62 Finance&economics TheEconomistJanuary15th 2022
accordingtocalculationsbyTheEconomist.
Thisstashofcashcould,intheory,pro-
videa pillarfortheeconomyoverthecom-
ingyearaspolicymakerswithdraw sup-
port.Withannualconsumer-price infla-
tionrunningata four-decadehigh—ithit
7%inDecember—theFederalReservehas
signalledthatitintendstoraiseinterest
ratessoon.Someeconomistsexpectasma-
nyasfourrateincreasesthisyear. Fiscal
policiesarealsobecomingmoreparsimo-
nious.Manyofthebenefittop-upsexpired
intheautumn.TheDemocraticParty’sin-
abilitythusfarto passPresidentJoeBi-
den’s“BuildBackBetter”programmewill
leadtofurtherretrenchment.
Willtheextrasavingsblunttheimpact
ofallthispolicytightening?Therearerea-
sons to be sceptical. Were the $2.5trn
sharedequallyacrossthecountry,it would
amounttoabout$7,500foreveryAmeri-
can—morethanthecombinedtotalofthe
threeroundsofstimuluscheques.Inprac-
ticethedistributionisfarfromequal.In
thedecadebeforecovid-19thewealthiest
1%ofAmericanshad,inaggregate,about
twiceasmuchincashandchequablebank
depositsasthebottom50%.Thepandemic
hasskewedthisfurther:thetop1%now
hasfourtimesasmuchasthebottomhalf.
Althoughthegovernmentdirecteditsas-
sistancetowardspoorerAmericans,theul-
tra-richreapedfargreaterrewards,thanks
inlargeparttosoaringassetprices.
Thatmattersintryingtoassessthepo-
tential impact of excess savings. The
wealthytypicallyspenda lowshareoftheir
incomes. Theextra cashsitting intheir
handsismorelikelytogotowardsinvest-
mentaccountsthangrocerypurchases.
Anotherdampenermaybethenatureof
theeconomicrecovery.Ina paperlastyear
MartinBerajaandChristian Wolfofthe
Massachusetts Institute of Technology
showed that recoveries from recessions
wherefallsinspendingareconcentrated
ongoodstendtobestrongerthanthose
withcutsconcentratedonservices.Pent-
updemandfor,say,smartphonescanbe
releasedina flood.Bycontrast,demandforbeachholidaysreturnsmoreslowly:vaca-
tionerscanonlybeinoneplaceata time.
Thissuggeststhatasthepandemicfades,
theflowofsavingsintoservicessuchas
travelandentertainmentmaybesluggish.
Afinalconcernishighinflation.That
eatsintobothwealthandincomes.Adjust-
edforrisingprices,wagegrowthinAmeri-
ca hasturned sharplynegativeoverthe
pasthalf-year.Similarly,therealvalueof
savingslooksabitlessimpressivegiven
thereductioninpurchasingpower.
Thestorydoesnotendthere,though.
SurveysbytheFed’sNewYorkbranchindi-
catethatstimulusrecipientssavedabout
one-thirdofthe cash andusedanother
thirdtopaydowndebts.Thathelpsexplain
why households’ balance-sheets are
healthiertodaythanbeforethepandemic,
regardless oftheir level ofincome (see
chart2).Theythushavescopetoborrow
andspendmore.
Thismayalreadybehappening.Con-
sumerborrowingsoaredinNovemberby
$40bn,themostonrecord,ascredit-card
usagesoared.Someobserverssawthatasa
sign that households were strapped for
cash. Alex Lin ofBank ofAmerica dis-
agrees.“Anincreaseincredit-cardspend-
ingcanbea functionofgreaterre-engage-
mentintheeconomy,”hesays.“Americans
like to usetheircreditcardsto rackup
pointsfortravelorrestaurants,andthatis
notnecessarilya signofdanger.”
The damage frominflationmay also
prove tolerable, especially if the Fed’s
tightening, plus supply-chain improve-
ments,bringspricesbackundercontrol.
Wagegrowthhasbeenstrongerforthose
onlowerincomes,thegroupmostvulner-
abletoa reductioninrealspendingpower.
InNovemberannualnominalwagegrowth
forthebottomquartileofearnersreached
5.1%,versus2.7%forthetopquartile,ac-
cordingtotheAtlantaFed.
As a whole, Americans saved about
6.9%oftheirincomesinNovember,less
thanthe7.4%averageinthefiveyearsbe-
forethepandemic.Yetthisisexactlywhat
shouldbeseenifsomepeoplearedipping
intotheirexcesssavings.Itisalsoakey
reason why most forecasters think the
economywillgrowbyabout4%thisyear,a
robustpaceinthefaceofheadwinds.
And that barely grapples with the
changesthattheextracashenabledforma-
ny recipients.In anotherhip-hoptrack,
ReneétheEntertainersingsofawoman
whosplurgedona buttock-augmentation
procedure:“Shespentthestimmy/onthe
booty/inMiami.”Reneé,whoserealname
isMariahPizarro,infactputhermoneyto
whatisarguablya moreproductiveuse.“I
usedthemtogeta morereliablevehicle,”
shesays.AlthoughMsPizarrodreamsofa
musiccareer,thecarhasfornowfacilitat-
eda lessglamorousoccupation.Itletsher
drivetoworkatanAmazonwarehouse.nPaying one’s debts
United States, liabilities as % of assets
By income groupSource:FederalReserveBottom20%20-40%40-60%60-80%Highest20%2520151050Q3 201 Q3 2021PensionsinGermanyAversion therapy
T
he177-page coalition agreement be-
tween Germany’s Social Democrats,
Free Democrats (fdp) and the Greens con-
tains grand plans to combat climate
change and covid-19, and to speed up dig-
itisation. Tucked away on page 73 is a more
modest promise, to fund a small part of its
public-pension scheme by investing in
stocks. Reactions in Germany ranged from
the apprehensive to the enraged. “Is our
pension safe in stock?” fretted one news
outlet. Another asked: “Are politicians
gambling away our pension?”
As retirees live longer, Germany’s pen-
sion system, which was established in 1889
by Otto von Bismarck, is buckling. Workers
and bosses together pay a “pension tax” of
about 18% of a worker’s gross wage. This is
meant to fund the roughly €300bn
($340bn, or about 9% of gdp) paid out in
pensions each year. But shortfalls have
meant that the government has had to sub-
sidise the scheme, to the tune of €100bn
last year. The problem is only set to get
worse as more baby-boomers retire.
In order to help fix the problem, the lib-
eral fdphas long supported a plan to re-
shape the pension scheme along Swedish
lines. Sweden’s system consists of a stan-
dard pension, to which taxpayers contrib-
ute 16% of their gross income, and a sup-
plemental “premium” pension, through
which 2.5% of each taxpayer’s income is
placed into a stock fund of their choosing.
Should the taxpayer decide against active
investment, the money is deposited in-The new government hopes to cure
Germans’ distaste for the stockmarket