Eva Peron Wins: The Pretension of a “Savings Lottery”


lotteryticket.jpgPeter Orszag, now a new vice-chairman of global banking at Citigroup and former US Office of Management and Budget under Barack Obama, has written a provocative and (with all due respect Peter) wrong-headed Financial Times oped proposing that the way to promote savings among America’s low-income workers is to attach the prospect of winning millions to them scurrying away a few dollars here and there — sort of a lottery ticket that goes into their savings rather than into state coffers to help subsidize education or to the profits of the local milk and cigarette stand.
At the New America Foundation, I have colleagues who are most likely the world’s leading experts on generating savings among the underclass, or “banking the unbanked” as New America’s Reid Cramer or Ray Boshara would say. But suggesting that America’s savings problem be solved by establishing an Eva Peron style lottery incentivizing those with little to save doesn’t understand the dynamics at play in the American economy today.
American growth, indeed global growth, this past decade was moving upward at a fast clip in part because household consumption was surging well beyond normal patterns. Whether it was inflated 401k values or bubble-driven home prices, working families had confidence that they lived safely in a “just-in-time money, just-in-time jobs world.”
In other words, credit was easy, trust in America’s financial health was high, a job lost could easily be filled by a job or two gained. Just-in-time income is a sign of hyper-confidence that the inflow and outflow of funds will be manageable — sort of like Toyota’s just-in-time production system in which it doesn’t warehouse materials and supplies but brings together all of its componentry in a just-in-time assembly process.
The trust is gone. The US government and Wall Street managed to not only inject fear and uncertainty deep into the American market and household sector — but also managed to export toxic financial products to the rest of the world, undermining global trust in US economic leadership.
dollars pic.jpgWhen households are stressed out about the future, fear losing jobs or unemployment insurance, or see an economy that is not producing enough jobs to keep pace with those coming into the workforce, people save — and that is what is happening today. People are saving as Orszag notes in his article, writing that savings has risen from 1.4% of income in 2005 to 5.8% in 2010. While he properly notes that a further dramatic rise in savings would hurt the economy and constrain a return to badly needed consumption in the short term, he argues that America needs more savings in the long run — and then says that a lottery for poor folks is the way to get there.
First of all, in many states, working class and lower class/non-working Americans are already the bulk of lottery ticket buyers — which is essentially a tax on them to support parts of the state education infrastructure. I suppose to draw them away from one lottery-incentivized behavior to support their own savings interests, it could make sense to generate yet another lottery-incentivized behavior. But then who would pick up the newly neglected education tab?
But more importantly, the savings and investment ratios in the United States are a function of another kind of faulty logic — one that says that America as a whole should “trust” the international system to provide unlimited financing for unlimited gluttony (i.e. consumption from China and elsewhere) and that the working middle class need not fear off-shoring of jobs to China and Southeast and South Asia because this is moving America up the value chain and that new, high wage jobs and opportunities will be created out of the churn. The selling point from firms like Citibank is “trust” the international economic order to provide alternatives for what is taken away — just in time manufacturing jobs, just in time financing, just in time opportunity.
But the rest of the world doesn’t operate it. Martin Wolf of the Financial Times once told me that the self-interested, strategic economic behaviors of other major economic stakeholders in the international system required a “patsy” — someone who would believe in the “just in time” security of give and take trade and give and take finance and jobs even when its competitors didn’t. That is the United States. (To be fair, when I told Martin Wolf that he had said that to me, he said it was impossible because the word “patsy” was not one that fell easily from his lexicon — but he said that the concept was basically right, and I suggested that “sucker” or “chump” might be just as good, to which he nodded.)
My recommendation to leading economic officials is to get back to the real issue here — not whether one can create gimmicks to nudge poor people to become the savings backbone of a newly re-energized American economy, but rather to realize that the nation itself can only re-earn real trust from its citizens and respect in the international system if it reinvests in itself, in its innovative sectors, in infrastructure, and creates incentives for surplus nations in the world like China, Germany, and Japan to invest in high value added manufacturing operations inside the United States.
A non-defense discretionary spending freeze for 5 years, which Barack Obama has proposed, is not a trust-building budget that conveys that America will be more innovative in the future and on a higher growth path. It is a flounder-in-place budget while China and India leapfrog forward.
A major national infrastructure investment push could be a serious event in US history at this point — and would keep working, low-income Americans on track, investing in themselves when they need to, saving when they need to, borrowing when they need to — in order to try and secure a better set of opportunities for themselves and their children in the long term.
Eva Peron style lotteries are just another gimmick of social engineering — that just builds on the short term sorts of thinking that we have seen coming for years from the big financial houses in Wall Street and from their agents and proteges in Republican and Democratic administrations.
— Steve Clemons


15 comments on “Eva Peron Wins: The Pretension of a “Savings Lottery”

  1. questions says:

    Teh olds and their money issues…. What we face in the near term is pretty ugly….


