May 16th, 2009 by Hafiz Noor Shams
If you think of the exports as the first link in the causal chain, the resulting pile of Chinese savings is the second. Much of this savings has been by the corporate sector, which is subsidized by the government in all sorts of ways (an undervalued currency, low interest rates, cheap energy). The economic boom brought big profits, and companies held on to much of them. The government has also increased its savings in this decade by collecting more taxes and, until the financial crisis, running a budget surplus. And households increased their own savings in the 1990s, in reaction to the dismantling of many bloated state-run companies and the cradle-to-grave benefits, known as the “iron rice bowl,” they once provided to their workers. When a Chinese citizen is rushed to the hospital after a car accident today, the first stop for the victim’s family is often the cashier’s window. Many hospitals won’t admit patients until they have paid, and many families have no health insurance. Instead, they insure themselves, by saving. [Will China still bankroll us? David Leonhardt. New York Times. May 13 2009]
Leonhardt’s article suggests that lack of social safety net encourages saving. It makes sense.
The reversed relation is interesting: does availability of safety net discourage savings?
Indirectly, this asks how does that affect consumption? Does it increase consumption?
Implicitly, this may suggest that people may be less judicious with their consumption and more happily go into debt to spend with the presence of safety net. This is so when one contrasts the situations without social safety net in China and the availability of one in the United States as described by Leonhardt; massive savings in the former and large debt in the former on individual level, on average.
I really think I want to explore this when I finally get back to school. Ah, approximately 72 days before school begins. I just cannot wait.