Ray Boshara delivered the keynote address to a gathering of the National League of Cities on March 15, 2009. The following is a transcript of his prepared remarks.
Let me describe an era to you:
- Rapid technological change
- Stunning advances in science
- Rising fundamentalism
- Gaping inequality
- Networks of violent non-state actors
- Parents fretting over the quality and safety of food
- A health care system in crisis
- Massive consolidation
- A new era of infectious disease
- New mediums spreading violent and obscene images
- Well organized lobby on behalf of spending on the elderly
- Development of massive, low-cost energy sources, and mounting concerns about the environment.
Sound familiar? This is what we called then and call today the Progressive Era, beginning with the depression of the early 1890s and continuing to roughly 1920.
Now let me tell you some of what they achieved:
- Seriously reduced the role of money in politics
- Reformed the health care system
- Dramatically reduced rates of infectious disease
- Tamed the drug industry
- Created a regulatory regime for Wall Street and the banking sector that prevented any need for massive taxpayer bailouts
- Busted up the MicroSofts of their day and effectively regulated the Enron’s of their day
- Forestalled the growth of terrorism, rationalized immigration
- Engineered a massive conversion to cleaner, cheaper energy
- Restored public trust in government
- Revamped public schools
- Installed an ethic of thrift, conservation and public service with leaving no legacy of public debt.
Our economic, social, cultural, demographic, and environmental conditions are similar, but could we achieve what they’ve achieved?
Mark Twain is said to have observed that history does not repeat itself, but it often rhymes. Let’s hope so.
I begin this way to demonstrate we are undergoing a once-in-a-century transformation that holds great peril but offers equally tantalizing—and achievable—opportunity for reforms. An opportunity to usher in what my co-author, Phil Longman, and I call The Next Progressive Era.
This is the time to think big, to rewrite the rules of engagement, to re-make many of the core elements of our social contract—the “deal” between citizens, employers, non-profits, and government.
Coming closer to our own field, this is the time re-write the rules of how we promote saving, how we acquire debt, how we accumulate assets, how we finance homeownership, how we promote financial education, the kinds of bank we build, and how we regulate the financial sector—a CRA that reflects the current landscape of financial services, not the 1970s.
To understand the prospects and shape of these and other economic reforms, we must better understand the recession we’re now in.
Our situation is actually closer to the challenges faced by Progressive Era reformer than those faced by the New Dealers. The Great Depression of the 1930s was caused by lack of effective consumer demand. The next Great Depression—if it comes to that—will have been caused by a consumer driven economy that eventually exhausted its ability to borrow.
American consumption makes up a stunning 70% of the U.S. economy and 25% of the worlds. We’re largely financed that consumption through debt.
It’s important to understand that it’s not conspicuous consumption that driving this debt: it’s overwhelmingly necessities, the cost of living a basic American middle class life. Many of you may have read Elizabeth Warren’s book, the Two Income Parent Trap. She reports that incomes have in fact risen in the last generation, largely due to women entering the workforce (30-70, 70-30), certainly not due to rising wages. But the cost of living—especially education, housing, child care, transportation, and homeownership—went up even more, forcing families into debt.
But just as families needed to rely more and more on debt to meet their basic needs, “financial crack” hit the streets—pay-day lenders, check cashers, abusive credit cards, lotteries, auto-title lenders, and in due course sub-prime mortgages. Amazingly, credit was extended, indeed targeted, to people who could not afford it.
No one heard, or everyone at least ignored, this ticking-time bomb as long as home and other asset values were rising. So we got away with continuing to finance this consumption with debt while household savings levels—which had been steadily declining since 1982—hit zero in 2006-2007.
So debt levels rose to dangerous and, ultimately, unsustainable levels: Household debt as a percentage of disposable income rose from 90% in the 1990s to 133% in 2007. Households, and the economy, simply could not absorb anymore debt—the cup overflowed, the bubble burs— pick your metaphor. Consumption slowed, adjustable rate mortgages kicked-in, people starting defaulting on their home and consumer loans, banks got nervous about the underlying value of their assets, credit got tight, making spending and investment even harder, which further suppressed consumption, and on and on, and we now found ourselves in the mess we’re in.
