Savings and Moral Hazard · 22 December, 10:45 AM
There’s an interesting point in Thomas Friedman’s latest piece: China has no social safety net, so there’s a definite moral hazard to living beyond one’s means. Friedman’s point is that we shouldn’t hope China picks up the slack in consumption because of this: the Chinese tend to be scrupulous savers because the have to be.
I’ve said for a long time that free trade isn’t: China and India can afford to have low labor costs because they don’t pay for expensive programs on the same scale as the US and Euro Zone: Social Security, Medicare or Universal Healthcare, clean air and water standards, a (mostly) fair and effective justice system; all of these things come at a high price. The flip side of the coin is that we as a nation have created a moral hazard. But it’s unclear that it’s that straightforward: countries like France and various Scandanavian countries enjoy high savings rates even as they enjoy a level of social programs even higher than the level in the US.
— Gordon Weakliem
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