The Evils of Saving

piggy The Evils of SavingYou, dear reader, are probably detestable. As a newspaper reader, you are disproportionately likely to have money squirreled away. Maybe you keep it in the bank. That is, maybe you “save” it. Is that spittle running down your cheek? There would be, if my tongue could find a way to deliver it along with these words.

Perhaps you stand unfairly accused. Perhaps you have no savings, or perhaps you invest what you have, in the stock market or pork-belly futures or a business you are starting. If so, I bow before you and beg forgiveness. But if you keep your wealth in bank CDs or government bonds, you are a deadbeat.

You are probably not accustomed to such disrespect. After all, it was not savers who brought down the global financial system. It was borrowers who failed to pay their debts, right? Wasn’t the United States’ savings rate perilously low throughout the past decade? Weren’t you just doing your part, working hard, saving? How could that be bad?

Bad loans are not immaculately conceived. Every default has two parents, a borrower and a lender. When you put money in the care of a bank or the state, you are requiring that it be invested on your behalf. Human wealth is not like acorns for squirrels, stuff that can be buried in a tree and consumed over time. Most of the goods and services we require are ephemeral. They have to be produced and reproduced every day. When you save, you are asking other people to do the work of expanding the productive capacity of the economy so that when you eventually redeem your scrip for stuff, there is enough not only to pay all the future workers and investors actually producing, but also to cover your ratty old claims on wealth. Your savings are worthless unless other people do the difficult work of organizing the economy over time, of pushing your savings forward.

As a saver, you don’t worry your little head over that. You avoid any form of risk and rely upon a series of guarantees, whatever their cost to other people. You expect that however poorly your savings is actually invested, you’ll be made whole dollar for dollar. Further, you expect the government to maintain the purchasing power of the dollar, that is, not to let inflation rise much above the 2 percent widely regarded as “normal.” Debtors are more numerous than substantial savers, and debtors stand to gain from a quick devaluation of the dollar. But if there is any cabal or conspiracy running the show in Washington, it is not Bilderbergers or Masons but savers. Well-paid professionals in government and the captains of industry who lobby them nearly all have money in banks and bonds. They’d rather tax the bejesus out of current workers than inflate away the value of their savings.

Do you see how despicable you are, you savers? You put money in banks or bonds that guarantee future returns. You pay no attention to how those funds are invested, whether bankers and politicians find growth-enhancing opportunities, or distribute cash to friends, or skim fees from bad loans (which are easier to make than good loans). When you learn that these people you have failed to supervise have squandered the wealth in their care, you accept no responsibility. You demand that the state make you whole. And some of you have the nerve to blame “deadbeat borrowers” for loans your flunkies designed to be fraudulent so that they’d have patsies when their schemes came apart.

Capitalism wasn’t supposed to work like this. Savers were supposed to be investors who monitored how the wealth they put aside was used to generate future wealth. They were supposed to take responsibility for their choices, however the cookie crumbled. That risk ensured that investment decisions were made with care, and that the costs of poorly chosen investments were borne first by the careless.

It’s one thing to offer a guaranteed saving vehicle to the little guy. We’ve decided, reasonably, that schoolteachers should be able to save a bit without having to worry about the risks of investing. That’s the logic behind limited F.D.I.C. insurance for bank accounts. But we have come to let anyone “invest” however much they want in guaranteed instruments. We’ve created giant loopholes to investor accountability and let whole nations waltz through them (e.g., China, Saudi Arabia). And then we are shocked, shocked to find we’ve spent a decade building exurbs in the desert that we will have to tear down, that our financial system is riddled with bad loans and that the debt our government has taken on is unlikely to be matched by the growth we need to pay for it unless we tax workers heavily to pay off bondholders, or (gasp!) debase the dollar.

Some people worry that the U.S. will face a buyers’ strike, that domestic savers or foreign central banks will stop lending to the government at low interest rates. I fear the opposite, that savers will continue to shirk their responsibilities as investors, piling into guaranteed banks and bonds with predictably bad consequences for the quality of investment. If we are smart, we will return to the logic of limited deposit insurance and require large savers to assume investment risk or pay handsomely for safety. The current F.D.I.C. insurance limit is $250,000, but that’s easy to evade. Can you imagine a world where that $250K was a hard limit on all forms of state-guaranteed savings, where if you tried to lend any more than that to banks or Uncle Sam, or anyone Uncle Sam would bail out, you’d be refused or have to pay for the privilege? You may say I’m a dreamer.


Mr. Waldman writes about finance at ­


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