All I Want For Christmas: Less Debt? Holiday shopping means lots of trinkets for loved one, but it can also mean lots of debt. To learn whether Americans should save more and spend less, host Michel Martin speaks with NPR's Senior Business Editor Marilyn Geewax and Princeton Professor Sheldon Garon. Garon's new book is Beyond Our Means: Why America Spends While the World Saves.

All I Want For Christmas: Less Debt?

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Holiday shopping means lots of trinkets for loved one, but it can also mean lots of debt. To learn whether Americans should save more and spend less, host Michel Martin speaks with NPR's Senior Business Editor Marilyn Geewax and Princeton Professor Sheldon Garon. Garon's new book is Beyond Our Means: Why America Spends While the World Saves.


I'm Michel Martin and this is TELL ME MORE from NPR News. Coming up, world leaders kick off an international conference in Germany today on the future of Afghanistan. We decided to hear from one Afghan-American woman about her fears and hopes for her homeland. We'll have that conversation in a few minutes. But first, we want to take a look at Americans and our spending habits. Americans finally got a little bit of good news on the economy last week. The Department of Labor announced that the unemployment rate sank to just under 9 percent for the first time since March of 2009.

That number now sits at 8.6 percent. It's been worse but things are still not great. Still, news of the economy made us wonder about all those reports of robust spending on Black Friday and record-setting online sales during last week's Cyber Monday. That spending topped 1.2 billion dollars. What gives? Where's the money coming from? Are the wealthiest Americans doing all the spending? Are consumers overall better off than the numbers would suggest, or are Americans overspending and undersaving?

Here's for some answers are NPR senior business editor Marilyn Geewax. Also with us is Sheldon Garon. He is a professor of history at Princeton University and author of the new book "Beyond Our Means: Why America Spends While the World Saves." Welcome to you both. Thank you for joining us.


SHELDON GARON: Thank you, Michel.

MARTIN: Marilyn, let me just start with you. Now, I think that most economists have backed off warnings of another recession but there pretty much - there's pretty much of a consensus that there is slow growth ahead. We're constantly reminded that the U.S. economy is consumer-driven. So, is it a good thing that Americans were doing all that spending last weekend, wherever that money was coming from?

GEEWAX: In the short term, it's absolutely a good thing when people get out and shop. You know, you go to the mall and you not only spend money at the retail store, you go to the restaurant, you might stop at the gas station. That creates economic activity that leads to more jobs. And Lord knows, we do need more jobs right now. But Michel, it's like a sugar high. You get in there, you get that quick rush but the truth is that in the long run it's not good for us to have too much debt.

A lot of why we have all these economic problems right now is because we had so much debt that we piled up in the last decade.

MARTIN: But do we know for a fact that this spending was driven by debt? I mean, for example is it possible that most of the spending was the 1 percent that we keep hearing so much about, that the 1 percent was doing all that spending?

GEEWAX: No, the 1 percent - they're spending heavily, they're doing great. Nordstrom and the Tiffany's of the world, their sales are great. But overall, we really did get into trouble from spending too much in the '90s and the first part of the last decade. A lot of that was driven by - we bought houses that were bigger and bigger, and we wanted to fill them up with all kinds of stuff from Crate and Barrel and, you know, Target and all that.

So, we spent too much, drove up our credit cards, got into a lot of trouble and that really led to these foreclosures and the bankruptcies that we've seen.

So, at this point we've got - open credit card accounts have dropped by about a quarter since 2008. So, we've seen that people really have pulled back and really that's the kind of balance we're looking for, is for people to spend a little less and stay on budget.

MARTIN: Talk a little bit, if you would, about kind of the roots of the debt crisis as you understand it, or is it in fact a crisis? Is it your understanding - is it the consensus of most economists that in fact, Americans are at a danger point in consuming more than we save or that the balance between saving and spending is truly out of whack?

GEEWAX: There's no question that we really had way too much spending and that's why we're seeing this pulling back. But here's the one thing that's a little bit scary as we see these debt numbers come down. When you really look deeply into the numbers, what you see is that a lot of the reason that we have less debt is because people went into bankruptcy and just wiped out the debt.

They just defaulted, and the same thing with foreclosures. You know, a few years ago we had all this debt on the record because everybody had these huge mortgages. Well, now, they're living with their mom. You know, they're in the basement at somebody's house. So, you've wiped out that debt but it wasn't a good way to do it.

MARTIN: So Professor Garon, Marilyn just told us that in the short term that the consumer spending is recovering a bit and also that the number - that the amount of debt on the books overall is coming down, but she says that that's kind of a short-term issue. Your book - in your book, you take the long view of this issue and you say that Americans' inability to save is something - is this ingrained in the culture or is this ingrained in our policy? Tell us about this, if you would.

GARON: Well, I would say that the latter. I don't think it's ingrained in our culture. It was not so long ago, in the early decades after World War II, that we had fairly high savings rates. From 1945 to the early 1980s, we varied between about 7 to 11 percent of household saving as a percentage of disposable household income; not too bad and then in the 1990s, as Marilyn just told you, debt went up. People got very used to borrowing because of various policies.

