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By Root 1686 0

been much lower profile (not least because they’d be accused of hypocrisy) than their colleagues who are completely unrepentant about what’s happened in banking. One exception is Stephen Green, chief exec/chairman of HSBC: “The industry has done many things wrong. It is important to remember that many ordinary bankers have always sought to provide good service to their customers, but we must also recognise that there have been too many who have profoundly damaged the industry’s reputation.” Too many people, he continued, had “abandoned asking whether something was the right thing to do and focused only on whether it was legal and complied with the rules.”5

Most, however, have focused their energy on threatening dire consequences if politicians should have the temerity to legislate to constrain the unfettered activities of banks, which almost destroyed the economy and will scar the public finances for a generation.

The financial sector is a good place to start when it comes to ensuring social values have their proper place in the management of the economy. But it also demonstrates the intractability of some of the challenges. Achieving change will require a combination of policy changes introduced by governments, new regulations, tax changes, and so on, and changed social norms. The formal rules set by governments interact with informal ones to shape the economy. The effect of the informal, the social norms, shouldn’t be underestimated, as the example of the spread of greed in finance and big corporations and from there to the rest of society so clearly shows. Indeed economists have shown that there is a social contagion in many dimensions of life, such as obesity, crime, or suicide.6

Governments can influence social norms—examples of successful antismoking campaigns show how powerful government action can be. However, our own behavior as individuals, and our own social relationships, are important too. We can and should change our own patterns of spending.

One of my themes has been the need for the future to weigh more heavily in choices made now, choices by governments, companies, organizations, and individual consumers. In several ways, the past generation or two have been running down capital so much that the economy inherited by future generations will be poorer—perhaps catastrophically so, if climate change does indeed occur on the large scale of some predictions. Giving the future its due weight requires the current generation to invest more now.

Some forms of this investment will be nonfinancial. However, many will either directly or indirectly require people to save more for the future and spend less on current consumption.

This is a bit of a generalization as there are countries such as Japan and Germany where both businesses and individuals do save a high proportion of their incomes—although these examples are countries where the aging of the population has become so marked that even with high savings rates the implied pension debt burden on the future is still too high. There are also emerging countries, in particular China, where the savings rate is so high it could be considered excessive. Chinese savings have been allowing American consumers to enjoy their present level of spending and government services, but at some point Chinese consumers will want to enjoy the benefits of their thrift themselves.

In the United States and United Kingdom in particular, the level of savings has dropped much too far; in the boom times up to 2008 there should have been much more. The U.S. household savings rate declined from 9 percent in 1995 to 5.2 percent in 2007, though it had a surge in 2009 to 6.9 percent. For the United Kingdom, the ratio declined from 10.3 percent in 1995 to 2.2 percent in 2007, and rose sharply from a negative figure (–1.1 percent) in the first quarter of 2008 to 8.6 percent in the third quarter of 2009. An increase in savings ratio is normally associated with an economic downturn, but the ratio is also boosted by the fall in interest rates that has reduced mortgage payments. For the period 1987