â€œIt is thrifty to prepare today for the wants of tomorrow,â€ Aesop wrote. Judging from the rhetoric of pundits who bemoan the condition of the U.S. economy, Aesop was Japanese.
As we all know, the Japanese are hardworking, sensible, and frugal, while Americans are lazy, frivolous, and impatient for gratification. The source of these images is clear: Japan has leapfrogged the United States in a number of fields, such as electronics and automobiles, where Americans traditionally had the lead. At the same time, according to official figures, Japan has had a higher private saving rate.
Correlation does not imply causation, but this erroneous inference has a long history. especially in connection with savings. In fact, the idea that low saving rates might pose a problem for an economy dates from at least the 17th century, when Hollandâ€™s economic performance suddenly surpassed that of England. British economists said this could have happened only because of the Dutch peopleâ€™s unusual frugalityâ€"an argument that upon closer examination turns out to be false. Nevertheless, the assertion led to a large number of protectionist measures aimed at the Dutch.
Historian Simon Schama notes that while English writers attributed the Dutch success to their frugal ways, Dutch observers were already deploring the fact that â€œthe frugal and modest habits, which had originally created the foundations of Dutch prosperity, were now being squandered in a show of worldly vanity and luxury.â€ Still, itâ€™s not clear there ever was such an age of prosperity based on â€œfrugal and modest habits.â€ As Bernard de Mandeville, author of the then-controversial Fable of the Bees, noted, the Dutch earned their reputation for frugality not during good times but during bad ones, when Philip II of Spain â€œbegan to rage over them with that unheard-of Tyranny.â€
It was during this troubled period that â€œrather than to become a Victim to the Spanish Fury,â€ the Dutch â€œwere contended to live upon a third Part of their Income, and lay out far the greatest part of their Income in defending themselves against their merciless Enemies.â€ But savings spent to fight the Spanish can hardly explain the Dutch peopleâ€™s eventual prosperity, Mandeville concluded with obvious good sense.
If a high saving rate did not make Holland the economic wonder of the world during the 17th century, what did? Political changes clearly played an important role. After the revolt against the Spanish in the 16th century, the new Dutch republic was born. It adopted a policy of religious tolerance, attracting considerable immigration from neighboring countries. The opportunities such expansion created combined with the newly acquired freedoms, the expectation of social mobility within a stable political regime, along with well-defined property rights, made both the native Dutch and the immigrants work harder.
But there is no evidence whatsoever that during these prosperous times the Dutch saving rate was unusually high or that the people avoided luxuries. On the contrary: Italian and English travelers at the end of the 16th century already wrote with admiration of the luxuries of the rapidly growing Dutch towns. Historians have interpreted documents accusing the Dutch of spendthrift habits as, in the words of Simon Schama â€œno more than the latest version of the Roman stoic lament for the sybaritic corruption of republican virtue.â€ In fact, a number of writers during the 18th century and beforeâ€"including Nicholas Barbon, John Houghton, Dudley North, and David Humeâ€"thought that the gratification of wants was wholly compatible with national fortune: What, if not the expectation of fulfilling such wants, motivates people to make greater efforts?
It appears to be true that people save more when they expect tough times ahead. Both the Dutch and the Japanese have had good reasons to expect such times, because of both political uncertainties and natural disasters. Yet thereâ€™s little evidence that such hedges against the future have made the Japanese better off than Americans.
In fact, the Japanese may still be poorer, in real terms, than Westerners. The Japanese work far more hours than people in the West, and they live in much smaller homes. Two or more generations of couples live together in more than 50 percent of Japanese households, versus about 3 percent in the United States.
Add to these observations the fact that the divorce rate in the United States is far higher than in Japan, inducing women to pay more for education and rely on their work experience rather than count on marriage and savings, and a relatively high Japanese saving rate is not so surprisingâ€"or disturbing.
Given these considerations, U.S. policy should not aim to duplicate Japanese saving and consumption patterns. If Americans remain optimistic about the future, itâ€™s hard to see why they should be manipulated into putting more income into financial assets. What good is money if you canâ€™t spend it?
Reuven Brenner is a professor of economics at the University of Montreal.