Sterling Terrell

smart ideas from books (mostly)

  • Home
  • About
    • My CV
    • Books
    • Series
  • Newsletter
  • Advertising
  • Tools

A Dearth of Savings

A Dearth of Savings

The economy is floundering as a result of increasing regulations, ill-advised monetary and fiscal policy trying to prop everything up, and more international competition at every turn.

One other thing is also true: we are not saving enough.

Well.  Maybe that’s not true.  What is “enough,” really?  And enough compared to what?  The personal savings rate is actually up from its all-time lows of the last decade.  (Historically, U.S. saving has also been low compared to in other countries.)  But in this case, comparisons matter little.  The reason that we don’t save enough is simple: We don’t save “enough” because economic growth has slowed — making us worse off; and savings fuels economic growth — making us better off.Any student taking an undergraduate intermediate macroeconomics course should be able to expound on the subject through a reasoned explanation of what is called the Solow Growth Model, also referred to as the Exogenous Growth Model.  In a short, non-technical manner, the Solow Model says that, all other things equal, the savings rate will basically determine economic growth.  Said differently, more saving means more output.  And more output is good.

This line of thought makes sense if you think about it.  People save.  The more savings there are, the more capital accumulation there will be.  The more capital that is accumulated, the more capital per person there is in a given society.  The more capital per person there is, the higher a given worker’s productivity will be.  And the higher a worker’s productivity is, the higher that worker’s wages will be.

Because of this, from a policy standpoint, America should encourage savings and discourage borrowing.

But is that what we do?  Of course not.  We do the opposite.  We encourage borrowing and penalize savings.

In the housing market, in particular, America encourages borrowing by those who can least afford it, through manipulative bank regulations with help from the likes of Fannie Mae and Freddie Mac.  This issue really begins with the Community Reinvestment Act of 1977.  On the CRA, economist Thomas DiLorezo holds nothing back:

When the CRA was created during the Carter administration, the administration also funded with tax dollars numerous “community groups” that have helped the Fed, the Comptroller of the Currency, and other federal regulatory agencies to enforce the act. Under the CRA, if a bank wants to make virtually any change in its business operations – merging, opening up a new branch, getting into a new line of business – it must first prove to regulators that it has made “enough” loans to the government’s preferred borrowers. The (partially) tax-funded “community groups” like ACORN (Association of Community Organizations for Reform Now) can file petitions with regulators that stop the bank’s activities in their tracks, perhaps defeating them altogether. The banks routinely buy off ACORN and other “community groups” by giving them millions of dollars as well as promising to make even more dubious loans.

The issue is the same when it comes to other forms of credit.  In the housing markets, as well as the credit card market, restrictions are made on “predatory” lending.  All that means is that lenders are by law prevented from being able to match interest rates on loans with the amount of risk associated with that loan.  Only having to pay 10 percent interest, when one’s risk profile dictates a 20-percent interest rate, leads to more borrowing.

At the same time that America is encouraging borrowing, it is also penalizing savings through confiscatory estate taxes, one of the world’s highest corporate tax rates, the double-taxation of corporate dividends, high state property taxes, and progressive income taxes.

For what?  More earmark spending?  Higher pay for civil “servants“?

Maybe even more significantly, savings is also penalized through inflation.  The late economist Ludwig von Mises provides a great explanation of the effects of inflation from years gone by:

An example of what I mean was furnished by the president of a bank in Vienna. He told me that as a young man in his 20s he had taken out a life-insurance policy much too large for his economic condition at the time. He expected that when it was paid out it would make him a well-to-do burgher. But when he reached his 60th birthday, the policy became due. The insurance, which had been a tremendous sum when he had taken it out 35 years before, was just sufficient to pay for the taxi ride back to his office after going to collect the insurance in person. Now, what had happened? Prices went up, yet the monetary quantity of the policy remained the same. He had in fact for many, many decades made savings. For whom? For the government to spend and devastate.

Inflation does make sense, however, in the face of hard decisions.  Facing the facts of large budget deficits, there are really only four alternatives that can turn the tide back: Grow the economy faster than the debt (the opposite of what America is currently doing), make huge cuts in government spending (that are public and unpopular), raise taxes to pay off the debt (also public and politically ill-advised), and finally, inflation (a move that is quiet and essentially invisible).  What politician wouldn’t prefer an invisible tax?  Look to the nation of Zimbabwe for an exaggerated recent example.

(Some economist argue for “measured” inflation as a means of avoiding deflation at all cost.  For the life of me, I can’t understand why.  Would you rather that, with every year that passes by, that dollar in your pocket be worth more and more, or less and less?  The answer seems obvious.)

Until America and its policymakers decide to foster a culture of savings in an environment that does not destroy it, we will suffer the consequences.

And indeed, we are.

First published by American Thinker.

