70% of American own homes, 65% are invested in stocks and bonds!

[R. Richard]

Well, public spending is authorized by Congress. Such a shift was surely voted on, so i suggest you ask those who voted for whatever specific measure you're referring to.

Are you implying there was a kind of theft? Where was the money before it went into these 'bonds.'


rr: My question is: "Why did the US government spend all of the Social Security money collected by the system and replace the money with worthless SS bonds?"

Pure:
I did ask my elected representatives for an accounting of the money that was supposed to be saved for Social Security. I, thus far, have been unable to even get a response, forget answer, to my question.

I am not implying theft, I have no information. The money collected was and is transferred from SS to the General Fund and used to fund projects like bridges to nowhere.

 

[Pure]

flim flam

Rox A characterization of a person's speech or ideas is not the same as a characterization of his or her motives.

P: But you did characterize motive, for in a portion aside from your 'spitting' accusation' you said to Huck

Rox earlier In your seeming contempt for captitalism and free markets

P: the motive, as you see it, is likely contempt; not exactly a presumption of good will, is it? esp. as you go on to say that said contemptuous person "spits" on the system which has done so well.

in simple terms, this cashes out to 'evil' or 'utterly deluded', so I'll be happy to add the latter phrase to my posting you complain about.

 

[Pure]

reply re distribution of investment income

Hi Roxanne,
you replied to the argument and data below, as follows:
Ah, so the measure of a system's value depends not on whether the standard of living and wealth of those in the middle or bottom is greater in absolute terms than ever before, but on whether the amount they are doing better exceeds the amount those at the top are doing better.

This suggests that a superior system would be one in which the standard of living of those not at the top was declining, so long as those at the top were declining faster.

That's a predictable reply. However, we were NOT debating the 'absolute gains' of the less well off.

Rather, you claimed (evidence not cited) that "The workers will own the means of production." Yep - one share at a time.

This is apparently a claim about empowerment of workers, which you argue, is occurring now, in capitalism, rather than in socialism as per Marx.

The data below do not support your claim:

Demhoff On the other hand, the bottom 80% received only 12.6% of capital income, down by nearly half since 1983, when the bottom 80% received 23.5%.

What you are saying now is that rich man goes from 1 million to 2 million in investment income. But the poor man goes from 10 dollars to a 100 dollars. So the poor man has gained--though less than the rich man-- and only out of envy would complain.


But your EARLIER, original claim was that the poor man was getting a greater stake in the system and becoming empowered by becoming a worker-owner-of-stock. Yet it's clear that the power has not shifted to the poor man, in virtue of his (new) almost infinitesimal share of investment income.

======



Roxanne said you [evil leftists] are really reaching for ways to tear down what has been a wonderful development that is making Marx's vision come true: "The workers will own the means of production." Yep - one share at a time.

P: There is unfortunately no factual basis for this claim. See below data on weath distribution.

The stock data are for 2001, but are unlikely to have changed toward equity in the last 20 years; this concludion is based on the following statistics for investment income over the last 20 years:

Domhoff: A key factor behind the high concentration of income, and the likely reason that the concentration has been increasing, can be seen by examining the distribution of what is called "capital income": income from capital gains, dividends, interest, and rents. In 2003, just 1% of all households -- those with after-tax incomes averaging $701,500 -- received 57.5% of all capital income, up from 40% in the early 1990s. On the other hand [in 2001]the bottom 80% received only 12.6% of capital income, down by nearly half since 1983, when the bottom 80% received 23.5%. Figure 5 and Table 6 provide the details.


http://sociology.ucsc.edu/whorulesa...wer/wealth.html
Domhoff, W. Sociology Dept, U of Cal, Santa Cruz

 

[Huckleman2000]

Pure:
I did ask my elected representatives for an accounting of the money that was supposed to be saved for Social Security. I, thus far, have been unable to even get a response, forget answer, to my question.

I am not implying theft, I have no information. The money collected was and is transferred from SS to the General Fund and used to fund projects like bridges to nowhere.

