Beyond Our Means: Why America Spends While the World Saves

thanks everybody I think we're gonna get under way it's uh it's great to see so many of you here today and uh welcome to the New America Foundation I also want to take a moment to welcome all of our viewers online nearly all of our events here at New America are broadcast live on our website www.fawziacademy.com Princeton University he's the author of a new book beyond our means why America spends while the world saves this is a timely event for us and and we're excited to welcome this book into publication and Professor Guerin to new America today a core part of our work in the asset building program is is reaching out to and educating policymakers members of Congress the administration sometimes to leaders at the state and local levels and as we perform that work there are a few key questions that we that we often encounter the first question is of course can the poor save and while some of us might tire of having to address that question over and over I'm happy to tell you that the very at the very least we have a good answer the answer is yes the poor can save they do save and they will save more if they're given access to the right structures and incentives the the other question that we really frequently come across when we're talking about savings with people is isn't it just culture aren't we sort of as a people just given to spending instead of saving and it's it's sort of hard to blame people for asking that question especially when you look at sort of savings rates in in America and the lack of savings that Americans have across across the spectrum to a certain extent doesn't really matter whether you have a high end or a low-income doesn't matter your race or your gender Americans don't save enough money and if you're troubled by income inequality my recommendation to you is to look up the stats on wealth inequality it's it's a much worse picture recently an economist at UC Berkeley calculated that in 2007 the six wealthiest members of the Walton family had as much wealth as the bottom 30% of all Americans combined now I'm sure that those six members of the Walton family took a hit in the Great Recession I'm also sure that they were much better positioned to handle that hit than the 90 million Americans who comprised that bottom 30% professor Garen's book beyond our means takes a historical look at the origins of savings in the US and in the Western world and early campaigns to promote thrift he contrasts that history with the history of savings development in other countries particularly Asian cultures in Japan what emerges is a really interesting study of different political choices shifting cultural attitudes within and across cultures and he ties that history into the most important economic development of recent years and that of course is the Great Recession I don't normally go around recommending comparative histories of political economy but in this case I'm going to make an exception this this is a really interesting book he's a professor of both history and East Asian Studies at Princeton University which strangely but unique we call uniquely qualifies him to write this story and we're thrilled to have him here with us today joining him for discussion also is Ray Bashara for those of you who don't know Ray's the founding director of the asset building program here at New America a former vice president of our organization and currently a senior adviser for the Federal Reserve Bank of st. Louis his career has been dedicated to the promotion of thrift savings and wealth development for all Americans and I'm very pleased to welcome him back to new America we're gonna begin with Professor Guerin who's going to walk us through his his book and the story that it tells and then ray is going to have an opportunity to respond and then we're gonna open up to questions and discussion from from those of you here in the audience today and and we're also going to follow up that with it with a bit of a reception afterwards so if you're watching online and happened to be in the 200 360 code there's still time to get here but without further ado I want to turn it over to Professor Guerin please join me in welcoming well thank you very much Justin it's really great to be back here I was had a very nice sabbatical leave about a year and a half ago at the Woodrow Wilson Center and at that time I came over here regularly and I'm really delighted to be a part of the program this time well I want to thank you very much for the opportunity to talk about my new book the book as as Justin said is a global history and it's a history of how many nations have actively encouraged household saving from roughly 1800 all the way up to the present and when I began this project I will confess that saving was not exactly a sexy topic in the United States where policymakers have long fixated on consumption and credit as the drivers of economic growth but in the wake of the 2008 housing and financial crisis the issue of saving has become maybe too exciting with millions of Americans as you know lacking the savings to protect themselves against home foreclosures against job losses medical emergencies and the prospect of impoverished retirements so the book is in part a history of developments that culminated in America's current predicament but the book also tells the long story of how people in many other nations East and West learned how to save now it's well known that my own specialty of Japan and also other East Asian societies including presently China today boast very high saving rates and are known as being very thrifty people Americans know that but it's been easy for Americans to dismiss East Asian saving as a product of something that we call culture whether it's Confucian heritage or oriental culture somehow we can relegate it to a cultural oddity that's different than the quote-unquote normal pattern in the West the problem with that formulation is that most Americans and I have to say most economists I've talked to seem to be unaware that continental Europeans have also been strong savers and they remain so today and I want to show you a very quick table of these our household saving rates the percentage of saving as a as a percentage of household disposable income what jumps out at us is the high rates of saving in places like France and Germany one could add Austria one could add Belgium one could add Sweden several other continental countries that have over the past 30 years and even before maintained very high saving rates ironically today even higher than the Japanese and I could have also put the South Koreans up now the question for economists is how to explain how continental Europeans maintain high saving rates how historically both East Asians and Europeans have had high saving economists have not done a particularly good job of explaining these cross-national variations - just to give you one example that's often mentioned in economics departments in the United States the welfare state economists will tell you based on certain models from the 1970s that a welfare state and a social security system we call it here our national pension system that in general generous social benefits from a state will disincentivize people from saving well a quick look at it at a table like this it calls that into question the idea that Germans or French or Swedes don't have very welfare systems is a little hard to take they have these are the super welfare states of the world yet they boast very high savings rates and if one was following the rationality posited by economists in the United States which has much flimsier safety nets we should be saving a bundle because life is so risky and yet we have the counterintuitive case here Europeans with welfare states save a lot Americans with a relatively poor welfare state say very little so how do we explain these variations and what I've done in this book is I've looked at a factor that that that economists probably would not measure since it doesn't tend to be central to their methodology and that is that nearly all of the high savers here whether in East Asia or in Europe have long histories of actively