Excessive consumption and a low savings rate in the United States are factors that prevent it from playing a more central role in pulling the world out of the current debt crisis, according to a U.S. historian.
Sheldon Garon, a professor at Princeton University, recently published "Beyond Our Means," in which he described how low savings in the United States are hurting the economy.
In an interview with The Asahi Shimbun, Garon said nations in Europe with high savings rates should take the lead in dealing with the government debt crisis there.
Excerpts of the interview follow:
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Question: What are the main factors behind the European government bond crisis?
Garon: We have to separate northern Europe from southern Europe. The northern European economies are very healthy, the German economy, the Dutch economy, Austria, Sweden and Belgium.
The problem is that in southern Europe, especially in Greece and to some extent Italy and Spain, these governments set up northern European-styled welfare states that they didn't have wealthy economies to support. So in Greece, there's enormous public spending and public sector employment.
Q: What is your view of those who are calling for the division of Europe into northern and southern parts to help it restore its fiscal health?
A: The Greek economy is not very large so if they leave the euro it's probably not a huge problem.
Italy is a huge problem, but it also has a healthier economy than Greece. It has a more diversified economy. It also has high savings and there is money in the households.
Europe is lucky to have high-saving people in the North, especially the Germans, because they have the capacity to help southern Europe.
Q: But will the Germans actually help their southern neighbors?
A: The Germans don't want to do that, but they'll do it. The euro is not just an economic problem, it's a political problem.
It may cost them money, but Europe has had 400 years of horrible wars and it would be a real mistake to start separating Europe again. It would cause huge political problems. Integration is a political objective that Europeans must pay for.
Q: What is your view of the future of the world?
A: I think it's a really bad time for the world.
The household saving rate in America is falling again.
We're in a trap because of the housing meltdown.
Lower-income and middle-income people have a large amount of debt and they have no savings. As a result, the lower-income and middle-income people actually can't spend much money now.
If there's a housing bubble in China that bursts, it'll be really catastrophic. And Japan is stagnant.
Q: What are some of your proposals for helping the United States recover?
A: My suggestion is to revise postal savings to improve access for lower-income people to create small savings accounts.
We went too far in the past toward excessive consumption and excessive credit. We're not balanced.
We do many things that promote excessive lending and also predatory lending so we have to regulate lending much better.
From 1946 to the 1970s, America had high levels of income equality, high levels of consumption, but also fairly high levels of savings. It was quite balanced.
Q: What is your advice for Japan?
A: I think that it's very important for Japan to have an intelligent immigration policy.
I think the population has to be increased and you need a younger population, and that's the big problem right now.
I think you need to import skilled immigrants with the intention of making them citizens. That's quite radical in Japan, but Canada is actually the most successful case.
The universities and companies clearly need more flexibility and maybe some outside influence.
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