185. "Economics Alone Won't Solve Saving Dilemma" The Boston Globe, (April 25, 1989).
The current concern over Americans’ low rate of saving and the search for a cure sharply illustrates the need to inject sociological, psychological and, yes, ethical considerations into economics. The source of this concern is widely identified as our citizen’s inability to provide the capital necessary for US investment.
Americans’ personal saving rate fell below 3 percent in 1987, while the German rate stood at 13 percent and the Japanese rate 15 percent. What accounts for these differences in saving rates, and how can the American rate be lifted?
Mainstream economists’ solution to these questions are woefully inadequate. Various policies designed to boost savings, based on economists’ notions that people are motivated only be self-interest, have had limited effect. All-Savers certificates probably cost the Treasury more in lost revenue than the resulting boost in saving. And even after the more successful IRAs were introduced the saving rate has remained abysmally low.
For the sociologists, psychologists and anthropologists who study economic behavior, the answer involves working both sides of the street: Taking into account the effects of peoples’ social and moral values, as well as their self-interest, on their economic behavior.
A historical perspective provides a good start to discuss the role of values in the economy.
Until the early 1950s most Americans considered it highly improper, if not outright immoral, to be in debt, to buy on credit. Economists feared that as peoples’ needs were met, the pent-up post-war demand satisfied, the country’s rapidly growing productive capacity would find no outlet. To preempt this possibility, corporations teamed up with Madison Avenue and, supported by the Eisenhower administration, began a campaign to legitimate buying on installment.
Americans only grudgingly accepted the new view of assets; private debt grew relatively slowly. However, over the years, the spreading self-image of an affluent society (those far away days!) Further stimulated consumption that exceeded current income, undermining saving. Me-ism and two decades of loose purse strings - private and public - followed.
The proportion of Americans who judge installment debt to be morally wrong declined from 40 percent in 1960 to 15 percent in 1977.
An additional catalyst to spending beyond one’s income came with the debut of the credit card and the bank account that allowed, even encouraged, overdrafts - both permitted people to go into debt , without admitting to themselves a fall from grace.
In our own day, of course, the government has further dis-saved by amassing a huge domestic and international deficit. But even this unhappy situation would not have come about if, as James Buchanan noted, the public’s acceptance of such behavior had not increased during the decades of “deterioration.” In fact, the public still opposes deficits, but its opposition is now largely expressed in the form lip-services to an old value, unsupported by any willingness to sacrifice government programs that affect the majority of to raise taxes significantly.
What would socio-economists prescribe? They would agree with economists that the best way to start is to reduce the federal deficit, but for this course to be acceptable and for it not to be accompanied by increased private consumption, the moral climate must change: we need to discover that an old value is significant for our time. In part, the rededication can be advanced by the new president, using the White House pulpit.
Adjusting the moral climate is also the long-run task of our schools. Educators should stress the importance of saving. Flagging it as an act of patriotism allows us to compete, indeed survive, economically, to insure a decent future for our children, and to not be dependent on others of the state.
Lastly, help may be on the way from a most unexpected quarter. Beginning this year and through the 2020s, the Social Security system will run up a significant and growing surplus. It should be relatively easy to build consensus that this surplus should not be consumed (by absorbing it to cover part of the federal deficit, currently the case) but invested, both to provide the resources for the growing number of retirees in the mid-21st century and to boost the saving rate.
Beyond tanking up more savings, we need to apply the same bifocal approach, combining social and economic analysis, to other issues on which economists could use reinforcements - a fair list.