promoting saving among ordinary people what used to be called and still is called in these places small saving so we're not talking about large investors we're talking about ordinary people saving and they've done so by means as as we've just heard of institutions of policies and sometimes even moral suasion campaigns and in the books twelve chapters I describe these histories in detail but allow me here to just sum up the European and Japanese experiences and then consider the ways in which the United States has diverged from the institutional promotion of saving that we see elsewhere and I'm going to just run through very quickly since we I want to have a long discussion here and we want to have raised comments I want to look at the very short brief history of the last 200 years in the institutional promotion in in Europe and in East Asia and we begin with an institution called the Savings Bank many of you are familiar with it it starts in various European countries about 200 years ago sometimes even in the late 18th century but roughly around 1800 it spreads like wildfire it's what we call a transnational phenomenon it's a big reform movement at the time so you might see it in England and Scotland but you'll see it in Germany you'll see it in Switzerland you'll see it in France it spreads very fast reformers are very much in touch with each other well what is a Savings Bank it is a special institution a social institution rather than a financial institution that's designed to encourage the working poor in to some extent the middle classes to save these savings banks were usually philanthropic in their foundation or often started by civic organizations particularly in places like Germany where cities would actually start and run the Savings Bank the Savings Bank was associated with the merging concept in the 19th century of citizenship that that somehow everybody in the community was somehow now seen as a citizen whose economic behavior was very important you wanted them not to depend on poor relief you wanted them to be self-reliant you wanted them to stay away from crime and increasingly as you have working-class movements middle classes and upper classes wanted them to stay away from revolution the term that was used in places like Britain at the time was by having a working-class person put his money in a savings bank that person thereby gained a quote stake in the country that they wouldn't be less likely to revolt because they had money in the country they had property in the state in the country and in some ways it's a it's akin to European notions of Financial Inclusion today which are also very much bound up with citizenship so savings banks was one of the big institutions 19th and 20th century another institution was the postal savings bank this really came in a second stage after the savings banks it started first in Britain in 1861 and like the savings banks it to spread very fast transnationally it was considered one of the hot social policy innovations I show here just a stunning postal savings building in Central Europe in in Vienna there's also one in Hungary which is even more fanciful these were showcases for governments around the turn of the last century I mean it demonstrated that governments were actually pursuing active social policies and helping their work in classes and generally the small savers in general if those postal savings bank is probably most famous in the Japanese case my own case a lot of people think it started in Japan it didn't in fact start very early in 1875 soon after the British and the Japanese developed it rapidly so that today it is so large as some of you may know that the Japanese postal savings is actually the world's largest bank so postal savings very important in many countries particularly in Japan what is a postal savings bank do well it takes even smaller denominations in the savings banks it it is very accessible because the mid 19th century is a time of explosion of post offices all around nations most major part of nation-building and the idea that ordinary people could have a post office very near where they live this was a marked improvement in terms of access to savings institutions and finally the postal savings bank offered a security that none of the banks including the savings banks could offer namely your deposits were guaranteed by the state that ran them another institution that promoted saving was the school Savings Bank thrift education this too starts in the nineteenth century it was probably first perfected on a nationwide basis by fanned by the Belgians soon after by the French it spread rapidly a calf way across the world to Japan by the 1890s it was all around and it consisted of I mean an iconic picture would be this I mean just at the another end of the world Australia this was a transnational Monday basically everywhere in the advanced nations of the world including parts of the United States as we'll get to but certainly Europe Australia New Zealand etc on Monday morning children brought their coins in and they were made to learn habits of thrift because they were going to be the future citizens so school savings very important another way of promoting saving when we get into the 20th century is the war savings campaign this is the one that we're probably most familiar with as Americans and we'll talk about the American case in a few minutes you can see an American poster here the fact that you have posters world the two world wars really innovate in terms of mass communication to save and of course the imperative to save is no longer simply that it's good for the soul or that it's good for society now it's good for the state and its pursuit of protracted war these two total wars the two world wars and you can see how fast the messages to save spread we think of propagandist nationalistic but in many ways it's very transyl friends are looking at each other the Americans and the British in this case basically coming up with the same poster admittedly the American one is much more attractive and also Joan of Arc makes a lot more sense in America than it does in England where Joan of Arc is actually the mortal enemy left over from the Hundred Years War but there's these transnational messages to save enemies looked at each other um so the communication process and getting people to save really advances during the two world wars even if the immediate objective is for national strength and war effort and it carries over into post-war periods and the post war is the neck oh let's say hello I'm sorry I I can't I can't depart from World War two without showing you one of the iconic posters from from wartime Britain where you can see how the act of saving and the act of not saving in other words the shopper the shoppers disease there on the bottom economizing and saving is seen as a patriotic act and to do otherwise is to be Hitler's pal and I suppose you could fast-forward to post 9/11 in our own country where not to go shopping made you bend a lot spell okay so clearly we have very much departed from the sort of messages that one saw in wartime Europe and even wartime the United States also the mobilization of serve grassroots mobilization of neighborhood leaders especially women I'm in the home fronts in World War two you can see that in Japan this woman would have been a member of a patriotic woman's organization who's knocking on doors getting people to part with their saving each month and the British woman is doing exactly the same thing a year after the war but in the same sort of war time in post-war national savings movement well the next and final stage in the European and the Japanese story is what happens after World War two this is what Americans don't seem to know much about but the war ends in 1945 but in war-torn Japan in Europe the savings campaigns and the austerity campaigns continue for one very good reason all of these societies are war-torn they suffer major damage they need enormous amounts of finance for reconstruction and for recovery and saving as an addition to taxes it's extremely important toward this end so in Britain the campaign's starting right in the last months of the war and continuing the