Really Rethinking Retirement

            There’s no question that Americans need to save more.  As former Senator Kent Conrad noted at last week’s Bipartisan Policy Center presentation on “Rethinking Retirement,” almost 45% of the population would have difficulty coming up with $2,000 on 30 days notice.

            More serious though, according to Conrad, about 50% of Americans do not have access to a retirement plan at work.  Without employer sponsored retirement plans, workers have to rely on self-discipline to save.  Following an introduction by Conrad, BPC presented several experts who focused on ways to make saving, planning for financial emergencies and retirement easier and more automatic for most people.

            The U.K. has apparently had good success with these kinds of programs.  There, a law currently being phased in requires all employers to automatically deduct as little as 2% of an employee’s salary and invest it for them.  Most employers have directed these deducted amounts to a low fee investment fund established by the government.  Employees can opt out of the program, but 90% of the people have chosen not to exercise that option.           

            Something is almost always better than nothing.  But, I remain skeptical. 

            Suppose you are 30 years old today and you want to retire at age 65.  Earning an average return of 6%, you would have to save $5,241.72 every year--$436.81 per month--to have a nest egg of $600,000.00.  Table 1 shows the amount of annual income a person would need for different percentages of annual deductions to arrive at an annual contribution of $5,241.72.

Table 1

Percent of Income Deducted	Income Required
2%	$262,086
3%	$174,724
4%	$131,043

            If you stop making investments at retirement, annual inflation is 3% and you continue to earn an average of 6%, your savings would kick $32,616 to you every year for 20 years before becoming exhausted.  Though that may seem like a reasonable amount of money, in today’s dollars, you’d only have $11,592, before taxes, in purchasing power at age 65, and just $6,418 at age 85 when the fund runs out of money.

            Of course, all of these numbers are unrealistic for most people.  The median household income in the United States—income from all earners in a household—was $53,657 in 2015.  Here is how the numbers work for current median income, again assuming an annual deduction, average inflation at 3% and average investment return at 6%.

Table 2

Median Income	Percent of Income Deducted	Total Annual Deduction	Total Nest Egg	Monthly/Annual Payout*	Purchasing Power at 65*	Purchasing Power at 85*
$53,657	2%	$1,072.14	$119,473.68	$845/$10,140	$300/$3,600	$166/$1,992
$53,657	3%	$1,639.71	$182,720.72	$1,292/$15,505	$459/$5,508	$254/$3,048
$53,657	4%	$2,146.28	$239,170.24	$1,692/$20,304	$601/$7,212	$333/$3,996

*Before taxes.

            These numbers would be higher if employers were to match employee contributions. Since there are no free lunches in life, employers would certainly modify compensation packages in ways that cut into consumption, such as charging employees more for health insurance or reducing paychecks to account for those matching contributions. 

            The point is that the kinds of savings schemes advocated by the BPC’s expert panel wouldn’t give most people a significant level of purchasing power after they stop receiving paychecks at age 65.  And they leave people who have the good fortune to survive more than 20 years after retirement exposed.

            This is why all of the attempts by Republicans in Congress to cut back on Social Security are misguided.  Most people simply can’t save enough to replace whatever eventually gets whacked out of Social Security.

            What these kinds of numbers should tell policy makers is that retirement security needs a really serious rethink.  The paradigm we currently  use to think about it has to change.

            First, the idea that most people can or even should be able to leave gainful employment at the tender age of 65 isn’t reasonable or sustainable.  For most people, foregoing a paycheck for 20 years or more is a non-starter, particularly when they can work.  Public policy has to find ways to encourage people to stay in the work-force longer by making it easier to upgrade skills and retrain while making it harder for employers to avoid hiring or retaining older workers.

            Second, policy makers should think about recasting Social Security as a disability oriented program that can protect people who are not formally disabled, but who are otherwise physically unable to continue to do the work they had previously done.  This would avoid our current practice of penalizing people who spent their careers working on their feet or with their hands and are forced to retire before they can receive full Social Security benefits.  We could create a presumption of disability for other kinds of workers when they reach specific ages.

            Third, we must reorient our medical system toward wellness so that people stay healthy longer and so that illness costs less.  We must do what we can to stop people from smoking and becoming obese.

            And last, we need to reduce economic inequality by raising wages so that people can afford to make more meaningful contributions to their own economic security.

