The dismal U.S. saving rate is a bigger factor

Another long-term problem that is largely going unaddressed is the admittedly arcane issue of how much money Americans — and the federal government — save. For many years, Americans have saved at much lower rates than the countries that have risen to become major economic challengers, especially China.

Why does saving matter so much? After all, by becoming a nation of consumers, not savers, most Americans enjoy one of the highest standards of living in the world.

The trouble is that because the country is saving too little, it is indirectly paying for much of its consumption — and its investments — by borrowing from foreigners. Trump’s tax plan unveiled last week would only make matters worse, policy experts say, because his proposal for massive tax cuts for businesses would increase U.S. government debts by trillions of dollars, which would tend to push up the trade deficit.

In one sense, the most important U.S. export is the dollar. Because the dollar is considered the safest currency in the world, foreign nations and wealthy firms and individuals buy and hold huge reserves of greenbacks, even though they earn very little interest.

That may help U.S. consumers and the government in the short run, but the failure of Americans to save more means the country has trouble financing the big modernization and educational projects that would give it a better future.

“The intuition is that if you make U.S. firms and workers more productive, they’ll be more competitive internationally. And if they’re more competitive, we’ll be able to export more,” said Barry Eichengreen, professor of economics and political science at UC Berkeley who was a senior advisor to the International Monetary Fund.

“But if you haven’t done anything in the meantime to change savings or investment, you’ll also be importing more — and you will not have narrowed the external deficit.”

What worries Eichengreen is that Trump may, in fact, end up discouraging savings with his deregulation of financial institutions and other policies. Trump administration officials, he said, “are not exactly informed by economic literacy.”