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The economies of Europe and Japan already benefit from government programs that encourage saving. While Americans save little more than a nickel of every dollar of take-home pay, the Japanese save 20% or more, in part because they have no well-developed system of social welfare and must provide for their old age themselves. Citizens of major Western European countries, which have more substantial social welfare programs, save from 13% to 17% of their disposable income anyway.
A big stimulus to saving in Europe and in Japan is government tax policy, which exempts at least some interest income from taxation or offers premiums to savers. In the U.S., interest is sometimes considered "unearned" and taxed at higher than normal rates. Yet in France, savers can deposit up to $9,600 and receive the maximum 6.5% interest taxfree. In West Germany, couples earning up to $26,300 can put up to $900 in a six-year term account and earn not only 4.5% but also receive a tax-free government bonus payment amounting to 14% of the deposit. In Japan, savers do not have to pay taxes on interest from deposits of up to $65,000.
More than 50 bills have already been introduced in Congress to give Americans similar inducements. Most proposals focus on exempting income hi varying amounts up to $4,000, though the greatest support seems to be building behind a Republican-backed bill by Missouri Senator John Danforth to exempt up to a more modest $400 in interest income if the money is reinvested in either stocks or saving. In the U.S., it will take years to reduce inflation's bloat, revive productivity and restore real growth. More and more evidence is accumulating that a slow and persistent effort is the best hope for turning the economy around.
It would be tempting to try to fight unemployment by temporarily increasing federal deficit spending and hoping that merely shoveling more money out to consumers would encourage companies to hire workers and expand production. But the 1970s proved that such erratic pumping-up policies only inflate the economy without significantly reducing unemployment.
A basic reason, say Feldstein and other incentive economists, is that much of the unemployment problem has become structural, that is, deeply imbedded and immune to quick fixes. More than half of the nation's 6 million unemployed—many of them blacks, Hispanics, teen-agers or poorly educated rural people—are out of work not because of a lack of jobs but because they need marketable skills. Warns Feldstein: "If we do not attack the structural causes of our high unemployment, we will face growing pressure to deny firms the right to lay off workers without Government approval, and deny those workers who lose their jobs the right to decide where and when they will return to work."
Feldstein's solution is to train these work seekers, with the help of private companies, for particular jobs without inflating the whole economy. Initially, Feldstein concedes, unemployment might rise from the present 5.7% to about 8% and stay there for perhaps as long as five years. But society in general would benefit because this period of slack would reduce pressure on prices. Meanwhile, the unemployed would be taken care of through existing unemployment programs.