post war is to keep on saving not only to to beat the Japanese and the Germans but to construct the post-war British welfare state which you see here in terms of roads education housing health etc and you see these campaigns all over Europe and France and Italy in Germany everywhere in the Germany's and in Japan and in the Japanese campaigns last particularly long the Japan actually had active savings campaigns in the post-war period that ran probably all the way to the early 1990s with a extensive grassroots organization now in the European case unlike the Japanese the overt savings campaigns pretty much died down by the late 1950s or so but in many ways European governments keep promoting saving quite quite actively how do they do it well those of you who lived in France you know that there is a tax free small savers account called the Leverett ah or the a passbook it was created in 1818 to just show its longevity it's available at all the savings banks the postal savings banks and in the last two years it's actually available at all banks tax-free a tiny tiny minimum balance no fees its cap data so it's intended for small savers there's about I think 11 or 12 million of these accounts in France today which is a good chunk of the French population in Germany the savings banks of the 19th century are very very much alive called spark Asin if you go to a German town or city you can't turn the corner without crashing into one of these they are everywhere very accessible still have a major thrift promotion message to them and they offer things like youth savings accounts and small savings accounts which like the French example are really designed to get lower income and younger generation saving thrift education is alive and well in many of the cases in Japan but particularly proudly in Germany where the spark us and the savings banks actually have Europe's most popular comic book called connects and they subtly promote it's for very young children they subtly promote as going to the Savings Bank and things like that well so I've told you a lot about the European and Japanese approaches to promoting saving over long term how does the United States fit into this picture how does it fit into the global history of promoting saving and the book argues rather uncomfortably the United States is an outlier in much of this story how is it an outlier well let's just look very quickly at the institutions we've been talking about in the European Japanese case savings banks well the United States in the 19th century had a fairly extensive system what were called mutual savings banks they're basically english-style savings banks the problem is they're very dense and of available in the northeast particularly in New England to some extent in the Upper Midwest but they don't spread much beyond the Northeast the Upper Midwest in a few Pacific Coast cities as late as 1910 my book shows a very few Americans in the southern and western states which is a fairly good chunk of the American population very few of these people had access to any savings account whatsoever so the rate of unbanked Americans in 1910 was huge and a real contrast to what one who would find in contemporary Europe in Japan at the time postal savings bank well I should ask the older members of the audience did the United States have a postal savings bank yes okay good how many how many hands were there two right that's what I figured including some of you who should have remembered but the fact you don't remember is significant because it wasn't much by the time that you were young it was established in 1910 after nearly 40 years of stalemate in the US Congress US commercial banks and regional interests fought tooth and nail against the establishment of postal savings bank in 1910 it was passed but it was passed in a way that almost made it destined to fail it offered much lower interest rates than the banks for good reasons because the paint's didn't want him to do that it wasn't accessible in all rural communities only in major post offices it didn't do what it was supposed to do and finally in 1966 Congress abolish is it and the fact that most you can't remember it is highly highly significant school savings banks did we have them oh oh I sorry I should have okay yeah sorry that just to show you that we really did have a postal savings baby I didn't make it up okay school savings banks well I brought this from my home state of Minnesota yes we did have good school banks I show this picture in Europe a lot and and and and especially in Germany to say well how do they get Americans to line up like that and I said well they're all Swedes and Germans okay it has to be the answer but Eddie who knows okay anyway so there were pockets of school savings banks in some you may have gone through them New York City very good Minneapolis very good most places terrible because we have a highly decentralized Schools system and also even if you wanted to have a school Savings Bank you have just somewhere to put the money the postal savings bank was actually it was illegal for them to take school savings so you had to have a savings bank because of commercial banks said oh I don't want those high transaction costs commercial banks have changed very little in this country in terms of transaction cost transaction costs you know social mission not a lot okay so you didn't have so very uneven school savings banks and only only really in World War two well World War one doe some extent really World War two does the United States converge to what the rest of the advanced world is doing that's when you have very active savings campaigns with grassroots organization and you have the innovation of the u.s. savings bond this highly accessible small denomination very easy to administer savings in instrument and you could sell them at the workplaces twenty seven million Americans were in payroll savings you could sell them in schools you could sell them in post offices very very clever solution to the problem of getting a small savings instrument and the other thing of course the United States did around this period was it created the FDIC it's established in 1934 doesn't have that much effect in the 30s but after 1945 when Americans had huge savings from the war the fact that now all banks were bait will all bank the Savings and Loan little different but at least the banks had the FDIC insurance system the Full Faith and Credit in the United States so this is also America's answer you could say to postal savings elsewhere highly effective and the result is that's re here the result was that in World War two but even in the postwar decades the US had pretty good savings rate and then I think some of you know this ranging from 1946 to the 1980s between about 7 and 11 percent so you know fairly respectable far below the Japanese significantly below Germans and others but still rather high compared to you know what we've seen in recent decades when as you can see the savings rate falls off the cliff basically in the 1990s in the early 2000s well long-term factors in the decline of saving and go over very fast but the United States comes out of World War two with unparalleled prosperity doesn't really need the savings and austerity campaigns other countries have we have already from the 1920s a vibrant consumer credit culture starting with the installment plan the 20s and and 50s people get used to buying on credit and homeownership which let's see you know enormous rise in the u.s. sponsorship of homeownership going back to the 30s but particularly kicking in the 1950s and thereafter the GI Bill the FHA all sorts of things that promote on fairly easy terms home ownership in lots of ways tax benefits all the sort of things we know and that really brings us to what happens in the last 30 years or so what happens after about 1980 up to the 1980s the US pattern of saving through housing and it's consumer culture this is pretty sustainable the United States had high savings or relatively high savings with relatively very high consumption it was people paid back their credit both housing and consumer but after 1980 or so something snaps I think most you probably know this story so I'm