Right now we’re trying to reduce savings (increase consumption) in the short term before doing the opposite in the long term. So far so good. How might one use the tools of ‘behavioural economics’ to help. Here are a few ideas – none of which will surprise readers of this blog.
- Green Christine Milne is reviving the idea of stamp scrip – which is effectively money that depreciates in value if you don’t spend it. (When these things were used in the Depression, you had to get your money ‘stamped’ regularly to keep it valid, and the cost of the stamps gradually drove the value to zero – alternatively the coupon can just be worth less value with each passing period. Aparently the Obamanaughts thought of this and then decided not to go ahead. It’s easy to point out that the rational consumer would just substitute spending the stamp scrip for their own money and then go back to spending their own money. In effect they’d save the extra amount they’d been given but they’d ‘spend’ the specific dollars they were given. Anyway, as Joshua Gans has argued maybe presentation makes a difference. I have no doubt that it would, though who knows how much? Given modern technology I expect one could come up with some reasonable makeshifts. But I doubt one could get them sorted in time. Still a pretty useful halfway house I would have thought would be paying the money into people’s credit or debit card accounts. This way there would need to be a deliberate decision to pay money elsewhere for it to disappear from the consciousness of their inner consumer and as a result it would likely be spent, if not immediately then via the process by which extra cash lying around ends up burning a hole in one’s pocket.
- We could also lean on banks (and make any necessary regulatory changes) to reduce mortgage repayments in line with reduced interest payments. Some banks will do this automatically, but it depends on their procedures. You’d want them to do it ASAP and we should require them to do so except where they have obtained an explicit instruction from their client not to do so. Naturally they’ll have to put them back up when rates rise – which would, at that point, also be healthy.
- Then there are the old tricks with super I’ve referred to in the past. I’d like to see ‘default’ salary sacrifice super payments fall to the compulsory level of 9% right now, and for this to be reversed to ratchet savings up again when we return to what should be regarded as normal for all but recessionary periods in the forseeable future. Of course employees should be informed of this in advance and given some administratively easy means of opting out.
Any other similar ideas out there?