Sessions wants to force you to save
Posted by BrianAlabama Senator Jeff Sessions thinks he has found the cure to America’s saving problem: compulsory savings.
Here is how his plan works. The government will take 1% of your paycheck from you before you ever see it and put it into an investment account. The government will also take 1% of your pay from your employer and put it into the same account. You will not be able to access your money until you retire.
I am disgusted that he is even floating this idea. It is a horrible plan. The problem he is trying to address is simple: people are spending more than they earn. Does he really think that by reducing everyone’s take home pay by 2% will automatically snap people into fiscal sanity? I would hazard a guess that people will go ever more into debt buying roughly the same amount of stuff, maybe a little less, as before except then they will have less money in their pocket when they start the shopping spree.
And don’t think for one second that the whole 2% isn’t coming out of your pocket. 1% is direct and the other 1% is hidden. Whether your employer reduces your wages by 1% or passes the cost on to consumers, which causes prices to rise by about 1% and eroding the purchasing power of that “free” money, it is your money.
Going back to the root problem of people spending more than they are making, I have a novel solution. How about the government not take so much in taxes to begin with so that people have more money in their pocket that they can choose to save if they so desire.
I wrote a post about China’s very high savings rate not too long ago. One of the reasons their citizens save a substantial percentage of their income is that they don’t have the same welfare net that we do (social security and medicare/medicade). Their citizens actually have to plan for the future and be prepared to be able to pay for it themselves, which they do. Our own rickety system is ripe for meltdown long before people of my generation are eligible due to cowardly politicians not taking the appropriate steps to measure out the benefits in an affordable manner. Maybe if our citizens didn’t have such a feeling of (false) security then they might actually save for the future as well.
Let’s also not avoid the elephant in the corner, which is the penchant for the American consumer to purchase things that they A) do not need and B) cannot afford. This isn’t the government’s fault except for the apparent fact that the government schools did nothing to educate children about financial responsibility. Yes, that should be the responsibility of the parents, but lets not kid ourselves. The government schools already broach a number of subjects that are the responsibility of the parents (such as sex education) so that is a poor excuse. I don’t think there is a short term solution for this one. I suppose the government could implement draconian, aconstitutional restrictions on advertising or use an income scale to determine if you are capable of purchasing a particular item, but those are unrealistic options. The sad fact is that only time and circumstance can justly reward and punish individuals for their own decisions and bring about a change in habits.
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February 20th, 2007 at 7:59 am
Not spending more than one makes is a good idea in theory, but if everyone stopped using their credit cards and only spent their disposable income, wouldn’t that actually slow the economy? I’m not an economist, but it would seem to follow that people spending less money would equal less goods and services being consumed (and produced). Also, if more people save while less people borrow, wouldn’t that actually mean less return on that saving?
February 20th, 2007 at 12:55 pm
Yes, spending less could slow the economy. That is one reason why I oppose government intervention into the free market that could cause (unintentionally, of course) an abrupt decrease in spending. A gradual shift in spending habits would dampen out negative economic effects (all else being equal). It should be noted that China has both a high savings rate and a torrid economy.
As far as your last question, I don’t know. I’m sure a few trained economists could give us a number of answers. If we’re talking about investing in equities or real estate then your hypothesis may be backwards. If more people try to purchase the same quantity of stock shares or acreage then the result is pretty straight forward. Then again, if fewer people are buying goods produced by publicly traded companies, then that would tend to depress their stock prices, unless they are able to maintain decent profit margins, which would mitigate the decline. My head is hurting now.
February 20th, 2007 at 1:17 pm
Too much economics always makes my head hurt too. We studied all that money supply stuff and how it affects the strength of the economy, but I hope I never have to use it in the real world.