not going to spend a lot of time on it but certainly the deregulation of credit cards is enormous and the universalization of the credit card and the revolving credit in other words borrowing against your credit card we take that for granted but if you were to go to Germany or Italy or Belgium and you looked at people's so-called credit cards and not credit cards at all they're called delayed debit cards they pay them in full each month they are scandalized to think that Ameri actually don't have to pay their credit cards back in Japan almost everybody pays their credit card bill in full as well so this is unusual what the Americans have a few other countries have it but a particularly America the home equity loan nobody really talks about it but this really only got started in the mid-1980s particularly encouraged by the 1986 tax law which makes home equity interest tax-deductible along with regular mortgages and there's an explosion of home equity credit and the line between housing credit and consumer credit blurs because you've got that nice line of credit that you can draw on for any purpose you don't have to use it for home improvement you can use a for vacation you can use it to buy things you can just use it as a source of ready cash and I think that had a lot to do with diminishing saving subprime mortgages we won't talk about because people know that story well and also lots of prime mortgages that were given with no down payment and of course all this occurring as income equality is growing particularly in the last 10 years so that in a sense credit becomes America's welfare policy in Europe you get in trouble you get social benefits in America you get in trouble we give you more credit okay so that's a lot of the story well now since 9 2008 Americans have started saving again and there were a lot of stories about how we're returning to a new frugality and all that well I think they were exaggerated because even at their peak the annual savings rate it looks like now didn't even go above 6 percent actually below where we've been in the post-war period and below where everybody else is and now in the last few months it's been below 4 percent so in the last chapter I offered recommendations and I'm just going to leave them up for now I'm not going to talk about them right now except for maybe two things these were recommendations and at the back of my book I had for a historian but I was in Washington and people said you can write a book like this you need policy recommendations so this is a these are the lessons of history or how I spent my European vacation sometimes I call but anyway I want to single out two of them revive postal savings now that seems lunatic except that it's normal everywhere else in the world moreover now you might say why would you want to revive postal savings because the post office is about to go down and my answer would be that's exactly what I want to revive postal savings because in Europe and Japan many postal say at postal systems seen declining revenue from delivery have actually compensated by the rise in Postal financial services so you could actually kill two birds with one stone here it's a wonderful way I think of improving access and it might saving might actually save the post office the other thing is promoting Financial Inclusion as a democratic right I think the way we talk about it we've not done enough to talk about really the importance of saving and equal access to it particularly lower income households we've done a lot in the post-war period to talk about the democratization of credit and to pursue that we've done very little to make it as easy to start a bank account as it is to get credit and I will end at this point and turn it over to red good afternoon everyone it's great to be back in New America thanks Justin and Reid for the opportunity to come back I wouldn't have taken a job in st. Louis it didn't bring me back to Washington periodically it's great to be here I now have to say that these are my own views and not necessarily the views of the Federal Reserve Bank of st. Louis so first I really want to congratulate show on a truly remarkable and incredibly well time book the timing you know my own book that I wrote with Phil long long in the next Progressive Era had it been published now instead of two and a half years ago I'm sure it would have been a blockbuster but I don't know how you did it show but maybe maybe there's something about writing a about a topic that is not sexy it's like buying stocks when they're down right it's counterintuitive let me just point out two things about chose a remarkable timing you know I don't know if many of you had a chance to hear the President's speech last week in Osawatomie as a week ago today but here's what he here's something he said this is not just another political debate this is the defining issue of our time this is a make-or-break moment for the middle class for all those who are fighting to get into the middle class because what's at stake is whether or not this will be a country where working people can earn enough to raise a family build a modest savings buy a home secure their retirement now these all involve saving right the president didn't really talk a lot about how to achieve saving but he's talking about reaching the middle class and the savings that are needed to get there and he talked about it being one of the defining issues of our time so fabulous timing on that point but there's another point - some of you may have seen shows out that in the New York Times Thanksgiving Day I think it was Black Friday I'm sorry Oh perfect there we are yeah great timing and you know and he talked he ended with call to sort of help rebuild balance sheets and some of you are many of you are probably well aware that the household balance sheet you know really is the core economic challenge of our time the IMF have has labeled the balance sheet as you know what's weak the weak American balance sheet is what's inhibiting a growth the couple of economists Mian and Sufi recently pointed out that two-thirds of the jobs lost between March 2007 and March 2009 two-thirds were due to household deleveraging ie families because they didn't save and because they built up too much debt have to rebuild their balance sheets so you know the balance sheet really is the core economic challenge and the president is talking about the importance of savings and building assets as two defining moments of our time so this is all a way of saying she'll congratulations on your timing you've written a book that I think is incredibly well timed and I think there's a lesson in that for all of us too of course potentially find a topic that isn't necessarily on people's radar but might be at some point so that's my first comment I have just a few more I really I really like how you you had a lot of counterintuitive observations it's not just culture policy moral suasion institutions these things all have an effect on on you know whether culture whether people save or not and but there's also something about a moment a political moment and the one that you talked a lot about in your book which I really admire is the the warm moment the way you talk about how nations mobilized savings campaigns around that and in Chapter six there's a really good discussion of what President Wilson did at the beginning of World War one and he noted that prior to that Americans had been wasteful and spendthrift you know really irresponsible in their in their ways and as a result he started something called the Committee on Public Information which was basically turning a big part of the US government into a giant ad agency which was really remarkable and they had posters and there's one in the book that says fight or buy bonds you had a duty to either fight or buy bonds which I thought was really remarkable and it wasn't even made the statement in shells book if this nation can learn something about saving out of this war then the war would have been worth the cost now I don't know if he was he must have written that before we really knew the full cost of that war the human cost and the financial cost but that says something about the depth of