A Nation in Debt

Barbara Dafoe Whitehead has a nice roundup of the US debt mess in the current issue of the American Interest. She has some startling statistics too:

Between 1989 and 2001, credit card debt almost tripled, from $238 billion to $692 billion. By fall of 2007, the amount of revolving consumer credit had reached $937.5 billion, a 7 percent increase over the previous year.

Another interesting statistic is the proportion of lower income people who play state lotteries. Households earning less than $12,400 a year spend $645 a year on the lottery. By comparison, households earning $62k-$124k a year spend $373 a year – proportionately far less.

Interestingly she suggests four pro-thrift ideas. Thrift is, I think, a word almost unknown to Irish people. The concept of thrift has also been lost in the Celtic Tiger malaise. It is worth quoting these four ideas:

Re-establish a public education campaign. During World War II, Americans saved at extraordinarily high rates—about 25 percent on average. This impressive display of thrift and sacrifice was driven primarily by the war, but it also had a more proximate source: The U.S. government, collaborating with civil society leaders, actively stressed the importance of saving for the war effort while also providing a specific new savings tool in the form of war bonds. Perhaps the time is right to re-establish a pro-thrift public education campaign. Similar campaigns to reduce drunk driving and smoking and to encourage seat belt use appear to have had a demonstrable impact on people’s behavior in recent years. Why not thrift?

Challenge “consumer spending” as a main solution to economic problems. Whether it is a national security crisis like 9/11 or worrisome economic news, our leaders in recent years seem increasingly determined to insist on the catchall economic salve of prodigious consumer spending. Hence, for example, the 2008 tax rebate legislation. But this is, at best, partial and misleading advice in a society marked by dangerously high levels of debt and dangerously low levels of saving. Perhaps it is time to balance the message of more spending with a message of more saving and wealth building.

Create a thrift savings plan available to all Americans. Since 1986, the U.S. government’s Thrift Savings Plan (TSP) has permitted Federal employees to build wealth and save for retirement by systematically placing a portion of their earnings into diversified stock-and-bond index funds. These funds are managed by an independent board, with oversight from the public and private sectors. The expense ratios on TSP funds are low (0.06 percent), making them cheaper than similar commercially run funds. Currently, the TSP boasts 3.7 million participants, manages assets of approximately $225 billion, and is widely viewed across the political spectrum as a major success. Federal policymakers and others should consider offering this same wealth-building opportunity to all working Americans.

Build new thrift institutions. New, community-based thrift institutions can stand as attractive alternatives to payday lenders and other anti-thrift institutions. If we are serious about confronting the debt culture, building these new institutions is our most urgent task. They must possess three core traits: Functionally, they must provide opportunities and incentives to save and offer credit at affordable costs for prudent purposes; structurally, they must be broadly democratic and organized as not-for-profit cooperative or mutual organizations; geographically, they must be accessible to low-income Americans.

Re-purpose the lottery. State lotteries are the most egregiously anti-thrift state-run institutions in America. Because lotteries typically enjoy broad support by politicians and the public, it would be hard, if not impossible, to outlaw these operations at present. But it is possible to re-purpose the lottery, at least in part, as a thrift-promoting institution. In every state lottery outlet in the United States, a customer should be able to purchase “savings” tickets as well as lottery tickets. In this way, a comprehensive public apparatus devoted to encouraging everyone to become a bettor would simultaneously become an apparatus devoted to encouraging everyone to become a saver. It ought to be an easy sell: “Every ticket wins!” because, in fact, every single savings ticket would improve the financial well-being of the purchaser.

Incidentally, are there any statistics about our National Lottery? Besides the fact that most of the charity money goes to the constituency of the then Minister for Sport?