And it has to do with my Uncle Harry used to say: “Rich or poor, it’s always good to have money.” Noah Smith recently wrote a piece for The Atlantic, in which he argues that, to reduce the wealth gap, we need to encourage the middle class and the poor to save more:
As I mentioned, income redistribution helps these things a bit, but it doesn’t account for the whole difference. The rich probably save more than the poor for many more reasons besides the simple fact that they’re rich. In fact, being willing to save more is probably a big part of how the rich got rich in the first place. “Cheap” is an insult, but being cheap is how you get rich. If you consume everything you earn, your consumption will be higher today, but lower twenty years down the road; in our consumption-focused society, a lot of people are caught in this trap. And government can and should help them get out….
Instead, the answer is to change America’s culture of (not) saving. This sounds hard, but actually it is probably very doable. For years, behavioral economists such as Richard Thaler have been studying ways to “nudge” people to save more. The most famous “nudge,” which has been endorsed by President Obama, is to make employee pension plans “opt-out” instead of “opt-in”. But there are plenty of others. In lab experiments, just giving people information on how to save money makes them save a lot more.
Look, getting people to save more would be a good thing (sensu Uncle Harry). And personally, I’ve never been an extravagant spender–you don’t survive grad school and a couple of post-docs in expensive areas without being frugal (ah, half of my post-tax and benefits income to live in a crappy apartment 75 yards from the LIRR. Those were the days…). So, when I’m feeling all moralistic and shit, I’m perfectly happy to rail against those damn profligates.
And then data smacks me upside the head. Here’s how a living breaks down in Massachusetts:
Hunh. “But Mad Biologist! Massachusetts is really expensive!” True enough, so let’s look at Alabama (because we like Alabama-Massachusetts comparisons):
I don’t see how many middle class and poor families are going to be able to save–that is, lock up cash in long-term investments. If somehow they are currently managing to do this, there’s no way in hell they can afford to save more on these sorts of incomes.
They don’t have the money.
Here are hourly wages from Massachusetts–the red indicates an average wage at which a single parent is unable to support one child:
What would help are tighter labor markets and a serious push for a minimum wage that reflects the increase in GDP*. Transfer some more wealth from employers to employees. Because that’s where saving starts, especially when you’re already cut to the bone. Don’t put the cart in front of the horse.
And, as the kids used to say, because I can:
*For the record, I would like to see an immediate raise to $9/hr followed by $1/hr increase per year until we hit $17/hr.