his passion for this idea and I guess I'm intrigued with this and then now of course many of you remember that when 9/11 happened you know the response was not go out and say but go out and shop so my encouragement to Professor Guerin is to reflect a little bit more on this this moment this warm um and how it's been used how it could be used how do you mobilize savings absent a war I'm really intrigued with this and the radically different responses in America around the war moment in World War one in the war and really following World War two and then what happened in 2001 and maybe that was just a culmination of a lot of a lot of other factors but I think it's an interesting contrast that you you document in your book a third comment is this around language read and Justin and I'm innocent many and the program has struggled really hard to figure out the right language to talk about rebuilding savings and assets in this country we and we learned that asset building is not the right not the right framework I'm not sure what is the right framework but I'm intrigued with your idea of Financial Inclusion as you know in the which is of course very successful in Europe and even outside of Europe South Africa I believe uses that framework as well and you know and there's other folks out there thinking about this it turns out that Reid and shell and I have all signed this new report coming out soon called why thrift matters we were part of a thrift of omission they're betting the store that thrift is kind of the right framework to not talk about just conservation of financial resources but environmental resources as well but you know why is thrift not the right term now and why do you stake your your efforts on the notion of financial inclusion after all this research why not just savings you know if we're trying to build a savings culture why is financial inclusion where you sort of settled forth comment and I'm almost done I'm um you know in your book when you talk about how to achieve savings and Financial Inclusion you your recommendations are very heavy on policy and I think very dependent on sort of bricks and mortar institutions so postal savings banks regular banks you know opening up bank accounts and things like that I'm curious to hear your views about the role of private markets as well as the role of Technology in trying to achieve financial inclusion I think you know if I had a critique for the book and it was hard to find one this would be it you know do we need to think a little bit more about technology and private markets as we think about achieving financial inclusion certainly in the asset-building field there are whole institutions now dedicated to figuring out those very things and so what role do you see for those other sectors or those other kinds of institutions to achieve what you set out to achieve and then my final comment question is you know really about saving for what and for when and for whom you know what are your priorities should it be emergency savings precautionary savings should it be savings for durable goods homes college education retirement Americans budgets are limited that certainly the American budget is very limited and probably getting smaller and we can't just do everything we want to do we certainly can't subsidize everything that we want to subsidize so my question is well what's what do we prioritize here of all the things that we could say you're in a room with Gene Sperling and he says I can support one savings initiative what would it be you know so give me a sense of you priorities I remember when Reid and Justin and I were working with Senator Schumer to introduce the Aspire Act which would create a savings account at birth for every single child in America you know he said I'm doing this because I grew up in Brooklyn and I grew up with I grew up in the school savings program I learned so much about saving and about financial literacy to me that was an important part of the culture of saving in America and part of the reason I Senator Schumer and proposing this bill is that I think we need to rebuild that culture he did not to my knowledge sponsor other savings initiatives for him this was the route this was the priority young school based targeted at kids at birth for every kid would that be your priority professor Guerin and if not what would be so I will stop there and turn it over back over to Justin and we'll open it up for Q&A thank you thank you both there's a lot there's a lot to dig into there and and I think I want to sort of keep it up here and sort of start by giving Professor Guerin an opportunity to respond to the to raise comments airily all of them yeah yes sort of for the room yeah I mean I said sort of think in particular sort of you know you do talk about in your book sort of the the the modern sort of history of this warm moment that we're in and sort of how the the sort of a governing structure in the US and individuals within a structure have have responded so maybe a little bit about that a little bit about why financial inclusion and and your savings priorities and we don't have to go into all that right off the bat but do want to give you an opportunity to to swing for the fences okay I'm going to be very brief because I'd like to hear what the audience has to say but the first the warm moment actually I'd be a little uncomfortable if if we used a warm model to promote saving today one of the points that tried to make toward the end of the book is that the the war time in the early post-war our campaigns are a thing of the past even in Europe and Japan and and that what we I think can better learn from is are there contemporary peacetime ways of promoting saving you know which are more subtle to be sure but but things like small savers accounts and certainly the revitalization of school saving and things like that I suppose if there was one thing I'd like to see a little bit more consolidated and centralized it would be financial education which is done well in some school districts it's the same story I told 100 years ago but has very little coordination and and I I could see the Department of Education and the new Consumer Financial Protection Bureau which I understand is some sort of mandate to do that that a lot more could be done so that our goal would be to have financial high quality Financial Inclusion classes in every school in the country so it's not necessarily a war model but it but it does involve I think national and national efforts so that would be one response the language is interesting why do I use Financial Inclusion well I must say even though I I do sign these thrift reports as do you I don't have a lot of faith in the emotive power of thrift in American society most people don't even know what it is anymore and when they do hear it those who do know it they tend to frown and think it's really retrograde I know some of our friends in New York really like this term but I just don't think it's gonna play saving while saving yes that literally is what people are doing but that doesn't seem to fire up people either and and I do like this European term of financial and social inclusion it's going to be a stretch for us we don't think of a central goal of this nation as including people one of my danish friends said that he observes that we're very patriotic but we're not very nationalistic we don't think so much in what the Europeans call social solidarity so even this word social is problematic but financial inclusion that that that might work I mean it's a stretch but the I dear that that this is a basic part of citizenship that it's something that we that everybody should have bank accounts ways of building their assets that that our government should do a lot more to incentivize and to subsidize this particularly for lower income households I think this is very important and while it's not going to be easy this this to me is the best term around in other words puttin it in the language of democracy and of citizenship and as I said we we have no problem with the term democratization of credit and we needed the mock word ization of saving and and I think Financial Inclusion might be a way of doing it and