Ben Bernanke offered up a familiar recommendation in a speech given Monday on Asia and the Global Financial Crisis: In order to achieve a more balanced global economy, big-exporting and high-saving nations like China need to boost domestic consumption more, and big-importing, low-saving nations like the U.S. need to put on the consumer-spending brakes and balance their budgets.
One reason why Chinese citizens are obsessive about saving, however, is that -- even though by some respects they live in the world's ultimate "nanny state" -- they still don't enjoy much of a safety net. Healthcare and education spending tend to come out of their own pockets.
One potentially effective strategy is to reduce households' precautionary motive for saving by strengthening pension systems and increasing government spending on health care and education. Of course, such measures are likely to improve welfare and productivity as well as to contribute to more balanced, robust, and sustainable economic growth.
Does anyone besides me see a paradox here? Bernanke thinks U.S. citizens should save more, but I don't think he'd recommend cutting government spending on healthcare and education in order to give Americans a greater "precautionary motive for saving." It seems like what is true for China should also be true for the U.S. Boosting access to healthcare and education would "improve welfare and productivity as well as to contribute to more balanced, robust, and sustainable economic growth." Rising unemployment wouldn't be quite so scary if we knew that losing our jobs didn't mean losing our health care insurance.