Free College Won't Solve the Problem

            I am a big supporter of education.  I believe that education can help a person make the most of his or her talents and abilities.  I paid for both of my children to attend a private Jewish Day School, and then to attend private colleges.  I have a law degree, and I just earned a Ph.D.  I teach political science to college students.

            But I don’t support Bernie Sanders’ call for universal free college tuition.

            Sanders’ main concern is that it’s getting hard to find a good job without a college degree. “By 1940,” Sanders wrote, “half of all young people were graduating from high school.  As of 2013, that number was 81%.  But that achievement is no longer enough.  A college degree is the new high school diploma.”

            Sanders correctly points out that “an important pathway to the middle class now runs through higher education.”  According to a 2014 report by Burning Glass, a large percentage of employers are demanding a college degree for many jobs that traditionally didn’t require them. 

            Comparing the credentials currently demanded by employers with the credentials of the people who actually hold those kinds of jobs, Burning Glass found large gaps.  For example, while “65% of postings for Executive Secretaries and Executive Assistants now call for a bachelor’s degree,” Burning Glass found that “only 19% of those currently employed in these roles have a B.A.”

            In some jobs, the skills the employers say they want aren’t necessarily taught at the college level. While there are some jobs that do require a greater level of skill because of changes in technology, Burning Glass concluded that employers may “be using the bachelor’s degree as a rough rule of thumb screening system to recruit better workers.” 

            Two factors could be driving this. First, there is still an oversupply of applicants relative to the number of available jobs. That means that employers can afford to be fairly picky about the people they consider for any job opening. With so many people seeking to fill so few positions, employers can hold out for Cadillacs when all they really need are Chevys.

            Second, while a college degree doesn’t necessarily indicate that a job applicant has more job-related skills than a high school graduate might have, it does indicate that an applicant has developed the drive and internal fortitude to stick out a fairly rigorous academic program for at least four years.  Burning Glass found that in jobs that did not require a college degree but did required a certification of some sort, the gap between credentials required and the credentials the work force actually has was considerably smaller.

             I’m all for making sure that Americans have the skills they need to become competitive in what has become a global labor market.  But, it’s not clear that the best way to accomplish this is to send everyone to college.  

            We have to face the reality that our current public school system simply doesn’t prepare everyone for the academic demands of college.  That could mean that a vast number of people will flunk out, colleges will have to devote far greater resources to remedial coursework or that standards at public colleges will fall.

            Second, providing a means for everyone to get a college degree might not solve the problem.  Making free college available could have the unintended effect of perpetuating and exacerbating  the paper chase.  Employers who can be picky might simply begin to require new employees to have post-graduate degrees. 

            There’s a better way to solve the problem. Sanders would fund his program with a financial transactions tax.  That money could be better spent doing two things.

            First, the government could adopt a full employment policy along the lines recommended by Jared Bernstein in The Reconnection Agenda.  As employer of last resort, the government would pick up the slack in the labor market. There would be fewer people competing for jobs, and so employers would be forced to drop their demands for credentials that their workers they don’t really need to operate their businesses.  An added bonus of this policy is that wages would go up as businesses compete for workers.

            Second, the government could subsidize the creation of training centers where people can learn and receive a certification for the skills they need to be successful in careers that require technical know-how, but not the rounded academic experience colleges offer.

            The government could even devote some of the funds to public service programs that can give young people experience that might help them decide whether they need college in order to do something meaningful with their lives.

            Sanders deserves credit for keeping the problems middle class families face front-and-center.  But this is not your father’s economy we’re dealing with, and we need a creative post-New Deal, post-Great Society plan for coping with it.

           

             

What Conservatives Don't Understand About Economic Inequality

            George Will’s column in Sunday’s Washington Post epitomizes the way conservatives are looking at the issue of income inequality.  It’s discouraging to see that conservatives don’t understand what the problem is and why we have such a long way to go in addressing it.

            Will thinks that when Bernie Sanders and others decry economic inequality, they are whining on behalf of “the discontent of those who are comfortable but envious.”  For Will, economic inequality is the inevitable consequence of free markets, big government, artificially low interest rates and broken (African-American and Hispanic) families.

