[Congressional Record (Bound Edition), Volume 151 (2005), Part 16]
[Senate]
[Pages 21697-21700]
[From the U.S. Government Publishing Office, www.gpo.gov]




                  SAVINGS AND ECONOMIC COMPETITIVENESS

  Mr. BAUCUS. Mr. President, more than 10,000 years ago, on the eastern 
edge of the Mediterranean Sea, people became farmers. They started 
growing crops of emmer and einkorn wheat. They harvested the grain with 
curved, handheld sickle-blades.
  And 5,000 years ago, Mesopotamian farmers yoked cattle to pull plows. 
The plows' bronze-tipped blades cut deeply, greatly increasing 
productivity.
  Today, in Ethiopia, wheat farmers still harvest their wheat with oxen 
or by hand. They use tools much like those invented 5,000 years ago. An 
Ethiopian wheat farmer harvests an acre of wheat in a week.
  A few weeks ago, in Montana, a wheat farmer whom I know near Fort 
Benton, in Chouteau County, finished harvesting this year's hard-red 
spring-wheat crop. He and his family drive a John Deere 60 series STS 
combine that they bought for more than $225,000, a couple of years ago. 
STS stands for the ``single-tine separator'' system that the combine 
uses for threshing and separating. The combine's rotor technology 
yields a smooth, free-flowing crop stream, giving the farmer higher 
ground speeds and increased throughput capacity. This Fort Benton wheat 
farmer harvests 5 acres and 220 bushels of wheat in half an hour.
  What the Ethiopian farmer can do in a week, the Montana farmer can do 
in 6 minutes.
  There are a lot of reasons for the difference: land, climate, seed 
quality, farming skills. But one big difference between the 
productivity of farmers in Ethiopia and the productivity of farmers in 
Montana is their tools--their physical capital.
  Capital distinguishes the modern age. Capital is the most important 
reason why the average American earns about $40,000 a year and the 
average sub-Saharan African earns about $600 a year. Capital makes 
American workers more productive and more competitive.
  This is my fifth address to the Senate on competitiveness. Starting 
this summer, I spoke on competitiveness generally. I spoke on the role 
of education in competitiveness. I spoke on the role of trade in 
competitiveness. I spoke on the role of controlling health-care costs 
in competitiveness. And today, I wish to speak about the role of 
capital and savings in competitiveness.
  Capital means financial wealth--especially that used to start or 
maintain a business. Many economists think of capital as one of three 
fundamental factors of production, along with land and labor.
  Capital and the productivity that it engenders set apart developed 
economies from the developing world. With capital investment, the 
construction worker uses a backhoe, instead of a shovel. With capital 
investment, the accountant uses a calculator, instead of an abacus. 
With capital investment, the office worker uses a personal computer, 
instead of a pencil.
  In the late 1950s, there were about 2,000 computers in the world. 
Each of these computers could process about 10,000 instructions per 
second.
  Today, there are about 300 million computers. Each of them can 
process several hundred-million instructions per second.
  In less than 50 years, the world's raw computing power has increased 
four-billion-fold. This sustained increase in productivity is 
unparalleled in history. Capital investment in information technology 
made it possible.
  In 1960, capital investment in information technology was about 1 
percent of our economy. By 1980, investment in IT increased to 2 
percent of our economy. By 2000, investment in IT increased to 6 
percent of our economy.
  These are slow, single-digit increases in investment. But look at the 
revolutions that they ignited.
  This information technology investment contributed to a new era of 
American worker productivity and competitiveness. That productivity 
continues today. In the mid-1990s, when the benefits of IT investment 
kicked in, American workers began producing nearly 4 percent more per 
hour. As increased productivity surged through the economy, the 
standard of living improved for the Nation.
  Capital made possible this unprecedented productivity. Investment 
made possible this capital. And savings made possible this investment. 
Savings is the seed corn for productivity growth.
  National savings fuels investment. Investment provides capital to our 
workers. Capital ignites productivity. And productivity makes our 
economy accelerate.
  Savings is what is left of income after consumption. National savings 
collects the surpluses of private households, businesses, and 
governments. When workers put part of their salaries into 401(k) plans, 
that adds to national savings. When companies hold on to

