Thursday, March 17, 2005

Frankly, My Dear, I don't give a damn.

Robert H. Frank, a Professor at Cornell's Johnson School of Management, has a lament for America's shamefully low savings rate in today's NYT. Unfortunately, it's not an especially honest or enlightening lament, though he does get in a few good points, like his finale.

It is clear, in any event, that the failure to save entails risks of its own to freedom. America's rapidly rising debt to foreigners now threatens the economic prosperity on which so many of our cherished liberties depend.

So what's wrong with his article?

Money invested at 7 percent interest, for example, will double every 10 years, which means that $1,000 deposited at that rate by Benjamin Franklin in the late 1700's would be worth more than $3 trillion today. The same $1,000 invested in 1945 would be worth more than $64,000.

Of course you can't get anything like that interest rate unless you are a mafia loan shark or a credit card company (my apologies for the redundancy). My savings account at my friendly neighborhood Wells Fargo seems to be well south of 1% these days. The kind of interest working class Americans can get is pretty much negative when you take into account inflation.

Equally seriously, he fails to mention the key role of the Federal Government=Republican Party in the dis-savings disaster. Aside from all the direct borrowing by the government, the threat of inflation down the road is a powerful savings disincentive.

So what can the government do? End the huge deficits, for a start. Rein in the credit card companies and punish them for making bad loans. And an add on (not carve out) Social Security investment account.