They do account for all SS funding. The bonds that transferred the money to the general fund are far from worthless - they are investments backed by the US Govt., just like T-Bills.

I'm not in favor of this accounting gimmick, because it would seem to mask the true shortfall in government receipts compared with spending. Even so, Bush's (in)famous reference to a worthless bunch of paper during his SS repeal campaign was stupid and dangerous. I'm sure the Chinese and other foreign entities were quite surprised to hear the President of the US describe their investments in the US Treasury were just so much paper. Had they taken the statements at their face, the resulting dumping of t-bills would have set off a huge plunge in the dollar's value with a corresponding global economic crisis.

 

[Roxanne Appleby]

Domhoff: A key factor behind the high concentration of income, and the likely reason that the concentration has been increasing, can be seen by examining the distribution of what is called "capital income": income from capital gains, dividends, interest, and rents. In 2003, just 1% of all households -- those with after-tax incomes averaging $701,500 -- received 57.5% of all capital income, up from 40% in the early 1990s. On the other hand [in 2001]the bottom 80% received only 12.6% of capital income, down by nearly half since 1983, when the bottom 80% received 23.5%. Figure 5 and Table 6 provide the details.


http://sociology.ucsc.edu/whorulesa...wer/wealth.html
Domhoff, W. Sociology Dept, U of Cal, Santa Cruz

There are no doubt some odd and perhaps shady definitions and population segmentings being used here, no doubt to the end of demonstrating to middle class Americans that their personal experience of doing better now than in past eras is an illusion. In 1983 the proportion of households who had any "capital income" was much smaller than at present.

 

[Huckleman2000]

Ahem - where do union pension funds invest their money (the part that isn't malinvested through corruption, that is?) Hint - it's not in a mattress. It's in stocks and bond - just like 401Ks and other instruments owned by the individuals.

In your seeming contempt for captitalism and free markets you appear to be really reaching for ways to tear down what has been a wonderful development, one that is making Marx's vision come true: "The workers will own the means of production." Yep - one share at a time.


My eyes are not closed to potential abuses if the system, and my mind is open to ways to address those, but what is going on in this thread is generally just spitting on a system that has created a previously unimaginable standard of living for the vast majority of Americans.

I don't have contempt for capitalism - I just don't accept on faith that it's the panacea you (and others) think it is. As I stated, left to their own unregulated behavior, corporations and wealthy business owners have not, historically, acted in the best interests of society. If you define those interests solely in terms of wealth creation, of course the system which generates the largest amount of money will be seen as the most virtuous. That's just as silly an argument as you accuse me (and others) of; namely, that my definition of the best interests of society are a redistribution of wealth equally across all individuals, and therefore I view socialism or communism as virtuous. That isn't true it all.

As to your arguments about pension funds, the difference between them and individual investors should be obvious - CALPERS, for example, is large enough to force changes in corporate governance, hardly the clout an individual investor might enjoy. But the real difference is that pensions are defined benefit plans, like Social Security.

The myth that the stock market is always the best place to put one's money is based on average overall returns. In reality, the market is somewhat cyclical, and timing DOES matter. Those who were unlucky enough to have their working life occur from one trough to another will not have realized much return at all. Those who were lucky enough to work from a trough to a peak will be very wealthy indeed - but that doesn't do anything for the millions left with no retirement income. A rising tide only lifts all boats on average. It doesn't address poverty, per se.

 

[amicus]

Been out and about for a few days, not much online...turned out to be rather an interesting thread after all.

It seems so difficult on this forum and elsewhere to actually deal with basic premises in any subject...perhaps it is my inability to clarify things and then again perhaps not.

I personally have little 'political' concerns as to the party in power and so much is skewed by the fact that the United States is a 'mixed' economy, not a true free market.

The basic, which I thought all would recognize, is the fundamental concept of the individual ownership of real property, a right guaranteed by the American Constitution that is fundamental to other political rights.

