Commentary

Saving: Good personally, bad nationally

Steve Chiotakis Feb 5, 2010
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Commentary

Saving: Good personally, bad nationally

Steve Chiotakis Feb 5, 2010
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TEXT OF INTERVIEW

Steve Chiotakis: We keep hearing talk of these giant federal budget deficits, trillions of dollars and a debt ceiling that keeps getting raised by Congress. Former Labor Secretary Robert Reich says we should be paying attention to how much people are saving, and he’s with us now to talk about it. Good morning, Bob.

Robert Reich: Good morning, Steve.

Chiotakis: So we’ve been hearing a lot about Uncle Sam’s budget, but what about the budgets of regular people?

Reich: Regular people are saving more and spending less. The rate of personal saving is rising, it’d hit 4.8 percent of after-tax income in December.

Chiotakis: Now 4.8 percent, that still sounds pretty low.

Reich: Well, it’s all relative. Back in the 1950’s and 60’s, Steve, the typical household saved about 9 percent of its income, and then that dropped — by the 1980’s, the savings rate was down to 7 percent, and just before the crash of 2008, it was down to around 3 percent.

Chiotakis: So it’s good then, Bob, that people are saving, right?

Reich: Well it’s rational for the individual person in household. So many people got clobbered over the last two years — either actual or threatened loss of jobs or home, piles of credit card debt, auto debt — and they decided, rationally, they don’t ever want to go through that again. And in addition, you’ve got all of these baby boomers facing retirement without enough savings. Their 401Ks took a licking in the down draft, their homes are worth far less than they assumed they’d be worth, so they’ve got to start saving like mad, too.

Chiotakis: And if saving is so good though, Bob, what’s the problem?

Reich: Well here’s the problem: What’s good for individuals and families is not necessarily good for the country or the economy as a whole. You see, when people save more, they obviously spend less. And if everybody is spending less, producers — that is retailers, manufacturers, service businesses — they don’t have enough of a market for what they sell. Which means they don’t hire, they don’t refill inventories, they don’t expand, and the economy has a harder time getting back on its feet.

Chiotakis: All right, so what’s the answer then?

Reich: Well, if American consumers go on a savings binge, Steve, we’re going to have to count on other sources of demand to pull us out of the slump — for example, new corporate investments and exports.

Chiotakis: And neither of those, though, has increased enough to fuel a recovery, have they?

Reich: No, and that is part of the problem. And it’s why many economists think we still need a big federal stimulus, and why the Fed has to keep short-term interest rates low for the time being.

Chiotakis: Former Labor Secretary Robert Reich and current University of California Berkeley professor of public policy. Bob, thanks.

Reich: Thanks, Steve.

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