Savings is the Rock

Obviously, President Obama has much on his plate these days. In addition to traveling the world, drafting a budget, and White House training a new pet, one of his tasks is to communicate with the public. Political scientists have called this using the bully pulpit, where the President stands up and brings attention to an under-scrutinized area just by speaking about it. But Obama’s job is a bit harder since he can’t just speak about stuff; he has to explain some pretty complex developments in the U.S. and global economy.

He has to look back to see what went wrong, come up with plans to make sure it is not repeated, and keep people looking ahead with some degree of confidence that the future can be better and more secure. It is a tough task, but I am very appreciative of the job he is doing.

For instance, last week I blogged about Professor Obama embracing this role of explainer-in-chief and highlighted his response to a press conference question during his European trip about the limits of U.S. consumer spending in driving the global economy. In what seemed like off-the-cuff remarks, he said that we must eventually move from a borrow-and-spend economy to a save-and-invest economy.

I liked this phrasing and was impressed that he was so articulate when put unexpectedly on the spot. Well, the speechwriters have gotten a hold of it and added the metaphor of building a house on solid rock (savings) as opposed to a pile of sand (credit). Savings as the foundation for the economic recovery is one of the central themes of the address Obama gave this past Tuesday at Georgetown University on the state of the economy. The entire speech is worth a read as it lays out a fairly transparent game plan about how the White House policy makers are approaching these matters, which includes why health care reform, educational and infrastructure investments, and energy independence are all connected to remaking our economy along with a new regime for overseeing the financial sector.

I spend a great deal of time thinking about the path toward greater savings and less consumption. Some of this shift will be cultural but much can be accomplished by policy. Some of my ideas, and those of my colleagues, can be found here.

But I also wanted to note a recent cover story of one of my favorite economists (Robert Frank) in one of my Favorite magazines (American Prospect), which offers an insightful perspective on moving to a post-consumption economy. He offers a description of how plenty of our consumption does not increase our utility and how a rethinking of our tax code could rearrange the incentives more productively. It is an excellent piece.

But let me end this post with a bit of Obama poetry which closed his policy address as many fine professors has learned to end their lectures with a flourish. Here is our President:

“There is no doubt that times are still tough. By no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope. And beyond that, way off in the distance, we can see a vision of an America’s future that is far different than our troubled economic past. It’s an America teeming with new industry and commerce; humming with new energy and discoveries that light the world once more. A place where anyone from anywhere with a good idea or the will to work can live the dream they’ve heard so much about.

It is that house upon the rock. Proud, sturdy, and unwavering in the face of the greatest storm. We will not finish it in one year or even many, but if we use this moment to lay that new foundation; if we come together and begin the hard work of rebuilding; if we persist and persevere against the disappointments and setbacks that will surely lie ahead, then I have no doubt that this house will stand and the dream of our founders will live on in our time.”