Professor Obama: Toward a Save-and-Invest Economy

President Obama has been making news on seemingly an hourly basis during his European travels. One such revelation was his acknowledgement that excessive savings in Asia and excessive consumption in America has created trade imbalances that are no longer sustainable. My colleagues here at the New America Foundation have been singing this tune for awhile and recently conducted an entire symphony at this recent event.

In London, Obama said that the world may not be able to rely any longer on the U.S. as a “voracious consumer market.” He was soon asked a follow-up question when in Germany (another country with a large trade surplus). Obama took the questions as an opportunity to play the role of economics professor and explainer-in-chief.

His reply started out by focusing on the importance of stability in the financial sector, regulatory oversight, and getting the economy moving again. But then he shifted to focus on sustainable economic growth. He noted that it can’t be based on speculation in housing or other financial products, it can’t be based on “consumers maxing out on their credit cards,” and it can’t depend on long-term deficit spending.

Instead: “Families are going to have to start making more prudent decisions about spending, and increasing their savings rate. Businesses are going to be making investments, and we want to spur as much investment as possible, but the whole point is to move from a borrow-and-spend economy to a save-and-invest economy.”

So according to Professor Obama, we need a rebalancing of the balance sheets of nations and among households. The two are actually connected. I agree.