To that, I contrast the varying collectivist systems to whom the ownership of real property is vested in the State, not the Individual.

The government of the US, as originally intended, is to be only the 'caretaker' of private property, until such time the need or demand arises for private ownership. Even that is not clear or pure, as government agencies have usurped individual rights by retaining mineral rights and imposing taxation upon ownership, all originally forbidden by the intent of the founders.

It is a basic economic and philosophical division between those who insist that governement holds title to all resources and the means of production and those who insist that all 'rights' are inherent to the individual and that government is only to defender and protector of those rights.

I repeat my oft mentioned criticism of those who advocate collectivist or 'statist' (to use an Ayn Rand term') mentality in that they only criticize the function and results of a 'free market system' and never defend or exemplify the function and results of a command or collectivism system.

There are many who sincerely believe that only a 'mixed' system is proper for modern society, to curtail the evils of both Capitalism and Collectivism. I personally and totally disagree, one is either 'free', or not free.

The same applies to monetary matters, surplus capital; to whom is proper owner, the individual or the collective.

Suffice it to say, those who believe a more managed society would provide greater equality and less difference between rich and poor, seem unable to defend the pragmatics of that belief, yet they are ready, willing and able to dismantle the attempts to preserve individual freedom and let people choose what level they wish to exist on.

amicus...

 

[kendo1]

The voice of reason returns.

Hi, ami. Good to see you back.
You've opened a can of worms, methinks.

 

[Roxanne Appleby]

I don't have contempt for capitalism - I just don't accept on faith that it's the panacea you (and others) think it is. As I stated, left to their own unregulated behavior, corporations and wealthy business owners have not, historically, acted in the best interests of society. If you define those interests solely in terms of wealth creation, of course the system which generates the largest amount of money will be seen as the most virtuous. That's just as silly an argument as you accuse me (and others) of; namely, that my definition of the best interests of society are a redistribution of wealth equally across all individuals, and therefore I view socialism or communism as virtuous. That isn't true it all.

As to your arguments about pension funds, the difference between them and individual investors should be obvious - CALPERS, for example, is large enough to force changes in corporate governance, hardly the clout an individual investor might enjoy. But the real difference is that pensions are defined benefit plans, like Social Security.

The myth that the stock market is always the best place to put one's money is based on average overall returns. In reality, the market is somewhat cyclical, and timing DOES matter. Those who were unlucky enough to have their working life occur from one trough to another will not have realized much return at all. Those who were lucky enough to work from a trough to a peak will be very wealthy indeed - but that doesn't do anything for the millions left with no retirement income. A rising tide only lifts all boats on average. It doesn't address poverty, per se.

I have tried to avoid going too far in the direction of characterizing the views of others here, or ascribing to them views that are often but not necessarily associated with those they have actually expressed. Therefore, I did observe that a series of posts that tear down what has indeed been a good news story (despite heroic efforts here and elseswere to deny it) do give the appearance of exhibiting a contempt for capitalism. But I did not assert that you do actually have contempt for it, and certainly did not accuse anyone here of radical egalitarianism to the point of absurdity.

Likewise, I have often stated that I am not blind to the problems of the current system, and have an open mind to realistic ways to fix them. "Realistic" means ones that recognize the "existential realities" of scarcity, the fact that humans always act in their own self interest (broadly defined), and that every human is different in their needs, desires, talents and skills. I have not asserted that capitalism is a panacea, but given the realities described above and the fact that utopia is not an option, it is a pretty good system.

Your point is partially correct about stock market "averages," but wrong about the implications of this. The worst compound average growth rate, using constant dollars, for any 45-year period in the history of the stock market was 4.3% from 1887-1932. An annual investment of $2,000 over that period would have grown to about $253,000. With that amount a 20 year old who began investing in 1887 could purchase an annuity worth about $20,500 a year, and therefore would still have done much better than Social Security returns today. (If you make more than around $16,000 per year Social Security takes more than $2000.)

