What if instead of giving rebates we helped create an investor society by seeding universal investment accounts? This would not only pump cash into the economy, through the slightly more indirect route of investment, it would also help us correct some of the near-fatal flaws in our long-term economic landscape.
The recent slowdown in gross domestic product growth is only a symptom of recession, not the cause. While there are many things to blame for the current crisis ”” most notably the subprime mortgage mess ”” one factor that has received little attention is America’s low savings rate. In 2005, net private savings in the United States were negative. In other words, we were spending money that we didn’t have, chipping away at our national wealth.
The last time the savings rate dipped into the red was during the Great Depression. At that time, of course, it made sense not to save. Joblessness was high and money scarce; we needed to dip into our kitty to survive. But our negative savings during the Bush boom had a different cause. Evidently, we felt so flush with (paper) gains in the stock and housing markets that we spent money as if there were no tomorrow….
Amen, amen.
This article reminded me of another I read several years ago dissecting the idea of “wealth.” That earlier article’s point was that wealth should not be measured in absolute terms but in terms of one’s ability to weather a crisis with one’s life and health intact (which would equate wealth more with security than with raw buying power). In that earlier article, it was posited that a worker earning $30,000 per year, but who has no debt and a savings fund of $5,000, is “wealthier” than someone earning $300,000 a year but who is in debt up to their eyeballs and has no savings. Why? In the event of a shock — be it personal, like a health issue or car crash; or national, like a stock market downturn or terrorist attack — the former person is far more likely to be able to weather the shock without lasting damage than the latter.
Encouraging savings, especially among low to middle-income earners, would truly create a secure “wealthy” class where one did not exist before.
Why does this need to look like rocket science????
Just tax spending!!
Why do we tax income??? As a christian, I believe it is immoral for a government to penalize (tax) a christian duty.
Don
I am puzzled by one thing. We have a deficit of nearly $400 billion
and we are borrowing another 150 or so billion to “stimulate” the
economy by providing rebates. This money is being borrowed from
China, among others. Those receiving these rebates will buy goods
that are made, by and large, in China. What we are doing is stimula-
ting China’s economy. This makes little sense to me.
A word of caution on savings rate – part of what drives a savings rate down is simply the aging of the population. The savings rate is calculated (crudely) by looking at total national income (plus interest, divideds, social security), then netting out total national consumption (consumer goods, some services, plus some costs of home ownership). Retired folks have less of the former, and typically spend out of capital rather than earnings. Other advanced economies with aging populations show the same decline. What’s more worrisome is negative savings and declines in net worth – that’s where you can be sure the nation’s wealth (I use the term loosely, since it’s not an actual entity) is declining.
What strikes me is the close kinship of this idea with Mr. Bush’s proposals to improve Social Security, an idea excoriated by Mr. Conley and his academic buddies. But if it’s [i]our[/i] idea, …
Saving is good, spending is bad. But if I save my money in a bank, won’t they just lend it out to some fool [i] who will spend it? [/i]
So the best thing would be to bury it in the back yard.
Hmmm, that doesn’t sound right.