let's see I think you had a lot of great questions but the saving for what well this is where I think we have to take a step back and understand that simply getting people to save is not going to solve all of our problems I mean there are people who believe that to believe in in you know kind of old notions of self-help in that yes that's important but it really does have to be supplemented by an active state you know maybe I'm giving my politics away here but I mean this is why strong welfare states in Europe also have high saving because citizens are not expected to save for everything there are there are areas where what the Europeans would call the socialization of consumption occurs the dirty word we would use here are taxes in other words you actually come education and and health would be my two big choices I don't think people can really save up for those and III think it would be counterproductive to focus on that you know we need to socialize the cost and it's actually a more efficient way of doing it I do think short-term saving needs to be recognized economists you know if they're lifecycle hypotheses you know they somehow think the only reason people save is for retirement but boy you ask somebody who lives in an American city what do you say for and they say we save for the car repair the next day we save for you know my child has an ear infection I do you save for short-term things and that we should be incentivizing that small savers accounts you know taxes is not the best way of doing it but if we are gonna use taxes obviously you know you people have done this and I'm borrowing from you but we need credits not not tax deductions because right now we incentivize the rich to save for their retirement and to buy bigger houses as if the rich need and and I'll include myself in the rich I don't need an incentive to say for retire my gonna say for retirement we should be incentivizing lower-income people with all sorts of things including credits rather than deductions I'm gonna stop at this point so I want to use the moderators prerogative and I want to pick up on a thread that's in there one of the things that and still raise roll a little bit as discussing and responding to the book one of the things that was really interesting to me sort of reading this book and reading this history you come to a realization that essentially not all but the vast majority of these savings products are they're not they're delivered by the by the market they're delivered by the financial sector but they're created by governments and if we sort of look at that purely domestically we think about sort of the restrictions on savings accounts are set by the United States the the 401k is a creature of the government the IRA and the Roth IRA are created by acts of government and so I think when you sort of go down the spectrum of sort of what savings products are available the market has created some products but by and large they're their creations of the state and so when we see at least when I look at sort of where are the holes for us as a nation in terms of vehicles for people to save a lot of the shortcomings that we have I think really need to be pinned at the doorstep of you know a lack of imagination or or as you said we're you know school savings account can't be handled by the postal savings bank because of lobbying then then then you know we have a we have an issue where this is sort of a failure of action a failure of imagination on the and I realized I don't have a question here I'm just making a decorative declaration but but but but it's you know but it's a thread throughout the book that products are created by governments and then I'll I'll go on to my next one then since I didn't have a question at all the other thing that I found really interesting to sort of threw out is that you know sort of having worked on Capitol Hill having worked on creating legislation and and and work to shape it from from the outside as well a common theme that people discuss is unintended consequence and I think one of the things that's really interesting that pops out in the book is the role of unintended consequence both from a perspective of regulation and from deregulation and I just wonder if you can talk a little bit about sort of unintended consequences in the American context over the going to the last 30 years or so yeah that's right never mind that's fine all right so I've got to take the moderators prerogative to make two statements and not ask any question so let's turn it over to the audience and I see some of your hands we'll start in the front on the left here um Professor Kerin I have two quick ones sorry my name is Mark needell one is when you look at the low savings rate in the United States I wonder whether part of that might be explained by spending on health care where a lot of families have large negative savings rates because they have to deal with so have you tried to back out is there any way to back out that number and see what the savings rate would be other than health care and the second one is and trying to encourage my son to save whatever there's the you know the power of compounded interest that if you get 0.01 percent and it comes the lote the rates are so low now um you don't talk about interest rates is that not as important because that that's gonna we just don't work shouldn't worry about that but to me and introductory economics the big motivation to save was there's this interest rate and it's gonna make it more attractive yeah take that ER we'll start let's start there okay uh I'll be brief I'm healthcare your you're absolutely right now I'm not an economist so I wouldn't even know how to model this but that may be a good thing because what look there's a simple experiment we're the only people where the only country that doesn't have a national health care system are health insurance so we are already odd man out it's very clear that even though we say you know consumption is 70 percent of the US economy it's not as if all that is accounted for by going to the mall a lot of that I mean a significant portion of that is what we spend on health care it's very inefficient it's very costly here the socialization of healthcare and of most other places does keep costs down and it's certainly I mean it's it socializes it so it's not as much of a burden for one any one person so I think our low savings is quite related to the fact that how much people have to spend on health care and particularly health emergencies now your second question interest rates that's a little fuzzier if you look historically interest rates are not necessarily as powerful a motivator as one might think witness right now after 2008 you know as you said you don't get much interest but Americans at least briefly panicked and and got into precautionary saving the Japanese did the same thing in the 1990s we laughed at them postal savings paid more or less zero percent and yet the Japanese flocked to it and we said well I think or Sui did it so it there-there's not in US and and in the 1990s interest rates were great in the United States and nobody's saved so I don't think it's it's as much of a causal link as as one might think but I do think you have a point that particularly for children and lower-income people seen some interest is important and it's not for nothing that in the 19th and early 20th centuries the British and the French postal savings systems one had two and a half percent one at 3% and they kept those for decades and decades these were non market rates paid for directly out of their Treasuries the livre I showed you this a passbook in France is a politically determined interest rate it's often above market rates and of any French president Prime Minister will say well yes and maybe above market rates but there is a social good toward encouraging the small saver to save and we'll take it out of our treasury I mean we've redistribute money all the time here we just tend to send it to affluent people this is a way of sending it to lower-income people so I do think seeing some interest is important ray do you want to piggyback on that no no let's go on it's great this is the gentleman across the