The US Savings Rate: Foreshadowing of Empire ?
It has recently been announced that the savings rate in the USA is the lowest since 1933, a negative 0.5% in 2005 versus a positive 1.8% for 2004. This should come as no surprise. We have a very wealthy, consumerist society.
In economics there are just a handful of agreed-upon proven truths, one of those is that 'incentives matter'. There are no incentives for individuals and families to create value patterns to live within their means. We have government programs for old-age guaranteed income, we have an easy ability to declare bancruptcy, wipe the slate clean and borrow again, we have guaranteed bank savings therefore subsidized and easy bank lending, we have subsidized student loans allowing kids to borrow large amounts of debt cheaply to pay therefore inflated tuition prices, and we have 100% guaranteed housing mortgages, allowing housing debt stacked to the hilt. No wonder we save nothing.
Another agreed-upon economic truth is that there are two things to do with your money: save or consume, and if the consume option is chosen that means the economy is spending to live now instead of investing to live better in the future. Like everything there should be a balance, but we are consuming like no tommorrow because of the incentives created by skewed public policy.
When things over-extend they fail, much like the Roman Empire, or Enron, or your favorite rock band who gets too much money to record their breakthrough album and therefore comes out with ponderous over-produced shite (an easy throw-off analogy I know).
Yes our private savings rate is negative but so is our government (at least 20% of our economy depending on how you measure it versus 5% for China) not living within its means, as the government borrows more and more for its war efforts and troops placed abroad, politicians unaccountably pork-barrel for bridges to nowhere, subsidies continue for crops that could be bought more cheaply from poorer farmers elsewhere, and national government control of schools increases removing much local initiative. None of our 'leaders' steps up to take fiscal, or social, responsibility.
Our trade imbalances show that foreigners continue to find the USA an attractive place in which to invest. However, it is time for us to live more humbly, rethink both are own and our government's incentives and actions, or face a slow decline.