Negative Interest

Research on retirement

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Teresa Ghilarducci and Joelle Saad-Lessler: How 401(k) Plans Make Recessions Worse (Schwartz Center for Economic Policy Analysis at the New School):

This study looks past the decline in housing values, the success of traditional automatic stabilizers and stimulus spending as explanations of the dynamics of the recession. Annuity based retirement accounts backed by government programs also helped the economy, while financially-based retirement programs like 401(k) type programs, hurt the economy.

The Great Recession reduced the value of some retirement assets and not others. Over half of households own IRAs, 401(k), and 401(k) type accounts and the values of these accounts fell an average of by 14% in 2008, with wealthy households losing the most (Vanderhei 2009). Middle class and lower income households, whose current and future retirement income wealth derives primarily from Social Security, disability insurance, defined benefit pension plans and Medicare lost almost nothing in the 2008- 2009 recession (Smeeding and Thompson, 2013, Gustman, Steinmeir, Tabatabai 2011).

According to Gustman, Steinmeir, Tabatabai (2011) “those in the middle class in terms the wealth distribution experienced a 4.3 percent drop in wealth; there was essentially no drop in total wealth for households in the lowest wealth quartile because Social Security wealth (which was unaffected by the recession) makes up a much larger share of total wealth for poorer households.” Federal Reserve economists Peterman and Sommer (2014) found that Social Security reduced the exposure of households to the wealth shock of the Great Recession.

The micro economy of worker and retiree households experienced the Great Recession very differently depending on how much of their retirement income and expected retirement income came from a promised stream of income from Social Security and traditional pensions and how much of their retirement wealth relied on financial-market based assets.

The macro economy also benefited from government-based retirement assets and suffered, like households suffered, from having retirement income depend on financial assets: 401(k) plans whose value depended on flows, dividends and capital gains from stocks, bonds, and other financial assets. In short, the existence of 401(k) plans and other financial market based retirement wealth – whose values fluctuate with the business cycle — made the last recession deeper and caused more unemployment than would have happened otherwise if 401(k)s did not exist.

Michael Lind, Steven Hill, Robert Hiltonsmith, Joshua Freedman: Expanded Social Security: A Plan to Increase Retirement Security for All Americans (New America Foundation):

As private employers have shifted away from providing defined benefit pensions, they have turned to defined contribution plans like 401(k)s instead. Unlike traditional defined benefit pensions, defined-contribution plans allow employees to set aside fixed amounts of money into investment accounts. That amount is excluded from their gross wage when calculating taxable income, lowering their tax burden. One advantage of this method is that the 401(k)s and IRAs are somewhat portable from job to job. But workers’ eventual retirement income from these accounts depends entirely on how much money they set aside during their working lives and how well the stock market and investments in their accounts performed. Employers have greatly preferred new america foundation page 6 401(k)s over defined-benefit pensions because workers shoulder the primary responsibility for funding them rather than the employer.

The growth of the 401(k) stems from legislation in the late 1970s. In the Revenue Act of 1978, Congress inserted a new section into the tax code, section 401(k), that allowed workers to take part of their pay as tax-free deferred compensation. Section 401(k) was not the first tax provision that allowed Americans to save for retirement in tax-deferred accounts: Individual Retirement Accounts had been created as part of the 1974 Employee Retirement Income Security Act (ERISA) and 403(b) accounts (taxdeferred accounts for employees of non-profits) have been around since the 1930s. But section 401(k) was the first provision that allowed workplace-sponsored tax-deferred retirement accounts for all types of employees, and thus opened the door for the proliferation of such accounts that has occurred in the decades since.

Since 1979, defined contribution and 401(k) retirement plans have gone from covering only about 17 percent of the private workforce to about 42 percent today (see Figure 2, above).14 In some businesses, the employer contributes to the 401(k) plans that are managed by the employees, but the contribution amount is much less than under a defined payout pension.

These individual retirement plans – most prominently, 401(k)s – have been sold to American workers as the new and improved successors to traditional pensions. 401(k)s, however, have proven to be more costly for both the government and employees than the system they replaced. They force workers as individuals to face a number of significant risks, including losing their savings to a stock market downturn, through investing their money unwisely, or outliving their savings. US workers were insured more efficiently and more securely under the traditional pension system.

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April 13, 2015 at 7:46 pm

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Link roundup

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April 13, 2015 at 6:16 pm

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Fun with fiscal cliffs

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There’s nothing too surprising in this year’s compilation of the Reason staff’s presidential preferences (hint: almost everyone supports Gary Johnson). I did find Shikha Dalmia’s explanation of her support for Johnson especially entertaining:

Gary Johnson. He is a pragmatic libertarian who offers a principled alternative to the statism of the right (that would outlaw same-sex marriage and abortion; criminalize drugs; erect barriers to keep willing foreign workers away from willing Americans, etc.) and the statism of the left (that would enact crade-to-grave entitlements; confiscate wealth rather than curb spending to avoid going off the fiscal cliff etc.).