  2. questions says:

    h/t Yves Smith/nakedcapitalism
    Egyptians, meet Serbians, learn.


  3. PissedOffAmerican says:

    “…..and I’m not sure American corporations really care anymore”
    Well, you can lose the “not sure” part of your premise. You can rest assured, “they” do not care.
    Formaldahyde, melamine, lead…..
    Substandard and unbelievably dangerous fasteners and hardware imported from China, that we are now building our homes and infrastructure out of.
    Furniture factory exodus to Mexican border towns so that they can pollute indiscrimately and dangerously.
    BP, and the wrecked Gulf.
    The Halliburton criminal conglomerate, that has STOLEN billions of dollars from the American taxpayer through overbilling, substandard work, and compensation for work never performed…..
    Ad nauseum…..
    In league with the Maggots in Washington DC….
    The ones we are supposed to be civil to, and discuss with respect and reverence.
    You know, the ones that retire from “public service” after amassing obscene amounts of wealth by shittin’ on everything we once purported ourselves to be. The ones drinking fine wine with think tank heroes, so they can get on MSNBC or Fox News and read their particular version of today’s script. The keys to the kingdom must be earned, you know.


  4. Cee says:

    I was thinking about my late father and the late Howard Zinn today and the chapter “Revolt of the Guards in his book A People’s History of the United States. In it he writes about soldiers and police officers(who are now being harmed by budget cuts) finally rising up to join the masses to change our system.
    We need another Battle in Seattle type movement in every state in the nation. My father was an old Civil Rights warrior who wouldn’t let “his little girl” go to Seattle alone. I miss him and Howard Zinn. Thank God for people like Lendman and Finegold.
    Egypt’s Spirit Lands in Wisconsin – by Stephen Lendman
    It landed, but it’s too soon to know where it’s going or how committed workers are to stay the course and spread it to other US states.
    On February 16, however, former Senator Russ Feingold launched Progressives United.org (PU), an initiative he hopes will inspire “a new progressive movement” to hold elected officials accountable by challenging corporate influence in politics.
    It also opposes the Supreme Court’s January 2010 Citizens United v. Federal Election Commission decision, sanctioning unlimited corporate spending in elections (the one dollar = one vote ruling by America’s supremely pro-business court). Feingold called it:
    “one of the most lawless decisions in the history of our country. The idea of allowing corporations to have unlimited influence on our democracy is very dangerous, obviously. That’s exactly what it does. Things were like this 100 years ago….with the huge corporate and business power of the oil companies and others. But this time, it’s like the Gilded Age on steroids.”
    According to Feingold, PU won’t take soft money or unlimited contributions, saying:
    “We’re going to be reporting every dime that we get, whether required by law or not….It will be 100 percent accountable, and that is an important principle that I believe in that we’ll follow to the T….as a way of contrasting it to what’s going on with the corporate money” that buys politicians like toothpaste.
    It remains to be seen whether Feingold will prove true to his word, if his agenda also challenges other major issues, including imperial lawlessness and growing homeland repression. Crucially also is whether it spreads, inspiring similar efforts across America.
    American Courts, like Politicians, Support Power, not People
    Previous articles discussed the High Court’s anti-populist agenda under Chief Justice John Roberts, one of several accessed through the following link:
    The tradition, however, way pre-dated him, notably articulated by John Jay, America’s first chief justice, saying the country should be run by those who own it. Also in Marbury v. Madison (1803), establishing the principle of judicial supremacy, making the Court the final arbiter of what is or is not the law, a disturbing precedent subsequent courts abused repeatedly.
    Besides trashing civil liberty protections, its Santa Clara County v. Southern Pacific Railroad decision (1886) was perhaps its worst by granting corporations personhood under the 14th Amendment, with all accruing rights and privileges but none of the obligations. More than any other ruling, including Citizens United, it gave them unchecked powers to become the dominant institution of our time, able to control Congress, the Executive, and state and federal courts as well as act lawlessly against public welfare interests.


