Americans Spend While Others Save

With Cyber Monday upon us, retail sales are up on last year – but is that a good thing? Host Lisa Mullins talks to book author and Princeton professor Sheldon Garon about why much of the rest of the world spends less and saves more.

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MARCO WERMAN: Here In the United States it seems the people are in the mood to forget about the rising health care cost and the gloomy economy. Retailers here are reporting record spending by consumers over the long thanksgiving weekend that’s top off by today’s Cyber Monday sales. All of these spending could be a good sign for the U.S. and for global economies but Sheldon Garon would rather see Americans save more. He’s a professor at Princeton university and the author of Beyond Our Means: Why America Spends While the World Saves. OK Sheldon, how stark the difference is between what we save here and what the rest of the world saves over there?

SHELDON GARON: Well at this point they become stark again. The saving rate that’s the personal saving rate has a percentage of the disposable household income is now down below 4% whereas Germans, French, Belgians, their all out up for ten percent.

WERMAN: A significant difference what’s the reason?

GARON: Actually it goes back decades and decades even as far back as the 1800s that the Europeans and also the Japanese set up a lot of institutions that really incentivized what we call small savers or ordinary people to save. They took very small deposits, no minimum balances, these are things like saving bank, postal savings banks and a lot of these institutions still survive in Europe and in Japan they certainly facilitate saving that’s one thing. The other thing is that nobody else in the first world has levels of credit and the availability of cheap credit that Americans stew. This has been a story in the post war but particularly since the 1980s. So, Americans got to a point in the 1990s and early 2000 where they could borrow against credit cards, take out home equity loans, get mortgages and it no longer seem necessary to most Americans to actually save up for things.

WERMAN: OK. But maybe saving is not necessarily better given the fact that the economies of Japan and much of Europe right now aren’t exactly in very good shape

GARON: You’re certainly right about Japan. The Northern European countries are not in bad shape or at least they haven’t been in bad shape until right now. And of course if they’re in bad shape now it’s because of the rest of Europe’s problems. But the German economy is in much more stable shape than ours. You don’t see people forced out of their homes. You don’t see people over indebted.

WERMAN: Is this because people are indeed saving?

GARON: That’s one of the reasons. The other reason is a social support system that of course we don’t have safety nets but the two actually go together. And what the Northern Europeans have succeeded in doing is while their not fancy economies where people can spend a lot, their economies that are stable were most people live within a middle class means and are able to keep spending and in other words at a moderate level whereas we have this boom and bust cycle. And right now were definitely in a bust cycle were you have millions of households either losing their homes underwater indebted and they really don’t have the capacity to spend much past this weekend. And of course the prognosis is that probably Americans in December may not be able to keep spending to sustain the economy and it’s partly because they haven’t saved.

WERMAN: And very briefly give us an example of some place where it is working.

GARON: Well, I think you would find in Germany which has been a very stable economy without the booms and the bust. They have an active system of savings banks that you would find in every German town and city very accessible. They offer special small savers accounts for youth and others that tend to pay rather attractive interest rates. They promote a social goal. It’s good if everybody saves to some extent and not become over indebted. They also have strict policies against over indebtedness and activate parts of their welfare state to try and prevent or help people who are over debted to get out of debt.

WERMAN: OK. Thank you very much, Sheldon Garon professor of History and East Asian studies at Princeton. He is the author of a new book Beyond Our Means: Why America spends While the World Saves. Thanks a lot Sheldon.

GARON: Thank you.

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