Getting and Spending

Whatever Happened to Thrift?

Why Americans Don't Save and What to Do About It

by Ronald T. Wilcox

Yale, 176 pp., $30

Professor Wilcox has managed to cram not one, but two, important and readable books into 176 pages.

Not that such was his intention. But his discussion of why Americans have decided, in massive numbers, that current consumption is far more gratifying than thrift is only loosely and occasionally connected to the policy prescriptions that follow. Either would make worthwhile reading; both, between one set of covers, give the lie to the Washington view-developed during the Clinton administration and revived during the recent primaries-that "two for the price of one" inevitably produces a disaster.

I should begin by pointing out that Wilcox almost lost my goodwill on the second page, where he writes: "Some Americans go crazy with their credit cards-purchasing, for example, a watch accurate to the nanosecond that displays the time in eight different time zones-rather than saving that money for retirement." As one who recently purchased a relatively inexpensive timepiece that can tell time in 20 time zones, if I could figure out how to set it, I did not appreciate having an academic (Darden School of Business Administration at the University of Virginia) passing judgment on my choice between current and future consumption.

Wilcox never fully answers what he calls the economists' contention that saving is a matter of individual choice, "and questions about 'too much' or 'too little' have a moral punch that is not relevant to the decision making of rational people." Nor is he willing to say "with .  .  . conviction whether Americans' current wealth accumulations, both realized and unrealized, are sufficient for their long-term financial well-being."

Which is a good thing, because none of the data now available to us tell how Americans will save from current income now that they cannot count on rising house prices to make them richer-even though they spend their entire paychecks, and then some. But he does make a reasoned and never-overstated case that there are grounds to worry about the precipitous decline in our reported savings rate, which is now below that of every other developed country.

First, many Americans worry that their savings rate is too low, even as they spend and spend. So there might be an element of irrationality in their refusal to worry about the future. Such seemingly irrational behavior is the subject of an increasing literature that attempts to integrate economic theory with the work of students of consumer and worker behavior.

Second, there are macroeconomic consequences of a low national savings rate. We have to borrow from abroad to fund our consumption, and that puts us at the mercy of not-too-friendly governments that might, one day, decide they have more pictures of presidents in their vaults than they care to have, and sell them off in a rush.

That would accelerate the current decline of the dollar, trigger inflation, and force the Federal Reserve to raise interest rates to shore up the value of our currency and nip inflation in its incipiency-perhaps at a time when the economy is slowing down. And in order to peddle the IOUs we are creating, our government would have to offer higher and higher interest rates to countries flush with investable and lendable capital because of the high savings rates of their citizens.

In the measured fashion that characterizes this book, Wilcox concludes, "While those who predict a near-term crisis are probably overstating the case, the horizon holds both risks of large economy-wide problems and near certainties of hardship for many U.S. households." The latter is a reference to Wilcox's concern that the poor do not have sufficient stores of income-yielding assets-no surprise, although something he (surprisingly) finds "one of the more striking results" of his studies.

So why do we save so little? Here Wilcox draws on a variety of disciplines. But he begins by dismissing those who argue that we are the pliant victims of "lecherous corporations"-to blame them is a "convenient lie"-and their ad agencies, or of banks that drop unrequested credit cards in our mail boxes: "Blaming the American savings problem on credit cards is like blaming America's obesity problem on McDonald's."

No, the fault, dear reader, is not in the manipulative skills of others, nor in the tempting aroma of fries emanating from fast-food shops, but in ourselves.