That party is clearly over, so what’s next when the lights go on and we find ourselves with hung-over and with out pants down?
Seen from this perspective, the bursting of the housing and credit bubbles was a necessary, albeit painful adjustment, in the pattern of U.S. and world economic growth. That unsustainable pattern, you’ll recall, is that debt has allowed the American consumer to drive 70% of U.S. economic growth and 25% of world economic growth.
Looking beyond the stimulus, this begs the question—what will replace the American consumer? Four answers have been offered by New America’s Economic Growth program:
First, nothing will. We just need to prepare ourselves for something like Japan’s lost decade, long years of sub-par growth. This may well happen. Tom Friedman holds this view.
Second, emerging markets, especially China, will. Pent up demand in China and elsewhere will stimulate global demand and reduce America’s trade deficit in the process.
A third answer is the green economy: A new public consensus about global climate change and about the national security risks of relying on imported oil will create an investment boom in low-carbon energy sources and in clean energy technologies in both the U.S. and world markets.
A final answer is that a new government commitment to rising wages and increased public investment, including new investments in health care and education as well as public infrastructure, will not only help restore consumer purchasing power but change the composition of U.S. consumer to make it both more sustainable and socially healthy.
I don’t know what the answer is, but at most of us at New America are betting and hoping on the fourth and, as you know, this appears to be the direction the Congress and the Administration appears to be heading.
At the household level
We must, however, compliment a more sustainable economic growth pattern at the national level with a more sustainable pattern at the household level as well. And here I’d like to suggest we embrace the New Thrift.
Thrift may strike many of you a musty and old-fashioned, like my Aunt Rosalie whose couch remained covered in plastic 30 years after she bought it, or my grandma Em who saved up Green Stamps and washed and recycled baggies. Or thrifty Aunt Millie in the American Girl books that I’ve read with my daughter, who uses thrift to help survive the Great Depression.
Back then, however, thrift was a powerful word—full of life, hope, indeed the very point of progress. Thrift didn’t just apply to money. It applied to conservation of natural resources and inspired the early environmental movement. It applied to health. It even applied to the very use of one’s time on earth, whether it was wasted or put to good use. Of course, long before the Progressive Era, Ben Franklin promoted thrift as a secret of success: “Tis hard for an empty bag to stand upright,” he said. But for Progressives, thrift had a deeper, moral meaning, more like “wise use” or what today we would call conservation, with others and especially future generations in mind.
Said Woodrow Wilson: “We are in this world not to provide for ourselves alone, but for others, and that is the basis of economy—so that thrift and economy and everything that administers to thrift and economy, supply the foundation of our national life.”
This thrift ethic led to many successes. One reason that thrift took hold in the Progressive Era was that ordinary Americans, just like today, were becoming deeply encumbered by debt. Salary lenders, what today we call pay-day lenders, date back to the Civil War but by the Progressive Era that had expanded to nearly every city, often as multi-state chains, offering “advances” on paychecks at interest rates up to 300%.
Progressive era reformers were also alarmed that most working-class people were, as we would say today, “unbanked”—unable to find a financial institution to hold their meager savings meant to buy a home, a farm, or start a business. This lead to the creation of our first thrift institutions and credit unions (the first credit union law was created in Massachusetts in 1909), where working men and women would be spared the “high hat” treatment. As many you know, it was Edward Filene of “Filene’s Basement” who was the force behind the credit union movement, and his inspiration came as well from his 1907 trip to India, where he was impressed by their cooperative banks.