Because home equity loans suddenly exploded after a 1986 tax revision, because credit cards were deregulated and because of a lot of these things and a lot of things dealing with deregulation, credit became very available to people and that's where I think most people lost their saving habit.

MARTIN: You wrote in a recent New York Times piece that few Americans appreciate that the prosperous economies of Western and Northern Europe are among the world's greatest savers. Over the past three decades Germany, France, Austria and Belgium have maintained household saving rates between 10 and 13 percent. Is that - and in contrast you say that the U.S. savings rate is currently below 4 percent. Is this a matter of government policy and which ones?

GARON: Well, there are several. But to start with, all of these countries have long histories up to the present of institutions that really serve small savers - things like post office savings, savings banks. Other things like that, tax-free accounts with no minimum balances that make it very easy for lower-income households to save, whereas our banks tend to either chase away or fleece low-income households.

So, that's one thing. And then the availability of credit, which also has to do with government policies. There are policies all over Europe that protect people from over-indebtedness, that regulate credit cards and make it very difficult for people with bad credit to get things like this that allows them to go over their heads and become over-indebted.

MARTIN: Marilyn, what's your take on this, if you don't mind rendering an opinion here? You think it's policy or culture or a mixture of both? Because I think one thing that many people will acknowledge is that our media, our entertainment media are very much interested in consumption.

GEEWAX: Um-hum.

MARTIN: And they're not very much interested in, you know, story lines about a guy who goes to work everyday and brings his sandwich, you know, in a paper bag and eats at his desk and puts that money aside. But we're very interested, at least in recent years in, you know, shows like "MTV Cribs" or "Real Housewives," that really glorify, you know, over-the-top consumption. So, the question is, is that driving the culture or is it just following it?

GEEWAX: Well, there's shows back in the '80s, the "Dynasty" kind of TV shows that glorified bling and diamonds and, you know, over-the-top consumption...

MARTIN: See, I was just not trying to date us. That's why I was just pretending I didn't know about those, but that's why I ignored those.


GEEWAX: You know, we really did kind of have this - two prongs really. I think he's right that policies do lay the groundwork that make it possible for these things to go forward. The easier credit, the home equity loans. All of those things laid the groundwork for being able to borrow more and spend more, but also I think the media, including the news media, does an awful lot to encourage overconsumption. On every Black Friday you can turn on any television, turn on any radio and you'll hear about sales and people in line and everybody trying to get that $199 flat screen TV.

We glorify people standing in line to shop, but how often have you ever seen a story where there are depositors lined up outside of their community bank trying to deposit their paychecks so that they can make sure that their kids have money for college.

We just really put much more emphasis in the culture and the media on spending and fun and bling and that's where all the advertising is, not on people soberly saving.

MARTIN: And then, so in the last few minutes that we have left with NPR's senior business editor Marilyn Geewax and Princeton history professor Sheldon Garon, I'd like to ask each of you for your thoughts about what would reverse this. First of all, does this trend need to be reversed and, if so, what would help reverse it? Marilyn, I'll start with you and I'll give Professor Garon the final word.

GEEWAX: Well, if this recession hasn't gotten our attention, I don't know what will. I think it became very clear that people bought homes that were too large. We encourage too much spending and you would have to think that people have learned some lessons here, so I hope that people may change their behaviors.

MARTIN: And Professor Garon, what about you?

GARON: Well, there are some concrete things we can do. Unfortunately, they're not on the table much, but they're not that hard to do. One is to set up an incentive system with the banks so they really offer small savers accounts with no minimum, with no fees that are perhaps tax-exempt. This is what many countries around the world do.

Another thing we could do is revise our tax laws, which at this point, as Marilyn just indicated, tend to incentivize people at the upper income scales to spend a lot of their wealth on housing and I think we need policies that make a tax advantage to save.

We need to, I think, curb predatory lending and, lastly, what Europeans do is they have policies where they state it's democratic to advance financial inclusion, they call it. In other words, access of lower-income households to banking facilities so that it's easier for them to save.

MARTIN: So would it be - so, Professor Garon, give me the world according to Professor Garon as it would look now. If I walk outside the door today and these policies have been implemented, it would be as easy to go down the street, particularly if you're a low income, to open a savings account, to put some money aside as it is to, say, get a debit card or a store credit card or what? What would be different?

GARON: Well, that's actually well-put. I mean, we don't want people to stop shopping. That's very important. We need to restore some balance between saving and spending and, right now, everything we're doing - media, policies - have skewed it toward spending and spending on credit. And we need to curb that in so that people really are much more living within their means and that they have a healthy amount of saving, as well as money to spend.

MARTIN: Sheldon Garon is professor of history at Princeton University. He's the author of "Beyond Our Means: Why America Spends While the World Saves." He was with us from the studios at Princeton University. Here with us in our Washington, D.C. studios once again, NPR senior business editor Marilyn Geewax.

Thank you both so much for joining us.

GEEWAX: You're welcome.

GARON: Thank you.

MARTIN: Marilyn, I'm not going to ask you what you're going to get me for Christmas.

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