  5. Russell Knights says:

    I think the main point is that our under-class is growing and I’m not sure American corporations really care anymore. I think they used to 10-20 years ago, but I don’t see it now.
    What is easier for a large corporation to do: accept higher “real” taxes to fund a better public education system that will give them the domestic employees to hire 10-20 years down the road, then get the privilege of paying much more per employee, OR simply go to India or any other country where they can get smart people at a small fraction of the cost *today?* I know that we have been hearing that one day India’s employees will get more expensive, but we’ve been waiting awhile for India to adopt our demanding discretionary income ways.
    The bottom line is that it is not profitable for American corporations to be patriotic and help their own country. This “what’s good for corporations is what’s good for America” is simply BS. We are “patsies” as American citizens.
    I’m a big proponent of true capitalism, but in this day and age, true competitive capitalism is almost impossible to achieve without very strong government regulation, and that’s something America can’t just do…it has to be *the world* that must agree on that. We as a nation are not even to that point yet within our own country. 🙁


  6. Rebecca Helm-Ropelato says:

    Excellent post! Thank you.


  7. Vic S says:

    “At the New America Foundation, I have colleagues who are most likely the world’s leading experts on generating savings among the underclass. . .”
    Your colleagues are grossly missing the understanding and logic of how the printed zillions the Fed “creates” on their money printing machines makes the dollar worth so much less, why save greenbacks in a bank at all?
    Wait until the housing market soon collapses, the stock market soon has another gigantic correction, countries around the world continue to turn away from using the dollar (already happening), who would anyone want to “save” their dollars in a bank?
    Maybe your colleagues will end up helping to start another war to hide the origins of our financial madness and mess.


  8. questions says:

    Here is an example of a perfectly fine nudge:
    The only people harmed by the nudge of no more cafeteria trays are those who were paid to wash them, those who slid down hills on them, and those athletes whose appetites so outstrip the median as to require many tens of trips to the salad bar. Possibly, they would use more calories walking to the salad bar than they could gain by eating the little bit of salad they could carry back to their tables.
    Hence a new job category — salad carrier to athletes! It’s right up there with bench warmer and bat boy and water carrier. Someone’s gotta do it!


  9. Phil Perspective says:

    Do you know that the TBTF’s get paid to dispense unemployment checks(really debit cards)? Orzag can’t be taken seriously. He’s a disciple of Pete Peterson. That means he has no credibility other than with the frauds inside the Beltway.


  10. Dan Kervick says:

    I guess Citigroup is looking for a new revenue stream.
    I have this theory: if poor people made more money, they would save a higher percentage of the money they made.
    They might also then be able to feed their family with real, actually nutritious food, instead of the garbage food they are forced to feed their kids with now.


  11. David Billington says:

    “First of all, in many states, working class and lower class/non-working Americans are already
    the bulk of lottery ticket buyers — which is essentially a tax on them to support parts of the
    state education infrastructure. I suppose to draw them away from one lottery-incentivized
    behavior to support their own savings interests, it could make sense to generate yet another
    lottery-incentivized behavior. But then who would pick up the newly neglected education tab?”
    (Steve Clemons)
    I don’t buy this proposal either but education shouldn’t be financed by lotteries in the first
    place. The real problem with the proposal is that it would make the poor complicit in a banking
    system that is itself increasingly hard to distinguish from a casino.
    “A major national infrastructure investment push could be a serious event in US history at this
    point — and would keep working, low-income Americans on track, investing in themselves
    when they need to, saving when they need to, borrowing when they need to — in order to try
    and secure a better set of opportunities for themselves and their children in the long term.”
    My sense is that the employment effects of infrastructure renewal need to be understood more
    realistically. Renewal of (and any addition to) the nation’s civil, transport, electrical, and
    environmental engineering will be a one-time event, and for there to be a sustained increase in
    maintenance jobs afterwards, you would have to shorten the replacement cycle. There could be
    a good case for doing this but net employment in the long run is unclear if better systems
    require less labor to maintain than existing ones.
    A larger point is more often argued today: that new infrastructure will renew the rest of the
    economy, eg. that Americans will find more and better work on a more ubiquitious Internet or
    that high-speed rail will keep manufacturing in the United States. I think it would be helpful to
    produce peer-reviewed studies of the national employment and wage effects of investments
    like these before drawing broader conclusions.
    There is an intrinsic argument for renewing infrastructure, where needed, and for making
    carefully weighed additions. We are certainly better off in the long run with modern systems
    than with rusting and backward ones. But to say that these are necessary is not to prove that
    they are sufficient, at least in the short-term, to renew employment. Infrastructure is part of a
    recovery strategy but it needs to be argued in terms of what it can really do.