[[Page 21698]]

their excess earnings and profits, that too adds to national savings. 
And when the government runs a budget surplus, that public sector 
savings adds to the national pool of savings, as well.
  The three elements of national savings--household savings, corporate 
savings and public savings--are fundamental to economic 
competitiveness. Savings lets us invest in new factory equipment, 
machines, or tools. Savings lets us invest in high-technology 
innovations. Savings lets us invest in human, physical, and 
intellectual capital.
  But America's level of national savings is dwindling. The decline of 
America's savings demands action.
  At the end of last year, net national savings stood at just under 2 
percent of gross domestic product. That is less than $2 for every $100 
that our Nation earns. This is down more than 70 percent since 2000. No 
other industrialized country in the world has such a low national 
savings rate.
  If we break down national savings into its component parts, we can 
see why national savings has fallen off. First the good news: Corporate 
savings has held steady--even increased--over the past decade. But the 
good news ends there.
  Personal savings--what American households are contributing to the 
Nation's savings--has fallen dramatically. Just 10 years ago, Americans 
saved about $4 of every $100 that our economy produced. By the end of 
2004, we were saving just 99 cents. And today? The recent data show 
that personal savings has fallen even further, below zero.
  In July, for every $100 of disposable income that Americans 
generated, we spent that $100, plus 60 cents more.
  Rather than saving, American households are borrowing. In the 1980s, 
total household debt equaled about 70 percent of a year's aftertax 
income. By 2004, household debt equaled 107 percent of aftertax income.
  And the bad news gets worse. As American households fish pennies out 
of the Nation's piggy bank, there is a growing hole at the bottom. The 
public sector is draining national savings as the huge Federal budget 
deficits grow.
  In just 4 years, the Federal Government's contribution to national 
savings has gone from a positive contribution of more than 2 percent of 
the economy, to a drain of more than 3 percent. Instead of contributing 
$2 for every $100 the economy earns, the Federal Government takes out 
$3 dollars. Government deficits are the chief cause of our abysmal 
national savings rate.
  With national savings so low, how has America's economy remained an 
engine of growth?
  We find the answer in Japan, Europe, China, and even the developing 
world.
  Americans have stopped saving. But the rest of the world has not.
  Today, Americans turn to foreign lenders for our savings. The rest of 
the world has become America's creditor, happily lending their savings 
to our Government, corporations, and households. Fully 80 percent of 
the world's savings come to America. The world's largest economy has 
become the world's largest debtor.
  This is a big change. Between 1950 and the early 1980s, our foreign 
borrowing was balanced. Some years we borrowed from foreigners. And 
other years we lent. But for most years, we remained a net creditor.
  Since then, our situation has dramatically reversed. We now depend on 
foreigners to fuel our economy.
  Look at foreign and domestic investment flows. Last year, our net 
borrowing from foreign lenders totaled nearly $700 billion. This year, 
our net foreign borrowing could well exceed $800 billion.
  This kind of borrowing adds up. As recently as 1985, America had zero 
net foreign debt. Today, America's net foreign debt is the size of 
nearly 30 percent of our economy.
  The last time that we had this level of foreign debt, Grover 
Cleveland lived in the White House. The last time that we had this 
level of foreign debt, 18 percent of Americans were unemployed, violent 
railroad strikes shook the Nation, and a deep depression gripped the 
world economy.
  What is worse, soon, the ratio of foreign debt to GDP will hit 50 
percent. In 7 years, the ratio will hit 100 percent.
  This is unprecedented, not just for the United States. It is 
unprecedented for any modern industrialized country.
  We welcome foreign investment in America. Our economy's openness to 
the world's capital has helped keep our economy strong. Foreign 
investment fuels our economy and creates good American jobs.
  But if we continue to become increasingly dependent on foreign 
capital, then we will have to pay the piper.
  First, continued borrowing means an ever-growing claim on our 
Nation's assets. The more that foreigners lend to America, the more 
dividend and interest payments they will collect--not Americans but 
them.
  In 2005, for the first time since these data were recorded, America 
will pay more on foreigners' investments in America than American 
investors earn on their investments abroad. This year, these payments 
could amount to $30 billion. By 2008, these payments could rocket to 
more than $260 billion.
  That would be a quarter of a trillion dollars paid out that would not 
boost our productivity. That quarter of a trillion dollars would 
increase foreign countries' standard of living, not ours.
  That would be a quarter of a trillion dollars simply paying on our 
existing debt. More and more, we would have to borrow new amounts from 
foreign sources to pay back funds that we had already borrowed.
  And that would be a quarter of a trillion dollars of behavior that 
one associates with a Third World economy, not the United States of 
America.
  Second, foreigners are increasingly not investing their savings in 
America's productive sectors, but in U.S. Government securities. 
Foreigners are frequently buying our Government securities as part of 
schemes to manipulate currency markets and subsidize their exports. 
Those schemes further hurt our competitiveness and our future standard 
of living.
  That is, they are not investing in plants and equipment, they are 
investing in our securities so they can accomplish other objectives and 
goals.
  When 80 percent of the world savings flows to one country, the world 
economy is unbalanced. When 80 percent of the world savings flows to 
just the United States of America, that is a big imbalance.
  This imbalance creates dangerous problems and distortions in the U.S. 
economy and throughout the world.
  Eventually, the pendulum will swing back. The world economy will 
return to equilibrium. Foreign investors will decide to rebalance their 
portfolios. They will reduce their lending to America. America will 
have to pay more for its borrowing. Interest rates will rise. This 
rebalancing could cause severe dislocations in our economy.
  We can steer clear of some of these costs. But we can do so only if 
we consider them now and do what we can to secure our economy from 
sudden and difficult adjustments later.
  Where do we look for solutions?
  America must increase its own national savings. We must finance more 
of our own investment.
  We must create a reliable and stable pool of investment funding to 
fulfill our investment needs. This saving will also make us more 
profitable in the long run. We will gain the returns on capital 
investment here. We will not send them abroad.
  We will continue to welcome foreign savings to our shores. But 
America will have a higher stock of self-financed investment.
  How do we do this? First, we must plug the biggest leak in our 
national savings pool: the federal budget deficit. The federal 
government continues to run huge deficits. Prior to 2003, the record 
deficit was $290 billion in 1992. But in 2003, the government set a new 
record deficit of $375 billion dollars. In 2004, the government set an 
even higher record deficit of $412 billion dollars. This year, the 
government is projected to run a deficit of more than $300 billion 
dollars. The last 3 years have produced the 3 largest deficits in the 
Nation's history.
  Now with the immense costs of Hurricane Katrina, Goldman Sachs now 
predicts that the deficits for the next 2 years will once again be 
about $400 billion. That would be 2 more years of

