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Toward the end of Renee Haltom’s new essay “Sizing Up Currency Manipulation [2],” which appears in the Richmond Fed’s second quarter 2013 Econ Focus [3], we read that in China
household savings are high both due to demographic factors … and less-developed social safety nets and financial markets.
My comment here has nothing to do with currency manipulation, demographics, or financial markets. Rather, I write simply to point out that, although the typical Chinese citizen is far less wealthy than is the typical American today, the typical Chinese citizen responds predictably to incentives – namely, in this case, by being more self-reliant than he or she would be if social safety nets were more developed.
If Haltom’s claim is correct, the high household savings in China today is evidence that government provision of welfare substitutes to some extent not only for private provision generally, but also for provision at the level of the household. People are neither as personally irresponsible nor as incapable of planning for and providing individually for their own needs as many today – “Progressives” and some conservatives alike – presume them to be.
One cannot look, therefore, at the monetary value of welfare provided by government and conclude that if government stops providing that amount of welfare the amount of money that welfare-dependant families will spend on food, clothing, housing, medical care, education, and other necessities will decline by the full amount of the decline in government provision of welfare.