Tuesday, June 30, 2009

The savings rate

The freakonomics blog has a post about the high savings rate in China (30 percent of disposable income) and speculates that it may be due to families attempting to accumulate wealth to boost the marriage prospects of their sons in a society where females are outnumbered. That, of course, is due to the country's one-child policy and pro-male bias.

The larger point is that while a high savings rate is almost inevitably seen as a good thing that it is often also a product of that country's unique circumstances. Rather than an indication of the thrift of the Chinese, it is possibly simply a result of poor public policy choices (one child).

Another possible case, as argued by Richard Katz, is Japan. While the country has been credited for its high savings rate, Katz has noted that it must also be kept in mind that for much of the recent past Japan has some of the world's lowest interest rates. Thus, someone that for example only receives a 1 percent interest rate on their savings must save much more than someone who earns a 5 percent interest rate to achieve the same result.

The appropriate lesson may be that instead of badgering Americans to save more money, we should promote a robust business environment where their investments earn as high a return as possible, particularly the stock market.

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