You see, Gary Johnson wants to curb spending to avoid going off the fiscal cliff, which would mean…the expiration of the Bush tax cuts and the payroll tax cut and mandatory spending cuts to defense and discretionary spending. Dalmia doesn’t seem to realize that the fiscal cliff significantly curbs spending, which is part of the reason it terrifies people. James Kwak points out the folly of the typical deficit hawk view of the cliff:

It’s too obvious to waste more than a sentence spelling out what’s wrong here, so here it is: “Going over” the “fiscal cliff” is the single best thing we could do to “restore the United States’ long-term fiscal footing.” The CEOs of every big bank (who signed the letter) must know that. Right?

There are valid arguments against going over the fiscal cliff, but the national debt is not one of them. Going over the cliff would do more to address the long-term debt than anything any politician has proposed.

I am genuinely surprised that going over the fiscal cliff has no support in libertarian circles. It represents one of the best opportunities to shrink the size of government you’re going to find. The tax hikes won’t be popular with libertarians, but it will likely be easier to lower taxes in the future than to increase spending. Matt Yglesias notes that “[i]f Congress does nothing, these three factors will drive the budget deficit to less than 1 percent of GDP by 2018 and then stay below that level through 2022.” The state of reporting on the fiscal cliff has been so poor (and in some cases, deliberately confusing) that many people don’t realize that it improves America’s fiscal standing (if the deficit-to-GDP ratio is your measurement of fiscal health).

The only real answer is that nobody actually cares about the deficit. Going over the fiscal cliff may be the best way to achieve libertarian goals on defense spending and nondefense discretionary spending, but negotiations over avoiding the fiscal cliff represents the best opportunity to slash the welfare state and keep higher income tax rates relatively low.

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October 25, 2012 at 5:50 pm

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Debate thoughts

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It’s predictable that Mitt Romney’s debate performance would go over well with people who don’t realize how shamelessly he was lying. It’s depressing how well it went over with people who know how shamelessly he was lying.

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October 4, 2012 at 3:00 pm

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Harlow Unger on the underappreciated John Quincy Adams

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Encyclopaeda Britannica interviews Harlow Unger, author of the new biography John Quincy Adams (h/t Andrew Sullivan).

On the contributions that most Americans might not know about:

One, his courageous sixteen-year struggle in the House of Representatives for free speech and and there being the first proponent of abolition and emancipation. Two, John Quincy Adams’s brilliant argument before the U.S. Supreme Court that the African captives on the slave ship Amistad were kidnapped freemen who had exercised their legitimate rights to defend themselves against their kidnappers when they killed the captain and mate of the ship. And three, during John Quincy Adams’s single term as a U.S. senator before becoming president, he successfully prevented President Thomas Jefferson’s attempt to criminalize political dissent by impeaching Supreme Court Justice Samuel Chase because Chase disagreed with Jefferson’s politics. John Quincy Adams successfully defended Chase—and free speech in America—by proving that political disagreement with a president does not fall in the category of “high crimes and misdemeanors.”

On the aspects of his life that might most surprise contemporary readers:

There are two such aspects. The first is the amazing span of John Quincy Adams’s life, covering the first, eighty formative years of the American republic, from the Revolutionary War to the eve of the Civil War. He served under George Washington and with Abraham Lincoln, worked closely with the nation’s first five presidents as well as some of the world’s greatest figures—Benjamin Franklin, Lafayette, the Duke of Wellington, Frederick the Great, and so on. John Quincy Adams’s accomplishments are even more astounding: a Harvard professor, American ambassador to six countries, secretary of state for eight years, a courageous congressman for sixteen years and the first to call for abolition, chief U.S. negotiator at the peace talks that ended the War of 1812, a brilliant lawyer who pleaded precedent-setting cases (including the Amistad case) before the U.S. Supreme Court, a founder of the Smithsonian Institution, and the father of space exploration in America, sponsoring construction of about a dozen of the first astronomical observatories across America and calling them “lighthouses of the sky … links between earth and heaven … [and] the means of acquiring knowledge.”

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September 29, 2012 at 6:00 pm

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If you ignore all the conservatives at the Washington Post there are no conservatives at the Washington Post

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Washington Post ombudsman Patrick Pexton discovers that every writer for the Washington Post is a bleeding heart liberal:

One aspect of The Post that particularly irks conservatives is the columnists who appear in print and online in news positions (as opposed to those on the editorial and op-ed pages and the online Opinions section). With the exception of Dan Balz and Chris Cillizza, who cover politics in a nonpartisan way, the news columnists almost to a person write from left of center.

Ezra Klein of Wonkblog comes out of the Democratic left, fills in for Rachel Maddow and Ed Schultz on MSNBC and sometimes appears in the printed Post on the front page.

