Peter Orszag, now a new vice-chairman of global banking at Citigroup and former US Office of Management and Budget under Barack Obama, has written a provocative and (with all due respect Peter) wrongheaded Financial Times op-ed proposing that the way to promote savings among America's low-income workers is to attach the prospect of winning millions to them scurrying away a few dollars here and there -- sort of a lottery ticket that goes into their savings rather than into state coffers to help subsidize education or to the profits of the local milk and cigarette stand.
At the New America Foundation, I have colleagues who are most likely the world's leading experts on generating savings among the underclass, or "banking the unbanked" as New America's Reid Cramer or Ray Boshara would say. But suggesting that America's savings problem be solved by establishing an Eva Peron-style lottery incentivizing those with little to save doesn't understand the dynamics at play in the American economy today.
American growth, indeed global growth, this past decade was moving upward at a fast clip in part because household consumption was surging well beyond normal patterns. Whether it was inflated 401k values or bubble-driven home prices, working families had confidence that they lived safely in a "just-in-time money, just-in-time jobs world."
In other words, credit was easy, trust in America's financial health was high, a job lost could easily be filled by a job or two gained. Just-in-time income is a sign of hyper-confidence that the inflow and outflow of funds will be manageable -- sort of like Toyota's just-in-time production system in which it doesn't warehouse materials and supplies but brings together all of its componentry in a just-in-time assembly process.
The trust is gone. The US government and Wall Street managed to not only inject fear and uncertainty deep into the American market and household sector -- but also managed to export toxic financial products to the rest of the world, undermining global trust in US economic leadership.
When households are stressed out about the future, fear losing jobs or unemployment insurance, or see an economy that is not producing enough jobs to keep pace with those coming into the workforce, people save -- and that is what is happening today. People are saving, as Orszag notes in his article, writing that savings has risen from 1.4 percent of income in 2005 to 5.8 percent in 2010. While he properly notes that a further dramatic rise in savings would hurt the economy and constrain a return to badly needed consumption in the short term, he argues that America needs more savings in the long run -- and then says that a lottery for poor folks is the way to get there.
First of all, in many states, working class and lower class/non-working Americans are already the bulk of lottery ticket buyers -- which is essentially a tax on them to support parts of the state education infrastructure. I suppose to draw them away from one lottery-incentivized behavior to support their own savings interests, it could make sense to generate yet another lottery-incentivized behavior. But then who would pick up the newly neglected education tab?
But more importantly, the savings and investment ratios in the United States are a function of another kind of faulty logic -- one that says that America as a whole should "trust" the international system to provide unlimited financing for unlimited gluttony (i.e. consumption from China and elsewhere) and that the working middle class need not fear offshoring of jobs to China and Southeast and South Asia because this is moving America up the value chain and that new, high wage jobs and opportunities will be created out of the churn. The selling point from firms like Citibank is "trust" the international economic order to provide alternatives for what is taken away -- just-in-time manufacturing jobs, just-in-time financing, just-in-time opportunity.
But the rest of the world doesn't operate it. Martin Wolf of the Financial Times once told me that the self-interested, strategic economic behaviors of other major economic stakeholders in the international system required a "patsy" -- someone who would believe in the "just-in-time" security of give-and-take trade and give-and-take finance and jobs, even when its competitors didn't. That is the United States. (To be fair, when I told Martin Wolf that he had said that to me, he said it was impossible because the word "patsy" was not one that fell easily from his lexicon -- but he said that the concept was basically right, and I suggested that "sucker" or "chump" might be just as good, to which he nodded.)
My recommendation to leading economic officials is to get back to the real issue here -- not whether one can create gimmicks to nudge poor people to become the savings backbone of a newly re-energized American economy, but rather to realize that the nation itself can only re-earn real trust from its citizens and respect in the international system if it reinvests in itself, in its innovative sectors, in infrastructure, and creates incentives for surplus nations in the world like China, Germany, and Japan to invest in high value added manufacturing operations inside the United States.
A non-defense discretionary spending freeze for five years, which Barack Obama has proposed, is not a trust-building budget that conveys that America will be more innovative in the future and on a higher growth path. It is a flounder-in-place budget while China and India leapfrog forward.
A major national infrastructure investment push could be a serious event in US history at this point -- and would keep working, low-income Americans on track, investing in themselves when they need to, saving when they need to, borrowing when they need to -- in order to try and secure a better set of opportunities for themselves and their children in the long term.
Eva Peron-style lotteries are just another gimmick of social engineering -- that just builds on the short-term sorts of thinking that we have seen coming for years from the big financial houses in Wall Street and from their agents and proteges in Republican and Democratic administrations.
How to vote
Vote-by-mail ballot request deadline: Varies by state
For the Nov 3 election: States are making it easier for citizens to vote absentee by mail this year due to the coronavirus. Each state has its own rules for mail-in absentee voting. Visit your state election office website to find out if you can vote by mail.Get more information
In-person early voting dates: Varies by state
Sometimes circumstances make it hard or impossible for you to vote on Election Day. But your state may let you vote during a designated early voting period. You don't need an excuse to vote early. Visit your state election office website to find out whether they offer early voting.My Election Office
General Election: Nov 3, 2020
Polling hours on Election Day: Varies by state/localityMy Polling Place