I have no doubt that you can pick out particular periods of 5, 10 or 20 years in which the returns were worse or even negative, but that is why prudent investing is necessarily a long term endeavor. Over the duration of a person's working life, there has never been a period in the history of the stock market in which you would not have enjoyed substantial gains. Period.

To repeat, utopia is not an option, and yet the theme that runs through much of the criticism here and in similar discussions, and that seems to reside deep in the heart of those on the left, is that because there remain unsolved problems, the free market system is a bad one, and must be attacked at every opportunity. This is just as unbalanced a view as that of someone who claims that we currently live in the best of all possible worlds. Much of what I say in this community intended to promote a more balanced view. Because I do not join the chorus of negativism I am sometimes characterized as a mindless apologist, a "Republican" or worse. I'm not whining, I only point this out to put the spotlight on the unbalanced perceptions I've desribed.

 

[R. Richard]

The myth that the stock market is always the best place to put one's money is based on average overall returns. In reality, the market is somewhat cyclical, and timing DOES matter. Those who were unlucky enough to have their working life occur from one trough to another will not have realized much return at all. Those who were lucky enough to work from a trough to a peak will be very wealthy indeed - but that doesn't do anything for the millions left with no retirement income. A rising tide only lifts all boats on average. It doesn't address poverty, per se.

Huckleman, I have been a stockmarket investor for a while now. Yes, there are cycles in the market. However, the cycles are not variations in a steady state. The variations are in a rising trend. If you look at the Dow Jones Industrial Average over a substantial period of time, the trend is UP! Yes, there was a great depression. However, the widespread problems that caused the very great collapse of the stock market are no longer widespread problems. If you take a time frame from the 1940s through current time and plot the return on the Dow 30 Industirals with dividends reinvested, I don't think you can show me a 43 year period where an investor in the Dow 30 would have not very much return at all.

Even if you pick an ending year where the Dow went down substantially, the investor can usually recoup the bad year by putting off retirement for a year or two.

The people who lost because of the stock market were generally the people who did not invest in the market.

Most of the very poor people I deal with and I have to deal with some very poor people, are poor because of stupidity. They drop out of school. They get married and divorced several times. They get an expensive drug habit. They spend on expensive toys instead of things that will retain value over time. Then they get their sorry asses thrown in prison. Frequently they try to recoup the years of losses due to their own stupidity by stealing from wealthy people. Then they get to deal with me.

 

[Pure]

teach us, o amicus

ami the individual ownership of real property, a right guaranteed by the American Constitution that is fundamental to other political rights.

please quote the section that says individual ownership of real property is a guaranteed right. what is 'real property'?--real estate (land)? or do you simply mean as opposed to 'imaginary property'?

please quote the part that says individual ownership of real property is fundamental to other political rights.

 

[Pure]

to rr

rr Most of the very poor people I deal with and I have to deal with some very poor people, are poor because of stupidity.

hmmm, that's different from around these parts; here, they're poor because they're lazy.



----
note on the market: a general (smoothed) upward trend is apparently there in the market. it's just too bad that the very uppermost strata (10%) reap most of its rewards. with consumer debts and mortgages, the lower 2/3 (by income) simply don't have much money to invest.

 

[Roxanne Appleby]

note on the market: a general (smoothed) upward trend is apparently there in the market. it's just too bad that the very uppermost strata (10%) reap most of its rewards. with consumer debts and mortgages, the lower 2/3 (by income) simply don't have much money to invest.

Yes, and the subject of this thread is the good news that this is changing for the lower two-thirds.

 

[SweetPrettyAss]

rr Most of the very poor people I deal with and I have to deal with some very poor people, are poor because of stupidity.

hmmm, that's different from around these parts; here, they're poor because they're lazy.
----
.

I don't see any contradiction here. Being lazy is a stupid choice, unless the lazy person has some kind of a lifetime annuity.

 

[R. Richard]

what is 'real property'?--real estate (land)? or do you simply mean as opposed to 'imaginary property'?

