Charles Evans, man of the people? Photographer: Tim Boyle/Bloomberg
Charles Evans, man of the people? Photographer: Tim Boyle/Bloomberg

I’ve previously argued that most Americans aren’t saving enough to live comfortably in retirement, and that the Federal Reserve might be making this situation worse. A new report from the consumer financial services company Bankrate shows that many Americans have been holding back their spending because of an even bigger problem: insufficient savings to cover short-term emergencies.

In June, it found, 27 percent of Americans had no money available in a bank or money-market account, while just 24 percent of Americans had enough to cover six months of expenses. According to Greg McBride, the firm's senior financial analyst, these numbers have barely changed since the recovery began.

Yet many at the Fed feel that Americans are being too cautious and should be forced to own risky assets and increase their borrowing. This tension is probably making monetary stimulus less effective. Fiscal policy could help.

Charles Evans, the president of the Federal Reserve Bank of Chicago, recently explained how he and many economists think about this problem. In his telling, there is always some set of interest rates that guarantees full employment and stable prices. Evans thinks that interest rates are currently above the levels needed for full employment. For him, rates would ideally be “negative at shorter maturities.”

When faced with shortfalls in aggregate demand, large resource gaps and low equilibrium interest rates, highly accommodative monetary policies are needed to stimulate demand. One way this works is by encouraging households and entrepreneurs to take on some additional risk in their borrowing and spending decisions. This may sound odd at first. But during a period of economic weakness, overall risk-taking is often reduced well below normal levels. That appears to be the case today. The Fed’s accommodative policies are meant to help restore a more normal level of real risk-taking -- a level more naturally associated with typical spending and investment behavior in a vibrant economy.

In other words, Evans and those who sympathize with him want the government to threaten to confiscate your emergency savings so that you go out and spend. Even if it works in the short term, this strategy seems corrosive to the social fabric.

Here’s a better solution: Instead of trying to take our money away, the government should give us more of it. In theory, the Fed could handle the burden if the financial system looked a lot different, although I wouldn't hold my breath.

This is what makes fiscal policy so appealing. The government could mail everyone a check or give everyone a tax cut. Those Americans who wanted to increase their savings before going out and spending more could do so, while those lucky few who already have enough stashed away could go out and spend. Not only would this be more effective than the ideas currently circulating inside the Fed system, it would be far less dangerous.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)