Low Savings as Key to Prosperity?
John Tamny dares to attack the writing of David Wessel:
To begin, Wessel bemoans the fact that the U.S., once a creditor country, now owes the rest of the world $2.5 trillion, and talks of steps to “wean the U.S. from growing dependence on the savings of Asians and Europeans.” His characterization itself is misleading. As evidenced by the low interest rates the rest of the world charges us, it’s very clear not only that foreigners get in line to lend to us, but that they do so eagerly. Wessel however sees the 73 percent fall in the yield on the 10-year Treasury since the early 1980s as evidence of “complacency and denial among politicians and financial markets.” He also fails to point out that the path to our present debt situation has been a prosperous one, with inflation, interest rates, and unemployment all falling from double-digit rates to levels not often seen in modern times. The supposed debt explosion also coincided with a bull market that saw the Dow rise from 743 in 1982 to over 10,000 today.
Since Tamny wants to go back a generation, let’s remind him that the Reagan fiscal stimulus raised real interest rates. But it is true that real interest rates are low today. The decline in real interest rates since 2000 was the result of an investment-led recession. And while it is true that investment demand has partially recovered, entirely all of U.S. net investment is financed by borrowing from abroad as our national savings rates is near zero – whereas it was almost 10% of NNP before the Reagan and Bush43 fiscal stimuli.
Memo to the National Review – before you call anyone at the Wall Street Journal dumb, perhaps you might take an Econ 101 class.