Share this:

  • Click to share on Facebook (Opens in new window)
  • Click to share on Twitter (Opens in new window)
  • Click to share on Pinterest (Opens in new window)
  • Click to share on Tumblr (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Reddit (Opens in new window)
  • Click to share on Pocket (Opens in new window)
  • Click to share on WhatsApp (Opens in new window)

Filed Under: PotpourriTagged With: #Economics, #Savings

The Passing Scene

The Passing Scene

I don’t care that Mel Gibson lost it a little.  He is still one of the best actors in a generation – And I would rather have dinner with him than Sean Penn any day.

If they make my next laptop computer any smaller, I am going to need smaller hands.

Tiger Woods has become completely irrelevant.

I met a guy the other day with a Bachelor’s degree who could not put two coherent thoughts together on paper.  Is it just me, or is the bar in education getting lower and lower?

HBO’s True Blood is weirder every season – unbearably so.

The older I get, the more and more I want to go back and punch my high school guidance counselor.

Pirates of the Caribbean is doing a part 4.  That might be one too many.

If I had to be poor in any country on earth – I would pick America.  Or, Switzerland.  Switzerland is nice too.

Before my BlackBerry, I am not sure how I lived.

I wish the American proletariat would read more – travel more too.

Facebook is here to stay.

Lady Ga Ga is completely weird.  And it makes me crazy that I love her music.

I wish everyone would stop telling me how to eat – including the government.

Lindsay Lohan needs a father figure – yesterday.

I find myself amazed at the writing of Cormac McCarthy.  In my opinion, his older works are his best.

I am glad Ben Affleck is no longer a professional joke.

Watching clips from a Senate hearing the other day made me shake my head – I still can’t believe Al Franken got elected to the Senate.

I think it’s hilarious that Newsweek sold for $1.  My couch could have bid for it.

How I Met Your Mother is hilarious.  But, I wish Marshall was not the only virtuous character on the show.

I am weary of the “Hope” – and the “Change”.

We don’t dress well anymore.  People in pictures, in the soup lines of the Great Depression, look better dressed than most people do now.

I hope that Harry Reid has more of a backbone in private, than he looks like he does in public.

How can I possibly have five email accounts, and use all of them?

What did I drink before bottled water was popularized?  Tap water?  I can’t imagine having to drink that stuff again.

I wish Thomas Sowell and Clint Eastwood had another 30 years of their prime left in them – Taki Theodoracopulos too.

This article was originally published by Taki’s Magazine, here.

Share this:

  • Click to share on Facebook (Opens in new window)
  • Click to share on Twitter (Opens in new window)
  • Click to share on Pinterest (Opens in new window)
  • Click to share on Tumblr (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Reddit (Opens in new window)
  • Click to share on Pocket (Opens in new window)
  • Click to share on WhatsApp (Opens in new window)

Filed Under: PotpourriTagged With: #Random, #Scene

  • « Previous Page
  • 1
  • …
  • 2596
  • 2597
  • 2598
  • 2599
  • 2600
  • …
  • 2602
  • Next Page »

Connect

  • Facebook
  • LinkedIn
  • Pinterest
  • Twitter

Free Weekly Newsletter:

Search

Top Posts

  • The Tricky Lily Pad Riddle (You Probably Can't Solve)
    The Tricky Lily Pad Riddle (You Probably Can't Solve)
  • This Is How To Draw A Simple Barn
    This Is How To Draw A Simple Barn
  • Economics 101: Difference Between Absolute and Comparative Advantage
    Economics 101: Difference Between Absolute and Comparative Advantage
  • The Bed Of Procrustes, By: Nassim Taleb
    The Bed Of Procrustes, By: Nassim Taleb
  • My Notes On, The Applause of Heaven, By: Max Lucado
    My Notes On, The Applause of Heaven, By: Max Lucado
  • The Tragedy Of Gina "Bronco" Bouza (1932-1957)
    The Tragedy Of Gina "Bronco" Bouza (1932-1957)
  • There Is No Mystery In Art?
    There Is No Mystery In Art?
  • Wagon Train Morality
    Wagon Train Morality
  • 31 Persuasion Tips That I Learned From Scott Adams
    31 Persuasion Tips That I Learned From Scott Adams
  • This Is How To Draw A Simple Robot
    This Is How To Draw A Simple Robot

Supporting = Loving

Recent Posts

  • Control The Outcome
  • Fast And Quietly They Go
  • Random Thoughts – 351
  • When EF Hutton Talks
  • On A Speaker’s Feelings
  • Man And Not Dance For The Man
  • Iraq Weapons Of Mass Destruction
  • Random Thoughts – 350
  • Competition Cheer
  • Farming Gophers
  • About Reality Has
  • When It’s Just Your Own Feelings
  • Random Thoughts – 349
  • The Abolition Of Man, By: C.S. Lewis
  • I Did It Because Of You
  • Feel Safe And Wanted Or They
  • The Only Thing That Money Is Good For
  • Random Thoughts – 348
  • The Barking Dogs Are Not The Weirdest Part
  • But You Limp
  • Lose The Liabilities
  • Peter Kreeft Commencement Address
  • Random Thoughts – 347
  • Not Famous Enough
  • Shoes, Jeans, Truck

Copyright © 2022 · Generate Pro On Genesis Framework · WordPress · Log in