I just found an article by London Banker on Marriner Eccles’ testimony in 1933 to a Senate committee that actually and seriously investigated the nation’s economic problems. (Back then, we had a government that managed to get useful things done!)
London Banker is one of the most thoughtful economics bloggers, and I’m glad to see he’s back, after evidently taking a break from blogging to work on the U.K. banking system!
There is a quote that Eccles gave in 1933, from W.T. Foster, which resonates today:
It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.
Now, this message is not real popular with my family, who believe everyone ought to earn what they get, and be able to keep what they earn. And in the current U.S. political climate, there are grave reasons to fear that in “saving the rich” from themselves, we will squander our last chance to rescue the economy through another round of waste, corruption, nonfeasance and injustice.
But there’s an abundance of evidence that the economic structure has made it too easy for too many to keep too much — and on top of that, the amount which “can” be “saved” is simply not enough for everyone who faces retirement and wants to save!
Here is a quick quantification of why the quote matters today:
In the U.S., it’s simply mathematically impossible for 76 million Baby Boomers, representing 1/4 of the population, to save 16-25 times their accustomed (final, peak) annual income and retire on “savings” by drawing out 4-6%/year. Such “savings” would have to amount to well over 4 to 5 times U.S. GDP… well over 60 to 75 TRILLION dollars. This value, 60,000,000,000,000 exceeds by at least $20 trillion the total wealth of the country! And that would leave no room for either older or younger generations to own anything!
Retirement in any civilized form simply cannot be funded by any credible “stock” of real “savings”… it must be a “flow” of goods and services provided by the increasingly productive young to the increasingly numerous elderly.
The same issue applies to China, Japan, and Europe, all of which are now facing similar demographics.
This issue is exacerbated by our credit-based approach to everything, in which very few people stockpile years worth of food, gasoline, etc. in advance in order to survive old age. In a purely tangible sense, the retired, unemployed and wealthy cannot consume more than the surplus produced by the workers.
The economically-dependent can, however, politically squeeze the workers’ share of consumption, in order to have more for themselves!
Interestingly, if one imagines persistent zero interest rates and negative real yields, the financial incentive to stockpile goods should start to impact behavior. Hopefully this will provide the stimulus to restore full production, because otherwise it must result in yet another squeeze on current consumption.
So in the end I’m forced to agree with the quotation. The economic playing field must be leveled, to restore prosperity for all, and to bring the machinery of production back into full use. We must not squander what we spend, any further. But if we can pull this off, the growth in total national wealth should make the sacrifice of the rich a worthwhile investment.