☐ The United States of America.
☐ The People’s Republic of China.
Question 15 might have been even easier than 14. China’s gross savings rate for the decade exceeded 50 percent while America’s was in the teens.9 It is unanimously agreed that China’s savings rate is the highest in the world.
Wait a second. Isn’t it a mantra of conventional economic thinking that spending is “good” and saving is “bad”? When you spend money, aren’t you’re moving things around and making things happen? Don’t you hear this all the time? Aren’t we continually told that we’ll solve the country’s economic ills by getting more money into the hands of consumers?
There’s only one problem with this argument — it’s simplistic nonsense. Because it confuses the wealth-creation process (working and making goods and services of real value) with the consumption function (using things that have already been made). It puts the consumption cart before the production horse.
There are two logical reasons why higher savings rates contribute to higher economic growth. The first is grounded in the Cobb-Douglas framework. When someone makes money, there are only two things she can do with it: spend it today or save it now to eventually spend down the road. One way or the other, the money will be spent. But a benefit of saving is that it allows pools of capital to accumulate, which facilitates investment and the creation of that much more wealth in the future.
A characteristic of the poorest countries in the world is that their savings rates are very low. This makes sense. If you’re living in abject poverty, it takes every single peso or pula to make it through the day. You can’t afford the luxury of putting money aside. But what that means, unfortunately, is that tomorrow will be just as bleak as today.
There’s another reason why a high savings rate leads directly to higher growth and it’s firmly grounded in behavioural economics. Say I currently make $50,000 a year. If I would like to enjoy the lifestyle of someone who makes that much, I will have to spend every cent. At the same time, it’s a priority of mine to save 10 percent of my income. I understand that this is what I need to ensure a dignified and comfortable retirement. Seems that I’m stuck between a rock and a hard place. If I save that 10 percent, then I’ve got only $45,000 to live on.
Except, I’ve got other options. I can increase my income. I can work harder and longer at my current occupation, putting in overtime. I can get a part-time job. Or I can upgrade my skills, increase my value as a marketable employee, and make that extra $5,555 annually.
Then I can enjoy a $50,000 standard of living and accomplish my savings goals.
And drive real economic growth.
Let’s get back to the 1950s. One of the most significant events in that decade was the large increase in the number of immigrants that Canada accepted. Of course, Canada is a nation of immigrants, and immigration has always been critical to this country’s development. In 1947, Prime Minister Mackenzie King enunciated the principles that guided policy for at least the following decade:
The policy of the government is to foster the growth of the population of Canada by the encouragement of immigration. The government will seek by legislation, regulation, and vigorous administration, to ensure the careful selection and permanent settlement of such numbers of immigrants as can be advantageously absorbed in our national economy.
It’s hard to argue with any of that. A “careful selection” of immigrants and efforts to ensure that immigrants would be quickly integrated into the fabric of Canada would be a win-win situation for both Canadian-born citizens and immigrants.
However, Mackenzie King wasn’t finished. He continued, “The people of Canada do not wish as a result of mass immigration to make a fundamental alteration in the character of our population. Large-scale immigration from the Orient would change the fundamental composition of the Canadian population.”10
This is much easier to argue with, particularly given present sensibilities. But it did reveal something important about the thinking of the day. And that was that most Canadians were more “comfortable” with immigration from Europe than from other continents.
This is something that Canada has struggled with and continues to struggle with — and it speaks directly to one of the questions posed earlier: Should this country be understood as a collection of individuals or groups? Mackenzie King saw it in terms of the latter.
However, one of the positive and unintended consequences of this world view was the policy of allowing many “displaced persons” to enter the country from Europe. With so much of that continent in ruins, many people didn’t have a home to go back to. Between 1947 and 1962, 250,000 displaced persons were admitted into Canada, which was more than the rest of the overseas countries (United States, Australia, and New Zealand) combined.11 This was a case where this country did the right thing and benefitted immensely.
Many of those folks are still alive today, and if you’re reading Stalled I have one thing to say: “THANK YOU!” Because you helped build what I’ve enjoyed all my life.
Think about the self-selection process that made someone leave the Ukraine or Germany or Poland and roll the dice in a strange land. It’s not right to stereotype, I know, but I’m going to anyway: If there were one single characteristic that bound them all — men and women — it was that they had cojones the size of bowling balls. In most cases, these brave people came to Canada with the shirts on their backs and nothing else. The cultural barriers were huge; the social safety net non-existent. All they had were all the disadvantages anyone needs if they want to truly succeed, and succeed they did, making both their lives and those of future generations that much richer because of their hard work and sacrifice.
Before we leave the 1950s, a few anecdotes that tell us so much about the zeitgeist of the age.
The 1950s was the Golden Age of television. Shows like Gunsmoke and Have Gun —Will Travel were especially popular, and hearkened to a past where individual, strong men did the right thing and ensured that justice was done.12 Those stories inspired future generations, but none more than the series Perry Mason.
It was America’s longest running and most successful show about lawyers. Canadian-born Raymond Burr, starring as Perry Mason, week after week took the side of an innocent person accused of murder, and by the end of the hour, not only had he exonerated the innocent, he’d broken down the guilty party and elicited a confession!
Who wouldn’t want to be a lawyer? It seemed the noblest profession known to mankind.
Of course, Perry Mason was a fictional character, but there were men doing great things in real life. In his book The Right Stuff, Tom Wolfe writes about a group of combat aviators who later became test pilots and ultimately the first American astronauts. A story from the book tells of a dogfight during the Korean War. I’ll let Wolfe take it from here:
Combat had its own infinite series of tests, and one of the greatest sins was “chattering” or “jabbering” on the radio. The combat frequency was to be kept clear of all but strategically essential messages, and all unenlightening comments were regarded as evidence of funk, of the wrong stuff.
A Navy pilot (in legend, at any rate) began shouting, “I’ve got a MIG at zero! A MIG at zero!” — meaning that it had maneuvered in behind him and was locked in on his tail.
An irritated voice cut in and said, “Shut up and die like an aviator.”13
“Shut up and die like an aviator.”
This era unapologetically saw courage as a virtue and, to some degree, demanded and expected it. It wasn’t about being touchy-feely and feeling sorry for yourself; it was about getting it done and showing grace under pressure.
In 1953, Charles Wilson was CEO of General Motors when then-President Dwight David Eisenhower tapped him for Secretary of Defense. In hearings before Congress (there were concerns about his holdings of GM stock and whether he could be objective), he made the following statement: “For years, I have thought