More on the Savings Glut meme
Macroblogger David Altig got me thinking in more detail about the Bernanke/Clarida Savings Glut argument; As mentioned previously, I am not a fan of this flavor of rhetoric, nor the specific details. I find them wholly unpersuasive.
Indeed, the entire Savings Glut meme is more of a semantic game than anything else. In the hands of lesser proponents than Bernanke (and Columbia Prof /Clinton Group Economist Richard Clarida), it might appear to be intellectually dishonest; By saying it fails intellectually, I am being "generous" by giving both men the benefit of the doubt.
"Oh, meltdown. it's one of those annoying “buzzwords." We prefer to call it an unrequested fission surplus."
You read that right: macro-economic analysis via the Simpsons. Here's how Monty would break it down:
Unrequested fission surplus = Nuclear Meltdown (Buzzword)
Savings Glut = trade deficit, current account deficit, federal budget deficit, zero savings rate (more Buzzwords)
Dan Gross, who's financial columns are consistently amongst the most thought provoking and interesting I read today, gets the reasons for the structural global imbalances exactly right:
"Why are there imbalances in the global economy? Until recently, conventional economic wisdom has held that the U.S. has a huge trade deficit, a gaping current account deficit, and large federal budget deficits because Americans consume too much and save very little.
In Gross' view, the Glut is a self-serving explanation for all of America's bad habits.
Hence, my own thoughts that this is as much semantics as it is economic theory. While that helps settle the issue for me, others may want some more details:
1) The Savings Glut argument is a defense of a structural imbalance via a mostly painless solution, rather than the difficult medicine (most adults) know are necessary to cure the problem. A spoonful of Sugar won't help eliminate the problem.
2) Much of the rest of the world has very different priorities and social structures -- they often look askance at what is called "excessive consumption" in the U.S.
Consider Europe: Their culture has much longer vacation time than the U.S., shorter working week (by hours), and much of the Summer off. While they have their moments, they are not remotely the consumer society we are. For us to suggest that Europeans need to start consuming much more stuff only reflects an unrealistic understanding of the Continent; That's why it generates guffaws;
3) The US savings rate is almost nonexistent; I find it exceedingly difficult for us as a stone cold drunk to lecture others on the virtues of either fine wine or being a teetotaller;
4) Then there's the "careful what you wish for" factor: What would happen if the rest of the world suddenly decided to go on a spending spree, racking up big debts, rather than buying our bonds?
See also: Brad Setser has a robust critique of the Bernanke global savings glut speech. Its hard to find in his critique any evidence that he buys into the Savings Glut meme . . . Indeed, after agreeing with Dan Gross critique that the Savings Glut is a self-serving explanation for America's bad habits, Setser goes on to list 5 major criticisms of the Savings Glut theory. The two nice things he said was little more than a polite coda, IMHO
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"4) Then there's the "careful what you wish for" factor: What would happen if the rest of the world suddenly decided to go on a spending spree..."
Or the flip side: what would happen to the rest of the world if we decided to stop being drunken consumers and instead went on he wagon?
Posted by: Andy | Oct 26, 2005 9:09:24 AM
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