            Citing Harry G. Frankfort’s On Inequality,” Will argues that “it is misguided to endorse economic egalitarianism as an authentic moral ideal.”  Instead of focusing on equality, Will thinks we ought to be guided by Frankfurt’s  “doctrine of sufficiency,” which “is the moral imperative that everyone [should] have enough.”

            This is a strawman argument, and it’s frustrating that Will and his fellow conservatives are willing to trot it out again and again.  Nobody, not even Sen. Elizabeth Warren (D-MA), is agitating for economic egalitarianism. Nobody is trying to take anyone’s mansion or yacht away.  Nobody thinks that the Soviet style of bleak equality is appropriate.  The argument liberals are making is that, as Frankfurt writes, economic inequality is unacceptable “on account of its almost irresistible tendency to generate unacceptable inequalities of other kinds.” 

            Economic inequality makes it hard for average families to make ends meet.  Economic inequality strains families and makes it more likely that they’ll break up.  Economic inequality degrades the social trust that holds societies together and makes it possible for people to make sacrifices for the greater good.  And economic inequality distorts our democracy so that government institutions respond more readily to the demands of the rich than to the needs of everyone else.   

            Will, as do many conservatives, begins with the belief that an impartial “free market” determines what things will be rewarded.  But “free markets” are human constructs that depend on rules made by people acting through their governments.  Governments define such basic things as what counts as private property, which provisions of which private contracts will be enforced and even what counts as money.

            If you can control the rules of the market, you can give yourself a huge advantage in generating wealth.  That is why businesses and wealthy people are willing to invest significant amounts of their time and money in politics.  Their goal is to become “rent collectors” who get rich, not by producing needed or desired things, but by getting the state to allow them to have monopolies or oligopolies. 

            If you succeed in becoming a rent collector, you can begin a cycle that allows you to invest even more in the government to protect and enhance your position.  That’s one reason that almost half of the money donated to political campaigns in 2015, amounting to over $176 million, has come from just 158 American families.

            The remainder of Wills argument recycles rightwing claptrap.  Will can’t resist the opportunity to blame (African-American and Hispanic) women who are faced with having to bring up children on their own for increasing economic inequality.  In a perfect world, nobody disagrees with the proposition that children should have the benefit of two parents guiding them toward adulthood.  Children who have two literate parents, stable living arrangements and food security generally do better in life than children who don’t have these things.  But the world isn’t perfect outside of the conservative bubble. Will never bothers to ask why there are so many single parent homes.  Could it be that the dearth of good-paying jobs has placed impossible demands on people, demands that ultimately devastate families?

            Are you willing to do anything about it, George?

            I thought not.

            Will complains about Social Security.  For him it is a program designed to “transfer wealth regressively from the working-age population to the retired elderly.”  True, but so what? Under Social Security, each generation receives financial protection from the one that follows it.  Without it, adult children would have continued to take their elderly parents in when they got too old to work, just as children have always done throughout history.  Either way, present day workers have less to spend on themselves and their children. 

            Will correctly points out that the Fed’s zero interest rate policy has been a windfall to the “10 percent of Americans who own 80% of the directly owned stocks,” has increased economic inequality.  What he doesn’t acknowledge is that the Fed’s policy exists because, since 2010, Republicans in Congress have refused to let Democrats use spending programs to energize the economy.  Without fiscal policy tools, the Fed’s zero interest rate policy was the only thing standing between the U.S. and the same double-dip recession Will’s preferred policies brought to the Eurozone.

            He also complains about the size and power of government because it “inevitably serves the strong.”  This is exactly backwards.  Governments exist because the strong cannot always be trusted to do the right thing. Governments grow in proportion to the complexity and scope of the evils they are organized to prevent.  Governments serve the strong when the strong are able to seize power by force or bamboozle the masses into giving it to them through democratic processes.  I’d agree that our current government has been captured by the strong. But that’s an argument for reducing economic inequality—and thus, the power of the strong, and for making our democracy more responsive, not for emasculating it.

            Without a large, powerful regulatory state, just how does Will think that Frankfurt’s “doctrine of sufficiency” can come into play? Surely Will doesn’t think that all of those people who receive public assistance would have “what is needed for the kind of life a person would most sensibly and appropriately seek” without that assistance.  Or, maybe he does.