From Wikipedia:
In law, the word real means relating to a thing (from Latin res, matter or thing), as distinguished from a person. Thus the law broadly distinguishes between [real property] (land and anything affixed to it) and [personal property] (everything else, e.g., clothing, furniture, money). The conceptual difference was between immovable property, which would transfer title along with the land, and movable property, which a person would retain title to.

In modern legal systems derived from English common law, classification of property as real or personal may vary somewhat according to jurisdiction or, even within jurisdictions, according to purpose, as in defining whether and how the property may be taxed.

 

[R. Richard]

I don't see any contradiction here. Being lazy is a stupid choice, unless the lazy person has some kind of a lifetime annuity.

Tell it like it is!

 

[Huckleman2000]

Yes, and the subject of this thread is the good news that this is changing for the lower two-thirds.

Maybe I'm not making myself very clear; I know I'm getting sidetracked on things that aren't my central argument, which is this:

For middle-class workers, the shift is from pensions to such investment vehicles as 401k accounts. Pensions, historically, have been defined benefit plans paid mainly by employers as an employee benefit, and typically providing a health plan in addition to the regular check. 401k's, in contrast, are primarily worker-funded, and can be used by employers as (effectively) stock-sale vehicles, as in the case of Enron.

The shift to 401k's represents, first of all, a shift in both funding and risk from employers to workers, along with both tax and (potentially) capital benefits to the employer. The employees who reap the greatest benefits from 401k's are those with salaries large enough to contribute the maximum allowed percentage. Those who are unable or short-sighted enough not to contribute are no longer covered by any sort of retirement plan at all, apart from social security.

Additionally, the risk is shifted from employers (and, yes, unions) to the government in the form of pension guarantee corp. and the additional number of retirees that must rely solely on Medicare/Medicaid for health coverage.

I don't understand how you can see this as such a great thing, as it shifts risk away from private enterprise and to the government, and also shifts costs to employees along with eliminating a defined retirement benefit.

 

[SweetPrettyAss]

ami the individual ownership of real property, a right guaranteed by the American Constitution that is fundamental to other political rights.

please quote the section that says individual ownership of real property is a guaranteed right. what is 'real property'?--real estate (land)? or do you simply mean as opposed to 'imaginary property'?

please quote the part that says individual ownership of real property is fundamental to other political rights.

I think it would be the Fourth Amendment, which defends private property against government seizure. I believe he is saying that the Constitution is fundamental to other political rights.
http://usinfo.state.gov/usa/infousa/facts/funddocs/billeng.htm

 

[R. Richard]

Maybe I'm not making myself very clear; I know I'm getting sidetracked on things that aren't my central argument, which is this:

For middle-class workers, the shift is from pensions to such investment vehicles as 401k accounts. Pensions, historically, have been defined benefit plans paid mainly by employers as an employee benefit, and typically providing a health plan in addition to the regular check. 401k's, in contrast, are primarily worker-funded, and can be used by employers as (effectively) stock-sale vehicles, as in the case of Enron.

The shift to 401k's represents, first of all, a shift in both funding and risk from employers to workers, along with both tax and (potentially) capital benefits to the employer. The employees who reap the greatest benefits from 401k's are those with salaries large enough to contribute the maximum allowed percentage. Those who are unable or short-sighted enough not to contribute are no longer covered by any sort of retirement plan at all, apart from social security.

Additionally, the risk is shifted from employers (and, yes, unions) to the government in the form of pension guarantee corp. and the additional number of retirees that must rely solely on Medicare/Medicaid for health coverage.

I don't understand how you can see this as such a great thing, as it shifts risk away from private enterprise and to the government, and also shifts costs to employees along with eliminating a defined retirement benefit.

Let me explain the main benefit to the worker for something like a 401K plan. The worker OWNS the 401K plan. If the worker quits/gets laid off/gets fired, the worker takes the 401K plan benefits with him/her. [OK, it is not quite that simple, there are often items in the 401K that are not completely vested, but the principle still holds.] The worker can then "move" his/her pension to the next employer, assuming that the new employer offers a 401K. [The worker can also move a 401K to someone like a stock broker.] Thus, the worker owns his/her pension.