Steven Pearlstein, who covers business and also appears occasionally on the front page; Walter Pincus on national security; Lisa Miller of the On Faith blog; Melinda Henneberger of She the People; Valerie Strauss, the education blogger; plus the three main local columnists — Robert McCartney, Petula Dvorak and Courtland Milloy — all generally write from a progressive perspective, readers say. (So does Dana Milbank, who works for the Opinions section but writes a column that appears on Page A2 twice a week.)

Is it any wonder that if you’re a conservative looking for unbiased news — and they do; they don’t want only Sean Hannity’s interpretation of the news — that you might feel unwelcome, or dissed or slighted, by the printed Post or the online version? And might you distrust the news when it’s wrapped in so much liberal commentary?

So there are two “news columnists” who cover politics in a nonpartisan way and ten apparently partisan progressive “news columnists.” What is a news columnist? According to Pexton, it is a columnist who appears in print and online in a news position and not on the op-ed pages, whatever that means. Ezra Klein is a news columnist. So are Dana Milbank, Steven Pearlstein, Robert McCartney, and Courtland Milloy. Just to make sure that Pexton was correct in describing them as columnists who don’t appear on the editorial and op-ed pages and the online Opinions section, I decided to look at the online Opinions section. I was in for quite a nasty shock!

Either the Washington Post hired different opinion writers named Klein, McCartney, Milbank, Milloy, and Pearlstein (a little hint for people who didn’t click the link: they didn’t!) or Patrick Pexton is spouting nonsense.

What I see on this list is…a mix of left-leaning and right-leaning writers! Yet Pexton saw fit to write a post decrying the pernicious liberal infection of the Washington Post (“If The Post wants to wrap its news in commentary, fine, but shouldn’t some of those voices then be conservative?”) without bothering to mention George Will, Marc Thiessen, Charles Krauthammer, Michael Gerson, or future Romney White House Press Secretary Jennifer Rubin. For the uninitiated, Rubin was hired by the Post as a conservative blogger after Dave Weigel was fired when revelations that he wasn’t actually conservative enough and he’d referred to his fellow Ron Paul voters as “Paultards” led the Post’s editors to conclude that he “was no longer objective enough to cover his beat.” The notably objective Jennifer Rubin was recently seen arguing that the Romney campaign is doing really well lately (really!) but isn’t doing as well as they could be (which would be even better than really really good) because they are afraid to say mean things about Barack Obama.

To summarize, Pexton argues that the Post’s news columnists (who don’t write opinion articles) are biased liberals based on a few people whose writings can be found by clicking on the “Opinions” page (and one, Dana Milbank, who can be found on the “Left-Leaning” opinions page). He does not include any of the numerous conservative opinion writers as news columnists, leading him to conclude that the Washington Post is hopelessly lacking conservative voices.

And he’s got a real point! When you count on the liberal writers at the Washington Post and don’t count all the conservative writers, it turns out that there aren’t actually any conservative writers at the Post.

Written by negativeinterest

September 29, 2012 at 5:40 am

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Republican obstructionism is not a matter of opinion

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Welcome to Brad DeLong’s readers – it was a huge shock to open Google Reader and stumble across my own post. I’m not sure how clear my point was from the excerpt that Brad posted, so I want to clarify. That Mitch McConnell devised a strategy to block the Democratic agenda in January 2009 does not directly contradict Glenn Kessler’s point that his “one-term president” comments did not come until October 2010. Where Kessler goes astray is when he suggests that this somehow negates a Democratic talking point about Republican obstructionism. McConnell confirmed the strategy in 2010, but the plan was in motion before inaugaration day while the economic data was worsening by the day. Just because McConnell’s public statements came after Barack Obama “enacted many of his preferred policies” does not mean that the Republican leadership magically discovered this strategy in October 2010. Determining the facts surrounding this situation requires a little more investigative effort than Kessler is willing to put in.

Kessler implies that this is merely a fantasy of Barack Obama’s and that there is no way of verifying any part of this story beyond the simple timeline of a National Journal interview. This ignores the work of reporters (including – but not limited to – Michael Grunwald) who have worked hard to confirm and accurately portray the events surrounding the Obama adminstration’s efforts to fight the Great Recession and the Republican leadership’s efforts to make that as difficult as possible. As Grunwald points out, in the midst of the worst crash in 80 years, the Republican Party was devising a strategy not based on promoting the policies they thought were best for the country or improving the policies they thought were the worst, but on taking back power from the Democrats solely for the sake of taking back power from the Democrats.

We aren’t flying blind here. We don’t have to guess if Mitch McConnell was uncooperative all along or if it’s just a comforting story Barack Obama likes to tell himself. The consistent Republican obstructionism of the last (almost) four years is not a matter of opinion and it does not require interpretation or guesswork. The people involved in crafting this plan have consistently been quite open about their strategy.

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September 28, 2012 at 8:37 pm

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