            For everyone to have “enough,” you have to break the cycle that enables the wealthy to continue to consolidate wealth and power into fewer and fewer hands.  And the easiest way to do that is to insist on policies that make a fairer distribution of the economy’s rewards.

           

           

             

Talkin' 'Bout a Revolution

      The Republicans and their candidates, do seem to see it, but their hatred of everyone and everything not linked to their shrinking base and their fear of everything beyond their vision of a Norman Rockwell America makes it impossible for them to swim with the tide. The Republican base hates establishment Republican leaders such as John Boehner and Mitch McConnell almost as much as it hates the Democrats. It is so angry that it now turns to Donald Trump, Ben Carson and Carly Fiorina, who tout their own personalities in lieu of programs, and promise that once they have succeeded in mucking out the stables of Democratic America, they will unearth a purer version of America.

     Sanders gets it. He understands the deep distrust Americans seem to have of our national government. Sanders is calling for “a political revolution . . . [in which] millions of people begin to come together and stand up and say ‘Our government is going to work for all of us, not just a handful of billionaires.’” They’re even selling t-shirts, travel mugs, pillow cases and laptop skins with Sanders’ picture imploring people to join up.

     The election is still too far away for anyone to predict whether Sanders, Clinton or anyone else will receive his or her party's presidential nomination. And so, instead of prognostication, let’s talk about what a political revolution in 2015-16 might look like.

      Regardless of which party controls the levers of power in America, whether located in Washington, D.C. or in the smallest of our local communities, governmental institutions are naturally conservative in that they were designed to resist change. They were created to guarantee social stability, and they all represent hard-fought compromises that the people who framed them wisely agreed should not be undone without a broad consensus.

     Our two party system, the system of checks and balances, judicial review, federalism, the supremacy of the national government and the civil rights and civil liberties we cherish cannot be undone or easily replaced. Not only is the institutional machinery that could produce legitimate revolutionary change difficult to use, it is unlikely that a significant number of Americans would be willing to abandon what many regard as the miracle of the Constitution.

     But that doesn’t mean nothing can be done. It only means that a revolutionary has to work within the system we have.

     Newt Gingrich, in 1994, provided a workable template for political revolution. Tired of being powerless as a member of the minority party in the House, Gingrich created a unified party platform for Republicans seeking election to the House. He got all of the Republicans seeking election that year to sign onto and campaign for a set of legislative proposals he called the “Contract With America.”

     For the first time in 40 years, Republicans took control of the House of Representatives and the Senate. As the intellectual leader of House Republicans, Gingrich became Speaker and used party discipline to pass the legislation the Contract with America promised.
Unfortunately for Gingrich, he didn’t have control of the Senate or the White House. Senate Democrats succeeded in deploying the filibuster. Bill Clinton insisted that the 1994 election had not made him “irrelevant,” President and held firm for his own policies, even after his confrontation with Gingrich resulted in the first government shutdown in American history.
Republicans managed to hold on to control of the House and the Senate in the 1996 election, but very little of the Contract With America became law.

     Modern day revolutionaries should take note. The only way to succeed with a revolutionary political program is to have control of all of the institutions of government. Imagine what might happen if a presidential candidate were to make herself the leader of an insurgency intent on capturing not just the White House, but control of both houses of Congress as well.

     We now have a highly polarized parliamentary system in everything but name. We have unified and disciplined parties occupying Congress, and we’ve even seen the collapse of a coalition government in the House. The members of both parties in both the House and the Senate now vote the party line on all major issues almost all of the time. It’s rare to see leaders of one party seriously seeking to obtain votes from the other party. The parties in Congress can effectively stymie each other and the president of the other party, and that's why little gets done.  

     A revolutionary presidential candidate must take advantage of the system as it is. Such a candidate must become deeply involved in the selection of candidates for the House and the Senate. He or she must commit his or her own campaign resources—including campaign time and cash--to getting herself and her co-partisans elected on a single meaningful platform. That is the only way to avoid the sausage-making spectacle that accompanied the passage of the Affordable Care Act.

     A revolutionary presidential candidate would have to be straight with the American people. She would have to admit that the promises she makes are contingent upon the election of a working majority in the House and a filibuster-proof majority in the Senate. She would have to insist that the only way to achieve the promised results is for the party to run the table. Voters would have to vote for all of the party's candidates so as to give the president a clear legislative mandate. It would be all or nothing.

