Amar C. Bakshi: U.S. household saving rates peaked in the 1980s at around 11 percent, and by 2005, they had plummeted to near zero. How did America go from a nation of savers to a nation of consumers?
Sheldon Garon: Well, in fact, before World War II we weren’t a nation of great savers. We were a nation of OK savers. Those who did save, saved a lot. But as late as 1910, most Americans didn’t have a savings account. Unlike Europeans and Japanese, they lacked access to savings institutions that would accept very small deposits—such as savings banks and postal savings banks.
But then in the two World Wars, and particularly in World War II, the federal government intervened to encourage ordinary people to save in ways the Europeans and Japanese were doing at the time.
The U.S. government undertook two innovations. First, it introduced U.S. savings bonds right before World War II, and they became very popular and very accessible during and after the war. So that was one of the ways people saved and became good savers in America.
And the other way was the Federal Deposit Insurance Corporation, introduced in 1934, which guaranteed the deposits of small savers in most American banks. So during the Great Depression and after World War II for several decades, we saved at pretty good rates - between about 7 and 11 percent, from 1946 to the 1980s. (CNN)
An annual study by USA Today found that private sector paychecks as a share of Americans’ total income fell to 41.9 percent earlier this year, a record low. Conservative analysts seized on the report as proof of President Obama’s agenda to redistribute wealth from, in their words, those ‘pulling the cart’ to those ‘simply riding in it’. Their accusation withstands the evidence—only it’s corporate executives and wealthy investors enjoying the free ride. Corporate executives have found a simple formula: the less they contribute to the economy, the more they keep for themselves and shareholders. The Fed’s Flow of Funds reveals corporate profits represented a near record 11.2% of national income in the second quarter.
Non-financial companies have amassed nearly two-trillion in cash, representing 11% of total assets, a sixty year high. Companies have not deployed the cash on hiring as weak demand and excess capacity plague most industries. Companies have found better use for the cash, as Robert Doll explains, “high cash levels are already generating dividend increases, share buybacks, capital investments and M&A activity—all extremely shareholder friendly.”
The corporate cash glut has become a point of recurrent contention between the Obama administration and corporate executives. In mid December, a group of 20 corporate executives met with the Obama administration and pleaded for a tax holiday on the $1 trillion stashed overseas, claiming the money will spur jobs and investment. In 2004, corporate executives convinced President Bush and Congress to include a similar amnesty provision in the American Jobs Creation Act; 842 companies participated in the program, repatriating $312 billion back to the U.S. at 5.25% rather than 35%. In 2009, the Congressional Research Service concluded that most of the money went to stock buybacks and dividends—in direct violation of the Act.
...while [savings] increases the existing aggregate of capital, [it] simultaneously reduces the quantity of utilities and conveniences consumed; any undue exercise of this habit must, therefore, cause an accumulation of capital in excess of that which is required for use, and this excess will exist in the form of general over-production.
OECD Unemployment (2011):
Gini Inequality Index (lower is better):
Per capita external debt:
Public debt % of GDP:
USA: -600 billion
CAN: -050 billion
GER: +150 billion
EUR: -030 billion
I am ideally wired for the system I fell into here. I came out and got into something that enables me to allocate capital. Nothing so wonderful about that. If all of us were stranded on a desert island somewhere and we were never going to get off of it, the most valuable person there would be the one who could raise the most rice over time. I can say, “I can allocate capital!” You wouldn’t be very excited about that. So I have been born in the right place.
Gates says that if I had been born three million years ago, I would have been some animal’s lunch. He says, “You can’t run very fast, you can’t climb trees, you can’t do anything.” You would just be chewed up the first day. You are lucky; you were born today.
And I am.
— Warren Buffett
« Older Yaoi, man-on-man relationship comics aimed at fema... | AVENGERS IS JOSS WHEDON MOVIE.... Newer »
This thread has been archived and is closed to new comments
Buy a Shirt