Fixing the negative savings rate

The NY Times has an editorial tomorrow about what the government and private companies can do to help people save for retirement and reduce the individual risk that are increasingly burdening workers. The savings rate for 2005 was -0.6 percent, which is the first time since 1933, in the middle of the Great Depression, when the U.S. savings rate was negative. Much of the dissaving has been caused by the recession, increased consumption financed by refinancing of mortgages. However, the record deficits caused by Bush's tax cuts, which benefited primarily the wealthy, have made the future more uncertain because of the budget deficit's relationship with the current account deficit. Both have not been seen as too much of a problem because other countries, primarily Japan and China, continue to buy American government debt. However, there is a high risk of a disorderly currency devaluation of the U.S. dollar in the short- to medium-term which will compound the problems of people saving for retirement by reducing national income and perhaps also popping the housing boom and reducing house prices significantly. Instead, the government should roll back much of Bush's tax cuts and provide more support for individuals saving for retirement and reducing the chances of a currency devaluation, which would hurt the domestic economy tremendously. The New York Times editorial sums up the general rationale for government action on increasing savings and making sure people have adequate resources when they retire: It simply makes no sense, socially or economically, for each person to increasingly bear the risks of financing old age when that risk is more efficiently borne on the much broader shoulders of Washington and corporate America. What America needs are leaders who understand that asking ordinary citizens to assume ever-greater risks is not the path to greater security.