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deficits once again approaching record levels. Each year's deficit adds 
up.
  These deficits increase our national debt. At the end of fiscal year 
2001, the government's debt held by the public was $3.3 trillion. By 
the end of this month, economists project that debt held by the public 
will rise to $4.6 trillion. This would be an increase of 40 percent in 
just 4 years.
  There are times when deficits are appropriate. If the economy is in a 
recession, net borrowing by the federal government can help to restore 
prosperity and job growth. But with the economy humming along now, huge 
deficits no longer serve Americans well. Instead, these large deficits 
divert domestic and international savings away from productive economic 
sectors. These productive sectors need savings to invest in innovative 
capital goods that can boost productivity, help our economy to grow, 
and improve our Nation's living standards.
  We must be honest about our spending needs today and in the future. 
Budget forecasts for the near-term that neglect the costs of war and of 
neglect upcoming reductions in revenues--such as reform of the 
alternative minimum tax--serve no one but cynical political 
strategists. And the retirement of the baby boom generation beginning 
in 2008 will put enormous long-term pressure on the federal budget 
through increased Social Security, Medicaid, and Medicare spending. We 
must own up to these long-run problems.
  Once we define the problem honestly, we must find ways to solve it.
  First, we must restore the pay-as-you-go rules for both entitlement 
spending and tax cuts. We are stuck in a hole. We have to stop digging. 
We must pay for any new spending or tax cuts that we enact.
  Until 2003, tough pay-as-you-go rules governed the Congressional 
budget process. But these rules expired in 2003. And a virtually 
meaningless alternative has taken their place. We must restore strong 
and meaningful pay-go rules.
  Second, we must reduce the annual tax gap. As much as $350 billion of 
taxes went unpaid in 2001. Since then, the government has collected 
only $55 billion of that 2001 shortfall. These huge gaps occur every 
year. We cannot afford this tax gap.
  Third, we must eliminate wasteful and unnecessary spending. For 
example, the Inspector General at the Department of Health and Human 
Services recently discovered that the government had paid nearly $12 
million in benefits to recipients in Florida who had already died.
  Fourth, we must eliminate wasteful and unfair tax breaks such as 
abusive tax shelters and corporate tax loopholes.
  Finally, we must slow the growth in healthcare costs. We cannot rein 
in budget deficits without controlling the growth in healthcare costs. 
The private sector cannot sustain its current healthcare cost growth. 
And neither can the public sector. We cannot clamp down on healthcare 
costs in the public sector alone. Providers will just shift healthcare 
costs to the private sector. Fortunately, solutions that contain 
private sector healthcare costs will likely also help contain public 
sector healthcare costs, as well.
  Taking these five steps would go a long way towards reducing Federal 
budget deficits and increasing national savings.
  Increasing private savings is more complicated. We cannot adopt pay-
as-you-go rules for families. Instead, we have to provide families with 
the tools that they need to develop their own growth plan.
  The first tool is financial education. Too few Americans know how to 
develop a family budget. And too few know how to assess the risk of an 
adjustable rate mortgage when interest rates are rising.
  We need to provide our children, and their parents and grandparents, 
with the tools that they need to make good financial decisions--to have 
more savings and less debt.
  Programs such as ``Stash Your Cash''--a program to teach young people 
the basics of finance, saving, and investing--are a good start.
  As part of ``Stash Your Cash,'' this summer, 15 pigs--each one 4 feet 
tall and 750 pounds--appeared in the streets of Washington. And it was 
not just another political statement.
  The colorful animals on street corners were oversized piggy banks. 