     The problem with this ploy is that it will have the effect of denying the minority party (and the voters it represents) any serious governing role until the majority government falls. But the advantage is that voters will finally know who to reward for success and who to punish for failure, That is how democracy is supposed to work.

     And that would be truly revolutionary.

Elections Have Consequences

 

            It’s hard to get things done in the Tragic Commons, particularly when the task requires the cooperation of more than a few people.  Being highly rational, most of us carefully compare the likely benefit we individually will receive for doing anything with the cost of taking the action. Most of us won’t act unless the cost of acting is less than the probable benefit taking the action will earn.

            Though there will always be suckers here who will be motivated by feelings of generosity, altruism and community spirit, it’s simply not rationale to incur costs without the possibility of profit.

            That’s why, when we choose leaders for the commons, its so hard, first to find people who are willing to devote time and effort to managing the Commons as whole (instead of their own little piece of it), and second, to get people to participate in the electoral process.

            We’ve solved the first problem by paying our leaders more than they could otherwise get doing something else, by increasing the prestige of leadership and by making appeals to their own narcissism.

            The second problem is more difficult.  It’s easy to get the suckers to show up at the polls and vote.  We convince them that voting is as much a civic obligation, as paying taxes or serving on juries (both of which we enforce by imposing steep financial penalties for non-compliance). When they leave the polls we give them stickers that announce the fact that they have participated in one of the few public rituals we still have here in the Commons.  It impresses most of the other suckers, and it gives the rest of us something to talk about.

            Getting everyone else out to vote is difficult.  Most of us have better things to do than take the time necessary to learn about the candidates, leave work at inconvenient times and wait for a chance to cast a ballot. 

            It might be different if our elections were often decided by a single vote.  Knowing that one’s vote will decide which of two candidates will be elected gives the voter a 100% increase in the likelihood that his or her vote will matter, making it all but certain that he or she will get his or her preferred policies.  That would make the costs of participating relatively small for a voter who knows his vote will decide an election.

            But since our elections never come down to a single vote, it’s much more rational for most of us to conclude that there’s nothing in it for us and to leave the costs of voting to the suckers.

            We’ve tried to address this in recent years by lowing the costs of voting.  Political campaigns here are generally well funded, and so it’s extremely easy to learn about the candidates.  They’re more than happy to tell us what we need to know. 

            And we’ve been tinkering with the times and places for voting as well.  We’ve seen that if we lower the cost of voting by doing things like allowing people to vote by mail, vote on the weekends and vote on days other than the specifically designated Election Day, the number of people who vote tends to go up.

            And that’s why I can’t help but be puzzled by the actions of the Montgomery County, Maryland Board of Elections.  This august board decided to shut down two of the county’s most frequented used early voting centers.  They would move the early voting operations of the Marilyn J. Praisner Recreation Center, currently located in population dense Burtonsville, to a hard-to-access location in bucolic Brookeville.  They’d move the early voting operations at the Jane E. Lawton Community Center, currently located near the Bethesda Metro Station to somewhere in Potomac you can only reach by car.  They said that they wanted to add some geographic diversity.

            Praisner serves an area with a high numbers of minority and low-income voters. Moving early voting to Brookeville will raise the cost of voting for these kinds of voters because they are often hourly workers who don’t get paid when they are off the clock.  They need the convenience that Praisner offers to accommodate their work schedules if they are to participate. 

            Similarly, Lawton serves as many as 50,000 voters, many of whom work outside of the county and have professional obligations that make it difficult to leave work in order to participate on a single day.

            What could they have been thinking? Don’t they understand that we ought to be making it easier for people to vote if we want our democracy to work?

            How could such a thing have happened in the liberal bastion of Montgomery County? 

                        Someone’s suggested that the move was a nakedly political attempt to raise the costs of voting for the sorts of people who tend to vote for Democrats in Montgomery County.  All of the members of the board are appointees of Republican Governor Larry Hogan. And under Maryland law, Hogan was entitled to appoint three Republican members and two Democratic members.  Apparently, the three Republicans, after consulting with the State’s Republican party chairman, saw fit to outvote the two Democrats on the board.

            But, I suppose that’s someone being cynical. Nobody in Montgomery County would actually think of trying to suppress anybody’s else's vote, would they?