Archive for June, 2009

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Comment on “The Great Unwinding”

June 12, 2009

David Brooks published an op-ed this morning entitled “The Great Unwinding.”  It discusses the impact of public and private debt on the growth prospects for the U.S. economy.  Unfortunately, it overstates the case for the value of an important statistic — how much the U.S. savings rate will have to rise to put the economy back on firm economic footing. Citing a Federal Reserve study, Mr. Brooks writes:

“Reuven Glick and Kevin J. Lansing of the San Francisco Fed estimate that Americans will have to increase their household savings rate from 4 percent to 10 percent by 2018 to restore balance.”

No they don’t, at least not in any meaningful way. I’ve read this report.  It is a perfectly fine report, but it is highly preliminary in nature. The authors essentially compare the Japanese corporate sector after their housing bubble burst in the early 90’s, detailing how much corporate deleveraging occurred, and then show that if U.S. households behaved similarly to Japanese companies they would end up saving about 10%.  The authors are clearly using this data, and a few assumptions, to come up with some kind of ballpark estimate. I’m sure they themselves would not put much faith in the 10% number, as housholds and companies behave differently for a whole host of reasons.  

Mr. Brooks reports this finding the same way one would report the results of some exhaustive research on the subject. That’s a shame. Very few people will read this Federal Reserve report, but many will read Mr. Brooks and use this statistic as a focal point for further discussions of policy.

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“Franklin’s Thrift” Released

June 10, 2009

“Franklin’s Thrift: The Lost History of An American Virtue,” published by Templeton Press, was released this week.   The contributors to this volume, myself included, trace how from the eighteenth century on the idea and practice of thrift has been part of the American vision of economic freedom and social abundance. The historic practice of thrift, far from being an exercise in miserly behavior, is rooted in the belief that communities can use the benefits of thrift to build themselves up and to forge social bonds. Thrift, we argue, is a prerequisite for community advancement.

As our own culture of indebtedness has brought us to the brink of economic failure, history calls our generation to the great battle of our times.  Our fathers and grandfathers secured the beaches of Normandy. We must secure a nation drowning in private and public debt. Without the practice of thrift there can be no wealth. Without wealth there can be no generosity. And without public and private generosity the social bonds that built this nation will tear at the seams.

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Control Yourself

June 8, 2009

Here is a good article from this morning’s Wall Street Journal.  It discusses how psychological biases can affect investment behavior. They quote me, but mostly I’m posting because it explains some basic psychological biases, and their impact in the currect economic climate, quite well.

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A Discussion of Thrift

June 1, 2009

This is a video presentation, largely based on my book, about the causes and consequences of a lack of thrift. It also discusses the current political and economic climate and how that relates to incentives to save.

http://www.youtube.com/watch?v=KKQAQ_buXW4