divergent agendas into such sharp relief. ... For the 35 years after World War II, Americans dutifully set aside about 9 percent of their income. ... Also, bubbles in stocks and real estate convinced people they didn't need to save much for the future, since even a small nest egg would grow into a big one. By the late 2000s, the savings rate plunged to less than 1 percent. ... If you ask economists which is more desireable--saving or spending--they tend to stammer. Undestandably, it depends on the context. ... In the short run, to the extent that people don't spend, the government will", Roger Lowenstein at the NYT, 18 October 2009, link: http://www.nytimes.com/2009/10/18/magazine/18FOB-wwln-t.html.
What we learn here is that most economists have no concept of capital formation. As for Uncle Sam spending, he will always find a reason. How nice savings bonds. When will Uncle Sam force you to accept savings bonds? Is this Obama starting the "Argentinianization" of the US financial system? 1945 + 35 = 1980. In 1979 inflation reached 13.3%. Coincidence?
5 comments:
'...bubbles in stocks and real estate convinced people they didn't need to save much for the future, since even a small nest egg would grow into a big one. By the late 2000s, the savings rate plunged to less than 1 percent.'
And, helped create a culture of consumerism, where status became predicated on how much one consumes versus how much one produces. We've ended up with broke people inhabiting big houses and driving leased BMW's, and the little frugal people in little houses (with current mortgages) who own their pickup trucks are considered hopelessly backward rednecks.
We have a long way to go to get to a recovery, and cultural attitudes will have to change first. The shunning of consumer credit noted above is a good first step.
OS:
The attitude that spending is good and savings bad is most common in California. Only in California will you meet couples in their 30s, with combined incomes of $250-$300 thousand per year, no kids, yet broke. In Chicago to this day, people have "mortgage burning parties". I wonder if there's been one in California for years.
IA
Thumbs up on the post and OldSouth's comment.
The tide draws out.
First came the bubbles, courtesy of the Fed; then people stopped saving out of income because they didn't think they needed to.
None of this would have happened without Alan Greenspan, Bill Clinton, Bob Rubin, Larry Summers, and little Timmy Geithner running the show.
Now Greenspan's transmigrated and hyper-aspirated soul resides in the body of Big Ben Bernanke, who is going to drive the lesson home....
Bernanke is a stooge...
Brains sure... no balls... the Wall Streeters have him wrapped around their little finger...
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