In the old "company pension" the vesting period for a pension was typically 20 years. If you were a worker with 18 years, you were a slave of the company for the last two years of the pension vesting period. If you refused "reasonable demands" by the company, you were "let go" and lost your entire pension.

Another nice feature of the 401K is that the worker can often self direct the 401K plan, at least to an extent. [e.g. A worker in his/her 20s puts the entire 401K plan money into stocks. A worker in his/her 30s puts 80% of the 401K plan money into stocks and 20% into bonds or money market. A worker in his/her 40s puts 70% of the 401K plan money into stocks and 30% into bonds or money market. A worker in his/her 50s puts 60% of the 401K plan money into stocks and 40% into bonds or money market. A worker in his/her 60s puts 50% or less of the 401K plan money into stocks and the rest into into bonds or money market.] Early on, the worker takes a bit more risk, hoping to build equity quickly and with time to make up any shortfalls/losses. Later on, the worker takes a bit less risk because the worker now has more money and doesn't need to take so much risk and has less time to make up shortfalls/losses.

 

[Huckleman2000]

Let me explain the main benefit to the worker for something like a 401K plan. The worker OWNS the 401K plan. If the worker quits/gets laid off/gets fired, the worker takes the 401K plan benefits with him/her. ...

Okay, I'll grant you that. I mean, who has any job security nowadays?

 

[Pure]

401 K history

rr, with all the hoopla about the 401k, neither you nor roxanne want to deal with the fact that the lower 80% are getting less and less share of total investment income.

indeed there is apparently a case to be made (i posted a ref) that the 401K investments are helping to drive the record rates of mortgage foreclosures, since they are a relatively illiquid asset.

as huck has suggested, the rise of 401Ks accompanies a *decline* in company pension plans, so the two have to be considered together.

as to history: in a nutshell, it was a longtime executive privilege to defer (reported) earnings and taxes on those earnings. 401K allowed ordinary workers NOT to pay tax on a portion of their income, if they more or less locked it into a retirement saving/investment plan (for use much later). that is my understanding.


http://www.401khelpcenter.com/401k/whitehouse_origin_of_401k.html

Toward a More Complete History: The Origin of the 401k

By Herbert A. Whitehouse. Mr. Whitehouse is Chief Fiduciary Officer at Sentinel Fiduciary Services of Orlando, FL.



Introduction
The origin of the 401k may not be the most important story in American history. But more than 20 years after this popular retirement vehicle was created, the true story has yet to be told.
The most common 401k tale told by the media today is that one man, Ted Benna,1 received the idea as a divine inspiration; and then something of a miracle happened, namely, the Internal Revenue Service (IRS) approved his idea. The story goes that American business then followed this prophet into the 401k promised land.

The reality is that at least one-and perhaps several-large, public companies began working toward IRS approval as early as 1979. I know, because I led the 401k project for a well-known company-Johnson & Johnson (J&J)-that was among the first, if not the first, major company to decide to establish a 401k plan for its workers.
[…]
We can pay homage to the struggles that Mr. [Ted] Benna reports he went through to get media attention for the idea he saw as his baby. But we should also remember that many others were instrumental in the conception, birth, care, and feeding of this new baby. In the case of the 401k, the cliché is true: Success had many fathers, and certainly not just one.

Of course, the real "fathers" of America's new 401k baby were the members of Congress who passed the Tax Reform Act of 1978. {NOTE: Carter was President: Congress was dominated by Democrats at the time}

I recall one meeting of the ERISA Industry Committee (a large-corporation employee benefits lobby group) meeting some two decades ago, at which Dallas Salisbury, president of the Employee Benefit Research Institute, introduced me as the "father" of 401k. In doing so, he jokingly reminded his audience that 401k really had 535 fathers-none of whom had even realized that a baby had been conceived!

