20th December 2010
The savings rate among workers has dramatically declined over the past few decades. In many countries it's now lower than the rate of borrowing. No surprise. It takes two wage earners in most family to make ends meet, and the families are still deeply in debt.
The recession we are still struggling to recover from was in part the consequence of encouraging workers to take on debts they had little chance of repaying. And when they defaulted, as so many of them inevitably did, the whole superstructure of securitized investment instruments based on those debts collapsed as well — along with many of the highly over-leveraged financial firms that couldn't sell enough of them.
In this context, it doesn't make much sense to believe that families should strive to put aside money for savings, or even to think that they could if they wanted to. Where will the extra money come from? To be sure, it's hard to disagree with the logic of saving for a rainy day, particularly in a society that has such fragile safety nets as ours. But what will get people to squeeze the lemon harder when it's already dry?