Local middle school students and artists painted each one.
  ``Stash Your Cash'' gets to kids early. It teaches them financial 
vocabulary, how to create a budget, and how and why they should save 
for the future. It teaches middle-school students that creating a 
budget helps them understand where their money goes, ensures that they 
do not spend more than they earn, finds uses for money to achieve 
goals, and helps them set aside money for the future.
  We can all benefit from these lessons. Savings is vital for our 
children's and our families' financial future. And what is vital for 
our families is vital for our country.
  Second, we need to make it easier to save.
  The most successful savings programs are payroll-deduction savings 
through employer-sponsored 401(k) plans. We can make these programs 
even more successful by encouraging employers to enroll eligible 
employees automatically. Employees would opt out of saving instead of 
opting in. Without automatic enrollment, just two-thirds of eligible 
employees contribute to a 401(k) plan. With automatic enrollment, 
participation jumps to over 90 percent. The largest increases are among 
younger and lower-income employees.
  Only half of private sector workers have a 401(k) or similar plan 
available to them. We need to bring payroll-deduction retirement 
savings to the other half.
  Who is that other half? Part-time workers, those who put in less than 
1,000 hours a year, do not have to be covered by 401(k) plans. Small 
employers are less likely to offer 401(k) plans, or similar 
arrangements, to their workers. And lower-income workers are less 
likely to have a plan available than moderate- and higher-income 
workers.
  We have a voluntary pension system. We should not change that. But we 
can make savings opportunities available to more workers without 
forcing employers to provide more benefits.
  Third, we need to make incentives for saving more progressive. Like 
many tax incentives, our current savings incentives give more bang-for-
the-buck to those in the higher tax brackets. Our income taxes go to 
just the opposite.
  In 2001, we took an important step toward fairness by creating the 
Saver's Credit. The Saver's Credit helps low-to-moderate-income 
taxpayers to save by providing a credit of up to half of the first 
$2,000 that they contribute to an IRA or 401(k) plan. More than 5 
million taxpayers claimed this credit in 2001. It works. But it will 
expire after 2006. We must extend it and we must expand it to cover 
those with no income tax liability.
  In ancient times, people viewed the toil of farming as a curse. The 
ancient text tells how when man left the Garden of Eden, he heard God 
say:

       Cursed be the ground because of you;
       By toil shall you eat of it
       All the days of your life:
       By the sweat of your brow
       Shall you get bread to eat,
       Until you return to the ground--
       For from it you were taken.

  But now, increased investment, capital, and productivity have made it 
so that we may hear the blessing with which Moses blessed the children 
of Israel on the plains of Moab, across the River Jordan:

       The Lord will give you abounding prosperity in . . . the 
     offspring of your cattle, and the produce of your soil in the 
     land that the Lord swore to your fathers to assign to you. 
     The Lord will open for you His bounteous store, the heavens, 
     to provide rain for your land in season and to bless all your 
     undertakings. You will be creditor to many nations, but 
     debtor to none.

  From ancient times, the sages recognized that the terms 
``prosperity'' and ``debtor'' rarely apply to the same country.
  Let us return to being a country whose saving provides the seed corn 
that brings those blessings of ``abounding prosperity.''

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  Let us seek the blessings of being ``creditor to many nations, but 
debtor to none.''
  And let us do the work that we need to do to see that ``[t]he Lord 
will [continue]. . . to bless all [the] undertakings'' of this great 
Land.
  I yield the floor.

                          ____________________