As Mr. Salisbury reminded us 20 years ago, none of us can really claim to be the "father" of 401k. But the history record should now include all the "nursemaids" who had a part in raising this nascent benefit in those important years between 1978 and 1982.
In real life, I am the father of five children. But there is little in that title that reflects either where the real credit belongs, or the important work that went into the care and feeding of my children. The same is true for 401k. It took years of careful care and feeding by many professionals in the J&J nursery before this baby could be presented to the public. The 1981 proposed regulations promulgated by the IRS were the result of hard work. {NOTE: Reagan took office in Jan '81 and Republicans became a Senate majority}

I am proud that our team at Johnson & Johnson was ahead of the curve. As I looked at the tax code in 1979, I was fortunate to have had the benefits background to look broadly at wording many assumed to simply govern executive compensation. The rest was a long and professional team effort. Johnson & Johnson's management team at the time-Mel Benjamin, Mike Boyle, Hank Lager, George McDonald, John Brown, Mike Axt, Rob Keefer, Frank Bolden, John Heldrich-and the many other J&J people involved in this effort, were all important "nursemaids" (if not "fathers") in the early nursery where 401k was born.

 

[R. Richard]

rr, with all the hoopla about the 401k, neither you nor roxanne want to deal with the fact that the lower 80% are getting less and less share of total investment income.

I don't have any problem with the idea that the those in the lower 80% of the income curve are getting a lower share are getting a lower share of the total investment income. I have talked with guys who worked back when and the boss might make five times as much as a skilled worker [say $30K versus $6K.] Nowadays, the boss might make a million and the skilled worker $50K, a 20 to one ratio. Thus, the boss has a lot more to invest. With a lot more to invest, he is going to get a lot more of the investment income, assuming that he does invest, instead of pissing the money away. That is just a fact of life. If you want more money, become a boss.

Back when, a worker could get a decent car for perhaps $3K, half a year's wages. Nowadays, the same kind of decent car might cost $25K, half a year's wages. Take your time machine to backwhen and watch the $25K in your pocket shrink to $3K [big problem with time machines.] Walk into a dealership and tell the backwhen salesguy you want a fuel injected V-6 that produces 250 horsepower, a six speaker stereo system that plays CDs, an automatic braking system that prevents you from locking up the wheels during a hard stop, an on-board nacvigation system, etc. You wil wind up in the loony bin! What I an getting at is the worker iof today might not get as big a share of the investment income as the worker back when, but that share will buy a lot better things than the backwhen worker could even dream of.

If you are worried that the other guy is getting too much, that's your problem. My worries are getting myself what I want.

 

[Pure]

hi rr,

that was an interesting posting. are you saying, for a car, the situation for the worker is essentially unchanged.? (half a year's pay)

here are some figures that suggest the overall picture, since 401K.
while the lowest quintile gained [40%], the second and third lost [third or middle lost 15%]. the fourth and fifth, the highest (income) quintiles gained greatly [fifth quintile, 22%]

in sum it looks to me like the 'middle classes' are in a retirement squeeze. would you agree?

401 K history at the site of
employee benefit research institute
http://www.ebri.org/pdf/notespdf/1203notes.pdf

Median Annual Income from pensions and annuities, in constant 2002 dollars.
[Figure 5]

___________1988____2002 (second column)

lowest quintile 1697_____ 2400
--
second quintile 3345_____ 2520
--
middle quintile 7841_____ 6672
--
fourth quintile 14,270 ___ 15, 600
---
fifth quintile__ 22,811___ 27,933

 

[Roxanne Appleby]

Maybe I'm not making myself very clear; I know I'm getting sidetracked on things that aren't my central argument, which is this:

For middle-class workers, the shift is from pensions to such investment vehicles as 401k accounts. Pensions, historically, have been defined benefit plans paid mainly by employers as an employee benefit, and typically providing a health plan in addition to the regular check. 401k's, in contrast, are primarily worker-funded, and can be used by employers as (effectively) stock-sale vehicles, as in the case of Enron.