And Progressive Era reformers were also passionate about what today we call financial education, especially in schools. The Education Thrift Service helped launch 7,000 school banks which generated $39 million in deposits (adjusted for inflation) in what today we call children’s savings accounts. Progressive Era reforms were also pioneers in what today we call behavioral economics and one of its signature ideas—“conditional cash transfers.” The Trimmer Clubs in Iowa offered a penny a day to any Iowa boy who refrained from tobacco, liquor, gambling and swearing—and after their first dollar, the boys were required to deposit at least 50 cents in a savings account to establish the habit of saving so he’d have enough money by 18 to “start him in life or go to college.” Sound familiar?
I would love to go on, but you get the point. A New Thrift fully includes what we call “asset building” today but goes well beyond that to include other areas of our life today badly in need of stewardship and conservation—personal health, energy, and natural resources.
But re-establishing thrift in America won’t be easy, since Keynesian economics has gripped the nation since the 1930s, deeply informed the New Deal, and remains quite powerful today. Franklin Roosevelt remarked in 1932: “I believe we are at the threshold of a fundamental change in popular economic thought…in the future we are going to think less about the producer and more about the consumer.” This was a huge blow to the thrift movement and another Progressive ideal, the small-scale property-owner and producer, or what Jefferson called the Yeoman. Richard Nixon remarked in the 1970s that “we’re all Keynesians now” and of course President Bush and Congress urged us to be patriotic by taking our stimulus checks to the mall and shop.
How we reconcile A New Thrift with the macro-economic need to stimulate demand for goods and services is a challenge—but one we can achieve. The American consumer does NOT have to be the primary engine of domestic and global economic growth. Government could spend massively while encouraging households to save automatically. And by encouraging Yeomanry today—small scale property ownership, entrepreneurship, business development—the American producer could eventually come into a more healthy balance with the American consumer.
The assets agenda, financial inclusion, or thrift today
So how can we advance our shared agenda today—whether we call it asset building, financial inclusion or the new thrift.
First, as I’m sure you’d agree, we have an Administration—while not really using any of this language—largely in support of this agenda. Their first budget draft, released a few weeks ago, called for reforms to asset limits in public assistance programs, a significant expansion of the Savers Credit, establishment of the Automatic IRA (which would set up automatic payroll deductions into IRAs for the 70 million workers whose employers don’t offer a 401(k), and a major expansion of the EITC. The President of course mentioned “universal savings accounts” in his SOU. All good stuff, although in my view there’s not enough focus on pre-retirement savings.
Second, this Administration totally has religion on the “behavioral” revolutions in savings. No doubt many of you are familiar with this and already have incorporated this thinking into your programs and policies at the local level. In a word, inertia is more powerful than knowledge; we need easy, automatic, indeed “thoughtless” saving. New America has organized our policy agenda and many of our new ideas around four key moments in our financial lives—at birth, at the workplace, at tax-time, and when buying a home. Highlights include the ASPIRE Act (creating a savings account at birth for all children), the Savers Bonus (rewarding people who save at tax time), and Savings Bonds (putting them back on tax returns). We also are advocating automatic payroll deductions for generating unrestricted savings (something not emphasized enough by the asset-building field), and a standardized mortgage product called the Basic America Mortgage. We’d also like to see more “relationship banking” through the expansion of a broad range of community-based financial institutions. Finally, we propose a national financial literacy service effort we call a “Financial Service Corp” modeled of course after the great service programs currently operating in the U.S.
Let me stress that so many of our best ideas have their roots in the great work and innovations many of you are pioneering at the local level, including “SaveNYC,” and “BankOn” programs nationwide. We couldn’t do this work with out you. Nor can our legislative agenda succeed without you—believe me, elected officials need to hear from those they represent before moving forward with new, promising ideas.
Let me close with some encouraging polling data recently released by the Economic Mobility Project of the Pew Charitable Trusts: Fully eight in ten (79 percent) believe it is still possible for people to get ahead in this economy. This remains true even among lower income, less educated and even unemployed Americans. And Americans also remain optimistic about the future: a 72 percent majority insists their economic circumstances will be better in the next ten years.
So even in down times, and even among low-income families, Americans remain optimistic. And so should we.