Friday, December 15, 2006

Socialist Bernanke Pushes Government Spending and a Reduction of Savings for China

I couldn't believe my ears, but that's exactly what he said, because I've got the transcript of the speech here. (If you want to hear it straight out of the horse's mouth, go here and click on the "Bernanke Urges China" audio/video link from December 15, 2006.)

He says:

"Although more flexibility in the exchange rate would be helpful, the most direct and probably the most effective way to reduce the external surpluses and increase the welfare of Chinese households is to take measures to reduce domestic saving relative to domestic investment. Why is domestic saving so high at present? The high saving rate of households, even very poor households, likely reflects the relatively thin 'social safety net' in China."

Tell me I'm dreaming. He's made a direct connection between a country's social safety net and the rate of savings. That is an obvious booboo, because Europeans save much more than Americans, and their government-sponsored social safety net is much more comprehensive than ours.

On the contrary, Bernanke should be encouraging Americans to save more like the Chinese (and raise the rates so it becomes profitable to do so.)

And this:

"Combined expenditures by the central government and local governments on education, health, pensions and relief, and social security amount to only about 4 percent of GDP, lower than most other countries at similar income levels. In the absence of a stronger social safety net, Chinese households save at high rates to protect themselves against risks such as unexpected medical expenses and poverty in old age."

What's wrong with this picture? He should be holding the wise Chinese up to the American public as examples of what Americans should do for their own future. Instead, he says this:

"A sustained program of expanding social services has the potential for reducing saving and raising living standards in China and, at the same time, moderating China's external surpluses. In particular, increased government spending on health, education, and other types of social services would raise both household consumption and government consumption, and thus reduce national saving."

Has he taken leave of his senses? Or perhaps they stopped talking years ago. I feel a sinking sensation in the pit of my stomach. They told me he was a create-it-and-spend-it Keynesian, but I just didn't see to what degree. He is Keynes personified.

There is so much to say about this that I am speechless for the moment. I will revive soon.

keynes
[Thanks to -unix.oit.umass.edu/~folbre for the photo.]

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