The shift to 401k's represents, first of all, a shift in both funding and risk from employers to workers, along with both tax and (potentially) capital benefits to the employer. The employees who reap the greatest benefits from 401k's are those with salaries large enough to contribute the maximum allowed percentage. Those who are unable or short-sighted enough not to contribute are no longer covered by any sort of retirement plan at all, apart from social security.

Additionally, the risk is shifted from employers (and, yes, unions) to the government in the form of pension guarantee corp. and the additional number of retirees that must rely solely on Medicare/Medicaid for health coverage.

I don't understand how you can see this as such a great thing, as it shifts risk away from private enterprise and to the government, and also shifts costs to employees along with eliminating a defined retirement benefit.

It's worthy of a thoughtful discussion, but you've left out an essential fact: The ownership has also shifted, not just the risks. You own your 401K and and can leave it to your heirs. This is a very meaningful change for most people.

Also, the idea that defined benefit pensions are without risk is not warranted. Indeed, there is no such thing a "risk free" in life, and never will be. Utopia is not an option. I explained above what a crappy deal the government run pension system is (social security). Defined benefit systems practically beg to be abused, and have been. Leaving taxpayers to pick up the peices with the woefully underfunded and politically manipulated PBGC is hardly a valid solution. Even when they are not abused, the assumptions on which they are based are flawed. ie., that "father company" will always be there to pay the pensions, that workers stay with the same company forever, etc.

Your point about some people being too short-sighted to plan for retirement could be seen as patronizing and elitist. It's true, however, and this must be taken into account. This is happening in various ways, the most recent being the change in the 401K law that allows employers to automatically make deposits unless an employee asks not them not to. What I don't accept is the notion that because some are not responsible, the government or some other entity must take away the ability from all to take responsibility for themselves.

(Last year I learned in November that an unnamed fellow employee had not taken advantage of a $1,000 401K match my employer was offering that year [we had a good year ]. I suggested to the HR person that if this individual was really that hard up the rest of us should take up a collection to allow him or her to not leave money on the table. The HR person talked to the individual, and it turned out he or she was ignorant, not poor. Problem solved.)

My anecdote suggests that I am sensitive to your point about the fact that there are those who are too poor to save. Not taking 12.6 percent of their wages for Social Security would be a terrific starting point (or instead shifting that 12.6 percent into a tax-free account that they own - an IRA or 401K, that is.)

I get expelled from the libertarian movement every time I suggest such a thing, but I might not be opposed to some income redistribution to boost this kind of thing. Believe it or not, most free market advocates like the idea of a society in which every citizen has acheived a decent standard of material comfort and security, and "owns a piece of the rock."

You mention several other concerns that are not central to the issue and are easily remedied - Enron using 401Ks as a "stock sale" scheme, for example. Easily remedied shortcomings do not detract from the overall attractiveness of people being in control of their own fates.

 

[Pure]

that an old conundrum, roxanne.

"control of one's own fate" is, let's say, a gain. one's standard of living may decline however.

see the table i just posted from the employee benefit persons. the second and third quintiles are losing (absolutely, IOW) in constant dollars.

it's like the idea "open a small business and become your own boss."
yes you have control. also your likelihood of failure is great. in the 'old days', say under Eisenhower, the alternative might be a secure job, preferably with union payscale, pension etc.

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PS. be careful, Roxanne, your progressive leanings are showing. do you really think there should be rewards to those RR calls 'stupid', and many on the right call 'lazy.' i would agree that SOME on the right want the least well off to do well; others like the current Repubs, simply talk a good line about 'little people' as owners.

your pals are going to be calling you dangerously statist and socialist (I see it as an influence from Murray; whose scheme, unfortunately does not seem workable.)

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rox I get expelled from the libertarian movement every time I suggest such a thing, but I might not be opposed to some income redistribution to boost this kind of thing. Believe it or not, most free market advocates like the idea of a society in which every citizen has acheived a decent standard of material comfort and security, and "owns a piece of the rock."