Ezra Klein — China Should Replace Personal Savings With Tax Burden
Okay, that’s not exactly what he said, but that’s what it boils down to:
But it’s worth zooming in on why the Chinese are making this a priority right now: Chinese economists see universal health care as a way to induce consumption and economic dynamism. The Chinese have a high savings rate — indeed, an absurdly high savings rate, between 30 percent and 40 percent of income — and one of the reasons is fear of medical expenses. China lacks a safety net, and so people spend less because they need to plan for catastrophe. And if catastrophe doesn’t befall, then they’ve simply spent less. Which is a problem when you’re facing down a potentially long recession. And so China is trying to make it safe for its citizens to spend, which means making future expenses more predictable, which means offering health care coverage.
Chinese saving rates are extraordinary. While Ezra’s point that one of the reasons is a fear of catastrophic medical expenses, there are certainly other factors at work — cultural, historical, etc. China is a poor country rapidly modernizing, and I would guess that the level of uncertainty for most workers is surprisingly high. Americans who lived under the Great Depression were far more savings-oriented than Baby Boomers or Gen-Xers, and this is probably due in large part to knowing “how bad it can get”.
But look at what Ezra is claiming here. He is essentially claiming that because the Chinese — who have decided their best interests are to save rather than to engage in American-style consumerism — aren’t “spending enough”, that the government should take their money away from them to cause them to spend more. The logic is that government taking away a bunch of money will remove their responsibility to plan for their lives, and allow them to live on the edge.
Doesn’t this remind anyone of the reason we’re in a worldwide deflationary debt spiral bordering on the worst financial crisis in history?
This completely avoids the COST of such a safety net as Ezra is suggesting. For many, it could be between 25 and 45 percent of income. If you look at high-tax European countries, where the social safety net is well-established, citizens need not worry about saving 30 to 40% of their income, because the government has taken it away as taxes.
China would be far better served by private entities (such as insurance companies, etc) helping to allow them to better plan their future expenditures than passing that burden to the government. In order for that to occur, of course, it would require a consistent legal environment based upon the rule of law, much more economic liberalization, and a commitment to property rights. The end result, however, would be to empower the Chinese to have both moderate saving rates, consistent planning of expenditures, and higher consumption. And it would allow them to control the balance of each. Ezra, on the other hand, would rather the government simply take the money away from them and decide how it gets spent.