About thirty years ago, it occurred to me that the baby boomer's retirement savings would be the biggest pot of money that the world has ever seen. It would consist primarily of (a) savings and investment (b) home ownership and (c) social security: the "tripod" system (that we used for nuclear deterrence as well, with bombers, submarines, and ICBMs.)
Using this simplistic model, I predicted for myself that there would be bubbles in investments as demand for retirement investments grew bigger and bigger. I was right. I didn't forsee bubbles in housing: I'm not that economically astute. And we've all witnessed decades of conservative and libertarian attempts to plunder Social Security by reducing obligations or abolishing it.
The problem with a pot of money is that everybody else wants to take money out of it. This has been very successfully done with investments as 401K's became 201K's with stock market bubbles. Even with a conservative portfolio of money market funds and index funds, I have lost money over the past decade, and I am not unusual. The boomer's retirements are being systematically pilfered in the investment system; they are averaging below market growth, negative growth when inflation is taken into account. Likewise, the recent housing bubble has taken a huge hunk of boomer retirement assets.
Where is the anger? This is the greatest opportunity for rebuilding a liberal movement in opposition to conservatism that we've had in decades. Unlike tea party themes, this one is valid.
In addition, we're shorting the intergenerational compact by shorting funding for the needs and development of children. We are horribly and predictably underfunding investment in education by reducing public funding of higher education and public education. No other developed nations are so shortsighted. The beneficiaries of these awful policies are not other generations: this is class warfare by the super rich who have been promoting these policies for decades.
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7 comments:
How, exactly, would expressing liberal "anger" lead to greater productivity improvements in the economy? What makes relatively flat recent returns more of an opportunity for "the liberal movement" than any other group that has grievances with respect to the status quo?
(Note: this is a serious question. You have unstated premises that make your conclusions clear *to you* but they aren't clear to me. I've read what you wrote. It's not that I *understand* your reasoning and disagree with it. It's not that I think I have some knock-down argument against it. I'm not trying to be snide. I just honestly don't know what premises lead you to the conclusions you reach, and I'm curious what they might be.)
As for the last paragraph, I'm not sure I'm seeing it: Switzerland and Austria spend more than the US on education, but that's about it. The US is 3rd or 4th in the world in per-student spending on primary and secondary school. No other developed nation spends more than we do on schooling save the Swiss, the Austrians, and sometimes the Danes.
spending per student (primary school)
spending per student (secondary school)
You never get it, do you Glen.
The anger should be over the frustration of baby boomer plans for retirement. That their hard-earned money has been funneled into financial instruments where they can be played for suckers. That government was not permitted to grant them any other options, not permitted to insure retirements the way that bank accounts are insured. That conserrvatives allowed Wall Street "innovation" to commit enormous frauds and enormous harms through the mortgage market. Formerly reliable financial instruments became pitfalls for the masses because of "deregulation" and "financial freedom".
This is the biggest theft ever, and because it is widely distributed in cause and effect, it is pretended that it is not intentional and "just happened". Because the victims are being blamed (when only a few actually deserve any blame). because the victims were made to take bigger risks than they expected through changes in who bore the risk, too many of the victims think their losses are just.
I'll save discussion of public funding of education for later: it is a distraction here.
>You never get it, do you Glen.
I often get the points you state explicitly but rarely get the ones you merely imply because we operate from different priors and have different information sources.
> That government was [...] not permitted to insure retirements the way that bank accounts are insured.
Um, I was under the impression that retirement accounts are insured pretty much the same way that bank accounts are. Specifically, they're insured against bank collapse, up to a limit per institution (as of 2006 the limit was a quarter million dollars per). You're not insured against normal investment losses in high-risk accounts but you are insured against bank failure. Which means if you want a guaranteed rate of return you need to invest in fixed-income securities in an amount that's below the limit. This option was available to you in the past and still is today, is it not?
So: if we put "the liberal movement" in charge of things, what, exactly, would you want/expect them do differently? Outlaw investments that fail to guarantee a minimum rate of return? Outlaw buying things like property whose values might decline or things like mortgages that might default? Go back to the old days when only millionaires were able to make high-volatility investments?
When you say that "government was not permitted to grant them any other options", what *specific* other options did you want to be granted?
Correction: 401k plans at *banks* are often insured by the FDIC just like bank accounts; accounts held at brokerages are more likely to be insured by the Securities Investor Protection Corporation (SIPC), which covers even more - 500k rather than 250k per institution per person. In either case, funds generally do provide the rate of return promised *if* it's the sort of fund for which a rate of return can be promised.
The problem is that people invested in funds that could decline in value...and some of those did decline in value.
I'd have to agree with Mike here. Basically I don't like mixing public and private. Obviously, there should be no obligatory, public nor even government regulated retirement funds or system in the first place. But if there is, current pensions should simply be entirely funded by current taxes. Government should not itself invest, force nor regulate how people invest their money.
I have written something touching on this subject here:
http://socialdemocracy21stcentury.blogspot.com/2010/08/us-government-debt-and-social-security.html
In fact, the safest investment for retirement is government bonds:
http://news.illinois.edu/news/09/0401liabilities.html
Bill Mitchell of Billyblog has analysed superannuation in the context of Australian funds. He finds that the private funds are largely a scam, and putting your money in 10 year Treasury bonds gave the best return:
http://bilbo.economicoutlook.net/blog/?p=8740
There's that term 'class warfare' again...
Non ideological... Sure. :-)
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