row right here ed Berger let me say that I'm very sympathetic to the message that you've given us but let me ask two quick questions the I would propose that there has been a mixed message sent from the government over years on this subject we've had a negative current account balance for a long long time that is to say we don't have a robust export economy as those come with the countries that you've described and therefore there's been an admonition from the white house down to consume how does one craft a political argument in the face of that that in fact makes sense and could be bought the second thing is you didn't mention a consumption tax of that which I would propose should be considered perhaps in thinking about encouraging savings yeah good questions I mean you're right most the high saving economies do tend to be export oriented economies and of course that's one of the reasons why President Obama a couple years ago talks about rebalancing and talked about both boosting saving and boosting exports of course that hasn't really happened but I think one can also make another argument though for for savings even even even if the export sector is not as vibrant as it should be savings leads to investment at least it can it leads the generation of capital and at this point we are quite dependent on on to Asian countries we only talk about one of them China because they're scarier but Japan is the other one of them more or less almost split 50/50 their ownership of US debt and clearly I mean we generating more domestic capital would be a good thing course that capital has to be productively invested and that's that's yet another question how our financial industry deals with the capital but I think savings is a good thing can be a good thing within measure for the US economy I mean the idea that you know that Christmas shopping that buying a Chinese trinket is is that any consumption is is the same you know I don't quite see it in the 1950s you know you consumed and not only did you help the people who ran the store but you actually helped at least your fellow citizens who produced it now okay we can be global and say it's nice to help the Chinese and all that but but it does seem to me the sort of glorification of consumption I'm not even sure in in economic terms if this isn't if all consumption is necessarily the same so so that's that's one thing I would say and let's say your other question Oh yeah ah you know I I'm een I don't know if I have it any more intelligent opinion is anybody in this room about that I think there's plenty of room to raise the income tax progressively before we need to go to the VAT I mean let's remember that in places like Europe and Canada you already had high income taxes so the 80s became politically a palatable way of raising extra revenue beyond them you know not every American would agree with me but I do think as you move up the income scale that affluent people are under taxed and income tax and that should be the first place we should go but you know reasonable bad is probably reasonable it's okay I want to I want to move towards the back of the room and I see a hand way in the back we'll start there come forward a little bit night while we're doing doing that well the microphones moving I would sort of just make a note for folks that you know recently we were very pleased to host The Economist Robert Frank from Cornell was a new book out as well and and he you know very aggressively promotes the idea of a progressive consumption tax both in his talk here at new America which is archived on our website and and in his in his new book so there are people who are out there who are making the case that that that's uh that that's a direction that we should head to the back Institute on retirement security and one of the things that occurs to me listening to the dialogue about the war discussion is sort of the charges being lobbed about class warfare and you know when we look at income inequality it's one thing when we look at asset inequality it makes income inequality pale in comparison and so you know is there some response professor that you feel we might be able to attach to the 99 percent as looking at savings of a way of maybe taking it to the man as they might say yeah I don't think a discussion of inequality is necessarily class warfare but I don't think you meant to say that you know I don't know if getting people to save a little more is going to make that much difference I mean I I think again we need to to really think of the tax policies as they are that not only recognize and do nothing about inequality but actually make it worse and and again I mean we need to put this in international comparison there is no first world country that has our level of unequal wealth and income distribution and and the reason most of them don't have it is is because of various tax policies and so I don't think the savings is going to solve that I think it's taxation I think we know where some of the questions are coming up next we want to move sort of to the far right here in the middle and then come forward but I want to I want to follow up on that you you've made a recommendation in your book to eliminate the the tax subsidy for second mortgages and you know I wonder sort of looking around the world at home ownership and and this is you know this is a hot topic and a big topic and we don't really need to go sort of too deep into it but I wonder if sort of you've seen models of homeownership subsidy that that work in other countries that the u.s. might want to look at or are we sort of in so deep with the system that we have now that we need to sort of work around the edges of it and try and make it better when you said second mortgages are you talking about in equity lines of credit right okay home equity yeah I can't really see any reason to give a tax deduction for home equity loans I think it was a total accident I mean it was one of your unintended consequences that you know you have this huge 1986 tax bill I don't think anybody thought these things through and and and there's no justification whatsoever doesn't promote home ownership no other no form of consumer credit is it gets a tax subsidy today and I don't see why a home equity line of credit should so that's that's one thing but you know your your question about what other countries do well well well nobody else seems to to go as far as we do in terms of government subsidization of mortgages either through the tax policies or through you know our FHA system and things like that and yet you know other it's always frequently pointed out that you know places like Canada have hyoma home ownership without those sorts of policies I mean it does become a huge tax giveaway at the upper reaches and does tend to lead to to buying too much and and and so we know that we also know that most Americans don't even don't even get the home own mortgage tax break and yet somehow they think they do so so it's it's it's it's I mean it really is very skewed toward the higher income so you know should we be encouraging more homeownership you know I I don't have any problem with with a tax break or a tax credit for for you know a certain lid on you know five hundred thousand or whatever something like that but you know to go above that for second homes there at homes there's no justification for that whatsoever right well depend yeah well it seems like a lot certainly my name's Chuck Devine if I'm gonna put down an organization I'll say Metro Washington Mensa one of the things I noticed when I was looking at the figures on the board the UK and the US both seemed to have a significantly lower saving rate than either continental Europe or Japan one of the different one of the cultural differences between the UK and continental Europe is that it tends to be a more freer and more democratic society than continental Europe and in the past 30 or 40 years both in the particularly in the US but even to some extent in the UK we've seen a lot of people who have gotten power and they don't much care for a free democratic society so they're doing things like making it more difficult for the middle class to come into existence to keep jobs