  12. DavidT says:

    Thanks for the piece and link to Orzag’s article. Who could
    be against our investing in infrastructure spending and
    burnishing our future by enabling our industries to make
    products the world will want? But as you must know, given
    where you work, the challenge is to find ways to invest for our
    future while at a minimum appearing / setting ourselves on a
    course to address our long-term fiscal challenges. I too am
    quite worried about how government cuts will affect the least
    lucky of our society. But to me the biggest barrier to avoiding
    those cuts is to enable those who feel that the best off can
    afford to contribute alot more of their annual earnings than
    they are now doing — particularly as the wealth distribution
    grows and particularly amongst the wealthiest. How about
    convincing your friend Grover Norquist to show that he can
    not only show tolerance for all religions in our midst but also
    have a heart for the least well off amongst us before the least
    politically potent program’s get slashed as they are already
    getting in states and localities. How about nudging him to
    support a “patriot tax” that those making more than say $2
    million who could, like the “Greatest Generation” make some
    of the sacrifices that they can afford to protect and preserve
    the country that has provided them with such a good fortune
    (again, like the “Greatest Generation”)? Otherwise all sorts of
    cuts will likely be inevitable, if not this year then next.
    I’m at a loss as to what’s wrong with Orzag’s suggestion. You
    may be right that it would cannibalize lotteries that help fund
    education but to me that’s not an argument on behalf of the
    poor as Orzag’s idea of they’re developing savings through
    this route is a much better deal for them. And while it might
    not cannibalize the other lotteries as much as one might
    worry, it’s hard for me to comprehend an argument that we
    shouldnt find other ways of funding education than on the
    backs of the poorest and least financially sophisticated. Is
    there a reason that can both invest in infrastructure and
    develop such a lottery. Maybe if it were in place and people
    got better jobs as a result of infrastructure investment, they
    could do a better job saving and pulling themselves or tgeir
    kids out of poverty.
    Thanks and hope you’re well.


  13. questions says:

    Really nice post!
    A few thoughts:
    We’re supposed to live a little below our incomes rather than a little above them. That’s fine if a little below your income doesn’t render you homeless or unheated. It’s too expensive to be poor in the United States. Without decent health care, decent transit, decent housing subsidies, poor people can’t really afford to live. So the idea of saving when you’re earning very little is silly. And as you note, to suck some more money from these people based on a game of chance is pretty damned cruel. But the whole non-coercive, non-taxing, volunteerism/carrot not stick way of looking at the world has its very own cruelties.
    The idea that a sector should pay for itself rather than be supported by income transfers of one sort or another only makes sense in some places. The idea that the poor/low income survivors should pay for themselves makes no sense at all. We can certainly afford income transfers without moral hazard issues, and a better, less piggish nation would do just that. But we are incredibly piggish. (Echoes of the impoverished nearly half-million a year U of C law prof and the Mankiw moan…..)
    The very sad thing about this version of “nudges” is that there are simply people for whom a nudge is grossly unfair and for whom a savings nudge will cause deep short term and mid-term pain. And given how little some people earn and therefore can save, the savings aren’t really going to add up to much of anything, even with the miracle of compound interest.
    The loss of intergenerational wealth because of the housing bust, because of large numbers of troubled family members, because of the US penal system, because of low property values where there are fully owned houses — this is much more of a problem than Orszag’s lottery savings plan will fix.
    Far better to create low income mid-density housing in places with decent schools — the value will keep up.
    Far better to support health care and transit to make basic life more affordable.
    Far better to pay people a little more instead of stripping them of collective bargaining (cf TSA and the state of Wisconsin.)
    We will always have low income, low skilled people. We will always have some portion of people whose time horizon is on the shorter end of the planning scheme. We will always have people below the median for any and every marker of comfort and success. Far better to make that minimum position somewhat more bearable than to have endless panics about moral hazard, lazy poor people, people who get something for nothing. To capture and contain the poor, sequester them, distribute their meager money amongst their class rather than simply taxing the oligarchs is really fucking sick. But we are a fucking sick fucking nation, not the most generous people on earth.
    And Peter Orszag is profoundly overpaid to come up with an income sharing device open mostly to poor people. Ugh.
    Ok, Arne Duncan is now not my least favorite person to have been in the administration.


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