401(k) world

Friends often ask me when I plan to retire. My response is, in 6 years—or perhaps 16 years.

That’s because I and hundreds of millions of my fellow citizens now live in what Thomas Friedman refers to as a “401(k) world.”

For Friedman, it’s a world of individual promise:

We now live in a 401(k) world — a world of defined contributions, not defined benefits — where everyone needs to pass the bar exam and no one can escape the most e-mailed list. . .

If you are self-motivated, wow, this world is tailored for you. The boundaries are all gone. . .Your specific contribution will define your specific benefits much more.

But for the rest of us, the 401(k) world—a world of defined contributions retirement programs, instead of defined benefits—is just a giant scam in which employers have managed to shift all the risk of saving for retirement onto their employees and the financial industry captures a new set of fees. Sure, employers (some of them at least) have to distribute some of their gross profits to their employees’ retirement accounts, and the employees have to come up with another portion out of their wages and salaries. But the risk is all with the employees, since their actual retirement savings depends on what happens in equity and bond markets. Once their initial contributions have been made, employers no longer have to worry about coming up with the funds to keep pensions fully vested. All the risk falls on the employees—and the gains accrue to the lucrative area of managing both employer-mandated and 401(k) retirement accounts.

Matt Yglesias has some sense of what’s going on:

the problem with living in a 401(k) world is that Planet 401(k) is a pretty sucky planet. Here’s the essential shape of 401(k) as a backbone of the retirement system:

— Poor people get absolutely nothing.

— Wealthy people who would have had large savings anyway get a nice tax cut that offers no meaningful incentive effect

— For people in the middle, the quantity of subsidy you receive is linked to the marginal tax rate you pay—in other words, it’s inverse to need.

— A small minority of middle-class people manage to file the paperwork to save an adequate amount and then select a prudent low-fee, broadly diversified fund as their savings vehicle.

— Most middle-class savers end up either undersaving, overtrading, investing in excessively high-fee vehicles or some combination of the three.

— A small number of highly compensated folks now have lucrative careers offering bad investment products to a middle-class mass market based on their ability to swindle people.

Felix Salmon has an even clearer view of what’s going on:

a 401(k) plan is an icon of futility and the way in which the owners of capital extract rents from the owners of labor. . .the 401(k) is a way for both your government and your employer to disown you, and to leave your life savings to be raided by the financial-services industry and its plethora of hidden and invidious fees.

All of which means, in a 401(k) world, employers and banks are making out like bandits, while the rest of us are forced to have the freedom to rely on whatever we can save for retirement, plus the vagaries of financial markets.

In Friedman’s world, we get what we deserve. In my world, I’ll be able to retire in 6—or 16—years.

Chart of the day

 

Actually two charts: corporate profits (a new record high) and wages (a new record low) as a share of Gross Domestic Product.

And Henry Blodget’s view is that

our current obsessed-with-profits philosophy is creating a country of a few million overlords (shareholders) and 300+ million serfs (employees).

It is also resulting in employees sharing less of the corporate wealth that they spend their lives creating than they ever have before.

That’s not what has made America a great country. It’s also not what most people think America or other lands of opportunity are supposed to be about.

I’d put it a bit differently: our current obsessed-with-profits philosophy is creating a country of a few million overlords (members of boards of directors of corporations, plus those who get a cut of the surplus they appropriate) and 300+ million wage-laborers (employees). It is resulting in employees sharing less of the corporate wealth that they spend their lives creating than they ever have before. That’s precisely what has made America a great country in the midst of a Second Great Depression. Even though it’s not what most people think America or other lands of opportunity are supposed to be about.

Cartoon of the day

Special mention

 

Chart of the day

source [ht: gh]

Some have begun to worry about the growth of oligopolies across a wide range of industries, and the effect this trend might have on prices to consumers.

But they often forget about the bottom line: price increases are often being kept in check—even while profits rise—because the workers who produce, transport, and sell the commodities in those industries are being squeezed by their employers.

Cartoon of the day

Special mention

 

Cartoon of the day

Special mention

 

Chart of the day

As Colin Gordon [ht: gh] explains,

If pressed to reduce the last century of economic history into one graphic, I would go with something like this. The blue line traces the rise and decline of organized labor since the end of the First World War. The red line, in an uncanny reflection, traces the income share of the richest 10 percent of Americans. The drop-down menus, offering other union density and income-share metrics, serve up variations on the same theme: as union power has declined, so too has the share of national income going to wages and salaries, and to the bottom and middle of the income spectrum. . .

union decline is—for a number of reasons—a pretty good marker for the broader dismantling of the New Deal. First, the policies driving and shaping inequality across the last generation—steep cuts in social spending, the political abandonment of organized labor, deregulation and privatization, tax cuts, and punitive cycles of unemployment—shared a common goal: to redistribute income upward by eroding the hard-fought bargaining power of ordinary Americans. Union losses account for a large chunk of rising inequality, especially for men and especially in the 1970s and 1980s.

Second, union losses have also shaped the political environment. The “right-to-work” push of the 1940s, the business offensive of the 1970s (captured in Lewis Powell’s infamous 1971 memo to the Chamber of Commerce), and the attack on public sector unions in recent years all shared the conviction that union power needed to be checked at the bargaining table and at the ballot box. Representing a third of the private workforce, mid-century unions fought and won battles over trade, workplace safety, social policy, and civil rights. With union membership at 6.6 percent of the private labor force in 2012 and falling, those battles are no longer even taking place.

And third, union decline has fed broader inequality because, in the American context, so much is at stake at the bargaining table. In settings where workers (and employers) can count on a decent minimum wage, universal health care, and expansive public retirement accounts, the stakes of private employment (and collective bargaining) are not that high. In the United States, economic security remains shackled to private job-based benefits that are increasingly elusive (or expensive), and public policies are crafted and calibrated as supplements—or as reluctant and lean alternatives.

That’s one side of the equation. The other side, of course, is the growth in gross corporate profits, some of which are in turn distributed to the members of the top 10 percent.

Chart of the day

According to Larry Mishell,

the share of capital income (such as profits and interest, which are hereafter referred to as ‘profits’) in the corporate sector increased to 25.6 percent in 2012, the highest in any year since 1950-1951 and far higher than the 19.9 percent share prevailing over 1969-2007, the five business cycles preceding the financial crisis. . .

We now have an economy built to assure high corporate profitability even when it’s operating far below capacity and when most families and workers are faring poorly. This is further evidence that there is a remarkable disconnect between the fortunes of business and those best-off (high-income households) and the vast majority.

Cartoon of the day

Special mention

Cartoon of the day

Special mention