etc etc anybody if you have that any of those kinds of things not in that way you're right there there is a you you know for a lot of a better term anglo-saxon english-speaking pattern except for Canada which seems to be more sober than but you could put Australia New Zealand the UK and I guess you should throw in Ireland which was the really extreme version what do these have in common well I would state it somewhat differently than you did all of these places in the 1980s did various big bang's enormous financial deregulation the financial industries in comparison to either Japan or continental Europe extremely strong some might say been out of control the the availability of cheap credit in all these places okay so if I said in Germany and Italy you can't you can't even find a credit card clearly in the UK and Ireland and New Zealand and Australia there are a lot of American patterns of credit cards home equity lines of credit all that sort of thing and so I'm not surprised that that they have similar patterns in in in in low savings I you know particularly since those things came into effect in the 1980s so a little different take but that's where I see it so we are headed towards the witching hour and I'd like to take a group of questions and we sort of if everybody can sort of be concise and sort of deliver your question quickly we'll just do these sort of three in a group right here and then we'll see if we have time for more after that a mark broadsky the you dimension mutualization and d mutualization as affecting the savings rates were the insurance companies and the mutual banks disappeared in the same time frame as the savings rate went down I didn't see a recommendation to go back to mutualization in in your list could you comment of that and Robin not intelligently I think you're way ahead of me on I haven't thought about it my name's Lee Jung I just wonder how do you figure out those savings and savings rate and the second is that when a person tried to say they got to figure out the justification for instant why do you need a schoolchildren savings when they can really go with their parents to have a joint account so they were being more safe than individual students student they don't know it was going wrong pretty soon the money will be all gone even a thought account will be the same and if the government is not support and protect the individuals or joint account or their asset or the equity home there was a justification to have savings because pretty soon of all the money will be gone as you can see Occupy Wall Street occupy the war the group certainly means there are money there sa are gone not because the data's an apartment many pretty big to be fired but also because the money was just simply gone be taken away including post office so there's no democracy there's no freedom there's no protection of their assets so I just wondering if you can really say no no better result can can really implement the good law sort of the bank will not take away or compared to Lacoste benefit because I think we order not an existential question here so we I think we have a lot to chew on their savings that cost our savings where they discussed what thank you and actually right next door so where does you roll them along here thank you very much yeah Raphael de Janeiro postal savings your recommendation tell us more how that would work and how we can be confident in it I'm not sure we can be confident but it's a you know I guess you call it the nuclear option the public option look ideally we want to work within you know our so-called market system and we would love it if commercial banks would create accessible small savers accounts instead of doing the Bank of America number of of October 10th and deciding that because you you need a financial fix you're gonna hit your forest customers with things like five dollar fees well that's that's where the postal savings comes in because okay I mean I I'm on your wavelength here the first line as I said would be to try and get the banks to do it to create you could create tax incentives the French government manages to put these things in banks but okay you don't think it's gonna happen I don't think it's gonna happen and that's why I think actually setting up postal savings for small savers accounts they're capped this actually happened in 1910 the commercial banks wouldn't touch small savers and then when they got close to the postal savings thing being in reality then all of a sudden the commercial banks actually started competing for the small savers so that's why you know the healthcare debate we had a couple years ago this is like the public option didn't happen in healthcare but but I I think it I think it's possible how would it happen well post offices handle money you know it doesn't even have to be bricks and mortars Manoah lot of the European Japanese accounts are online now there may be more friendly to youth it could be set up it's it's not that hard to do I mean I can't tell you the nuts and bolts of it but we have a lot of models out there in the world and and I don't think it's hard to do I think the key is that sort of what's lacking is the will and and and and you know that I think that the what we have here today is sort of an effort to to sort of begin to you know continue to build the case that a lot of us have sort of been engaged and we are closing in on our finishing time I want to folks in the audience to remember that you know the professor Guerin and Rae and and folks from new America will be remaining in the room for a little while so we can continue these conversations later but I wanted to make sure and give ray an opportunity for some closing thoughts just one really thank you I I mean I was I want to go back to this idea of you know what what motivates a population to save and I liked your comment that you know we shouldn't be invoking more or using the war a moment necessarily to do that in Wilson appears to have been a little eager to capture a warm moment to get a nation saving again but I think it today it brings up a larger question you know if saving as an Indian itself isn't going to happen perhaps savings happens because of a larger purpose a larger national purpose and I'm wondering what that larger national purpose could be right now in America that gets America series gets American serious about yes we need to think about our future about our economy about economic growth about prosperity about the middle class can you imagine a larger purpose for which savings could be achieved how about the stabilization of American homes which are in serious social distress today because of lack of saving and over indebtedness and I mean that's what I would target I mean we talked about again the health of our society and but those efforts of course have been very difficult to try to remove the you know the negative equity off of off a balance sheets just proved to be very difficult so maybe but maybe maybe though the route then is the American Dream itself is at stake and it's sort of what President Obama was hinting at so could there be a larger national purpose to revive the American Dream and part of that is you need to do your duty to save and we need to do our duty to help you save to order which in order to achieve that I'm just wondering just national purpose could national purpose be a motivator to getting a savings culture generated again in America well I think national purposes is the good of society we'd we don't like to use those words but I'd like to see the president and others using those words because if we can't even find the language to talk about the greater good for the community I don't see how we get to first base I'm not sure there's a better note to end on than that one I want to thank professor Garen Andrade Bashara please join me thank you all for being here today that's a pleasure to have you and we look forward to seeing you next time

Channel: New America

Views: 20,011

Rating: 4.4366198 out of 5

Keywords: savings, America, family, budget, economics, rationing, thrift, policy, banking, postal, school, assets

Id: 15a5V5gvkws

Length: 73min 12sec (4392 seconds)

Published: Wed Dec 14 2011