By Dr Vaidehi Nathan
Beyond Our Means – Why America Spends While the World Saves, Sheldon Garon, Princeton University Press, Pp 475 (HB), $29.95
“Shop till you drop’ has been the driving philosophy of average Americans in the past two-three decades. Living beyond means, borrowing from future with no clue on how to repay, the Americans have run a life that was bound to hit the speed breaker sometime. They did. And only then they paused to think and look around. No one else was taking the depression in the beginning of 21st century as bad the Americans were.
Beyond Our Means – Why America Spends While the World Saves by Sheldon Garon analyses how and when America moved away from saving while Asia and several European continued to save for the proverbial rainy day. During the early days of economic crisis, several American economists and politicians blamed the Eastern countries, notably China and India for saving too much and not spending superfluously to keep the world economy going. “None other than Allan Greenspan … blamed Asian savers for investing in America’s catastrophic housing bubble. Chinese saving rates soared because “consumption restrained by culture and inadequate consumer finance could not keep up with the surge of income.”
Analysts have tended to categorise saving as a cultural obsession of the East. That is not true. European nations such as Germany, France and Belgium also save. Small savings and postal savings run to substantial part of individual saving in those countries still. Garon asks “Why not invert Greenspan’s words? In the United States, consumption—stoked by a culture of instant gratification and fuelled by excessive consumer finance—surpassed families’ incomes and decimated savings.”
According to Garon, America, along with other European countries had encouraged savings during the post World War II period. Subsequently the drive to save had been abandoned by the government. But what actually led to savings being unfashionable was the active promotion of mindless consumerism by the government policies, the financial institutions and the relative comfortable position of the economy.
The American credit card itself is a story to be told. While in most countries the credit card is tied to the bank, in America that is not so. An Italian colleague, to whom Garon was explaining the American credit card system, asked what would happen if he could not pay back at the end of the month. To which Garon said “That’d be no problem, I assured her, because half of the country doesn’t pay in full and borrows the balance from the card company; besides the companies encourage customers to go into debt because their profits lie in high interest charges.”
Increasingly thrift was seen as ‘old fashioned’ and as someone said “Thrift is a wonderful virtue especially in an ancestor.” Consumption accounted for seventy per cent of America’s GDP in the decades of 1990 onwards. While Germans and French saved to buy consumer durables, the Americans bought in upfront, on credit.
Garon discusses how many European nations had kept up small savings. In France an account is opened when a child is born. It has fought privatisation of the postal service, deeming it a social commitment rather than commercial activity. Behind all those countries saving was the government’s backing for saving and thrift. Whereas in the US the government advocatd spending and more spending. And abetted policies that promoted living on borrowing and partying on future money.
Japan is the biggest role-model discussed in the book in Asia, followed by China and Korea. India does not find mention at all anywhere as if it is an economy out of reckoning. In Europe, Germany and France have been discussed extensively. Garon concludes in an optimistic note “As the economic downturn continues, Americans find themselves in more agreement with the rest of the world than they might think. It has become apparent that a good society rests on the fundamental solvency of its households.” This book is an instruction for the copy-cat economies like India which are blindly aping the American capitalist model. Americans have been rudely woken up to face truth. How they confront it is a matter for future analysis. Supported by charts, statistics and colour illustration, the book makes a strong case that America was a saving nation that lost its way somewhere along and must get back to it. Sheldon Garon is the Nissan Professor of History and East Asian Studies at Princeton University and has authored books on Japan.
(Princeton University Press, 41 William Street, Princeton, New Jersey 08540).