You don’t have to call me “Darling,” Darling
You never even called me by my name.
—David Allan Coe, You Never Even Called Me By My Name
As always, the academics know better than you do.
I predicted a few months ago that one of the things we’d see if Obama is re-elected is a government push to appropriate your retirement savings. Well don’t look now, but something similar is already brewing (h/t Andrew Wilkow of Sirius/XM’s Wilkow Majority for cluing me in to this).
On July 21 the New York Times published an opinion piece entitled “Our Ridiculous Approach To Retirement” by Dr. Teresa Ghilarducci, a double-dip Cal-Berkeley graduate, career academic, and currently the Irene-and-Bernard-L.-Schwartz-Chair-of-Economic-Policy-Analysis-and-director-of-the-Schwartz-Center-for-Economic-Policy-Analysis-in-the [breathe] Department-of-Economics-at-The-New-School’s-New-School-for-Social-Research. In this piece she reiterates the theory that’s apparently has been her life’s work to promote: we need a second Social Security program. Not a new one to replace the old broken one, but in addition to it.
Oh, she doesn’t call it “Social Security.” She calls the fruit of her proposed program “guaranteed retirement accounts.” These guaranteed retirement accounts are managed by the Social Security Administration, funded through mandatory contributions (read: taxes), magically generate a guaranteed rate of return, and pay an annuity for life.
Kind of, like, I don’t know . . . Social Security???
Her premise is that, left to our own devices, we don’t/can’t/won’t save enough to provide for our own retirement. Citing “new research” from the Schwartz Center for Economic Policy Analysis of which she is the director—I love it when academics cite themselves as authority to support their arguments—Dr. Ghilarducci claims that 75% of Americans approaching retirement have less than $30,000 in their retirement accounts. She then recounts what she says is a common cocktail party conversation she has with friends who want to talk about their retirement plans:
“I repeatedly hear about the ‘guy.’ This is a for-profit investment advisor, often described as ‘I have this guy who is pretty good, he always calls, doesn’t push me into investments.’ When I ask how much the ‘guy’ costs, or if the guy has fiduciary loyalty—to the client, not the firm—or if their investments do better than a standard low-fee benchmark, they inevitably don’t know.”
The problem, she explains, is that it’s simply impossible for us mere mortals to make adequate retirement preparations, with or without the “guy.” To do that, she says, we’d have to have the omniscience to know when we’re going to be laid off—because that, of course, is guaranteed—when we’re going to die, how to make the perfect investments to beat the market, etc. The condescension practically drips off the page. You’re simply too stupid to do it yourself. And, of course, the perfect proof of this is the statistical analysis showing that most people have very little in their retirement accounts.
I’m not going to challenge her numbers. My point is this: what did you expect? The whole idea of Social Security in the first place was to make adequate savings and investments to provide people’s retirement arrangements for them. If it worked as advertised, why would you expect anyone to have any separate retirement account at all? That was supposed to already have been taken care of by the government.
Of course, the notion that your money is sitting in a Social Security trust fund account just waiting for you to retire is a fantasy long ago debunked. But notice that her position is self-defeating. She looks at the less than $30,000 75% of people have saved over and above Social Security and says that because that’s inadequate to provide for their retirement needs, the 401(K) model of relying on private citizens to be responsible for themselves is a failure. But if the savings over and above Social Security is inadequate—and therefore a failure—then Social Security itself is a failure as a means of providing for people’s retirement. Yet her solution to this problem is to double-down with another government-managed “investment” program that’s indistinguishable from the one she effectively admits is already inadequate (not to mention insolvent).
How much more do you suppose would be in the average retirement account if the government weren’t already taking 4.2 cents out of every dollar people earn supposedly to “invest” on their behalf? For an average wagearner making $50,000 a year that’s $2,100 a year he could have invested himself. Actually, it’s worse than that, because his employer is forced to kick in another $3,100 that could have been paid to the employee as additional wages. So as a result of the existing Social Security program, this average wagearner is really being deprived of as much as $5,200 a year. If even half that were saved and invested at, say, a 5% return, over a 40 year working life that’s an additional $314,079 that would appear in that employee’s retirement account.
But that employee doesn’t have that money to invest, because the government took it from him. And the sick part is, once they’ve taken it, for all the lip service that it’s being put in an account, and it remains his money, you and I both know that’s simply a lie. He’s never going to get that money back. If he dies before he qualifies to receive benefits, do his wife and kids get that account? Do they get back the money he put in? Of course not.
All Dr. Ghilarducci’s proposal does is duplicate the existing system to take even more from every wagearner. But what makes her think that’s going to work this time any better than it did the last time? She can’t possibly “guarantee” a rate of return—because that’s derived from the inherent risks in investing—unless she plans to (a) subsidize the accounts when the investments suffer losses, (b) simply declare that the accounts have more money in them tomorrow than they do today, thus inflating/devaluing the currency (you have more dollars, but they’re worth less), (c) supplement the returns in older accounts with the contributions being made into newer ones (see Ponzi, Charles) or (d) some combination of the above. That’s the very government-management mechanism that’s rendered the existing Social Security system insolvent and unsustainable. It doesn’t get any better just because it’s the second time around.
And why is it always a one-size-fits-all mandatory solution with these people on the Left? The idea that because some people are irresponsible and don’t plan for their own retirement means that all people are, is nonsense. We’re planning and saving for retirement outside of Social Security (in fact based on the assumption that it won’t even exist) in my house. Well, Rusty, that’s easy for you, you’re a rich lawyer. I don’t know about that, but my college professor mother and stepfather managed to make their own retirement savings plans, and they’re hardly part of the evil 1%. My dad and stepmother (a cop and a hospital social worker, respectively) are doing it. My in-laws (career chemical plant workers) have done it. Why can’t those of us who are willing to take responsibility for ourselves opt out and do that? All she’s doing is substituting her “guy” for our “guy.”
The answer is simple, and Dr. Ghilarducci herself alludes to it: because a voluntary government system would be “a disaster.” Why? Because no one with the means to provide for themselves would participate. And it’s this truth that exposes Social Security Part Deux for the socialist façade that it is (just as Social Security Part Un was). A voluntary system would leave her with no contributors to cover for her annuity payments to those who, due to time or income constraints, didn’t pay enough into the system to cover what they take out. In other words, no wealth to redistribute, and less for her and her ilk to control.
Better keep an eye on this one.