Assorted links


With respect to Canadian currency melting in the heat - this could be viewed as an unintended anti-inflationary measure. Paper-based currency can be destroyed by insects, mold, and being eaten by household pets, taking currency out of circulation. Polymer currency would survive these insults, and thus stay in circulation longer. Completely indestructible currency would result in a microscopically greater inflation rate.

Actually, a case can be made for the opposite: Self-destructing money is uncannily akin to "stamped money". People spend quickly, before it self-destructs. This should be a great inflation promoting device, effective near the zero bound. Happy days could be near again. :-)

re #6: yup. Excerpt:

"After many decades of decline, average retirement ages have already been creeping up in the past 20 years.

A recent survey by the Conference Board found that nearly two-thirds of Americans ages 45 to 60 say they plan to delay retirement. Two years earlier, 42 percent said they would work longer."

Do the math- this is the only solution. America, with less of a nanny state than most European countries, does not shield its people from these inconvenient truths to the same extent. Ergo, we're gonna handle this better. Didn't the Socialists in France just reduce retirement ages? Good luck with that.

I recently was chatting with an elderly fellow who worked 22 years at the local smelter, and had been retired for 33 years. The pension administrators surely hope he is an outlier. In the 70's I lived in a smelter town in eastern canada and knew of many men who retired at 65 then being actuarially prudent died a year later.

I suspect we will be seeing the rumblings of discontent when the only experience people have of early retirement is their government employee neighbors and acquaintances.

I think the taxpayers v. public sector union showdown is already in progress. See, e.g. Wisconsin 2012.

Isn't it neat how we can read the same article and have such different take-aways?

First, let me fix the title of the link "we're not as well off as we thought we would be" ... I swapped out the wealthy since I don't think most people integrate their human capital in wealth and it's so key to retirement preparations. The point of the article is to explore the fact that "a majority of Americans are headed toward a retirement in which they will be financially worse off than their parents, jeopardizing a long era of improved living standards for the nation’s elderly." There's much about how limited saving for retirement is and how individuals now are responsible for the planning and bearing the risks (few DB pensions and various tax stuff to think about)...but none of that is really new. What's new? The Great Recession...a big hit to households earning potential, maybe even unemployment (and for the lucky ones their 401(k)s) and then meager wage growth (and poor returns on their remaining low risk assets).

I think the story should have been about the last anecdote and showing how it was an advance version of what applies to many near retirement:

"James G. Marzano, 60, was on his way to a comfortable retirement when he lost his job at a telecommunications firm in 2002. “People talk about a lost decade; that’s what I’ve been through,” he said.

Marzano, a Tampa resident who is married to a retail worker and has a son who is a high school senior, spent most of the past decade in and out of contract jobs and other posts that paid far less than he was used to. He was forced to dip into his 401(k) account to make ends meet, and even now that he has found a good job, he says, his savings is maybe 60 percent of what it was 10 years ago.

“If everything had stayed status quo from 2002 until 2012, I might be doing what I wanted to do today,” he said. “But, as it stands, I am nowhere near ready to retire.”"

He didn't want another bubble in house prices or easy credit with 'no strings attached' ... just the well paying job he once had. The 'nanny' state for all its flaws has the ability to smooth large macro shocks across a way individuals rarely can. It will be interesting to see how our relatively more hand offs approach to retirement deals with the broad based impact of the recession. Absent the recession (and even the housing bubble before it) I doubt there would have been a story to write.

So this macroeconomic shock came in 2002?

Yeah, fuck him. He lost his job, the loser.

I'll be the outlier and get rich and have nothing to worry about... somehow...

Cliff, there was another recession back in 2001. My point was his basic experience is being repeated many times over now following the deepest recession since the Great Depression. Anecdotes are useful if they exemplify a complicated problem well.

" What’s new? The Great Recession…"

Claudia, the evidence doesn't back this statement up in any way what so ever. The examples specified really have nothing to do with the 'The Great Depression' outside of the possibility that they are both symptomatic of the same root cause.

" just the well paying job he once had. The ‘nanny’ state for all its flaws has the ability to smooth large macro shocks across generations"

The 'nanny' state only works if your economy can provide the well paying jobs required to fund it. The 'nanny' state doesn't work at all if the underlying economy is moribund. If it did, France and Italy would be booming.

Oh no you don't. If you and others want to live the fairy tale that people under financial stress are all profligate, lazy bums getting their just deserts, fine. But don't tell me the 'data' is on your side. Losing your job, becoming skill obsolete is a serious negative shock that almost no one saves enough to smooth through. Yes, of course these shocks happens all the time, but they happened with even more frequency in the recession. The article also quoted the large loss of wealth in the recent past, so there's more data for you. I don't think we can smooth through all shocks, re-adjustment is necessary too. Bad things happen to good, responsible people and I don't like the ex-post labeling them as losers.

"Oh no you don’t. If you and others want to live the fairy tale that people under financial stress are all profligate, lazy bums getting their just deserts, fine."

You are beating up on a straw man here. I never said nor implied that the unemployed are a lazy bums getting their 'just deserts'.

"But don’t tell me the ‘data’ is on your side." I was pointing back to the very 'data' you referenced in your own post.

Ergo: "The Great Recession…a big hit to households earning potential" which is generally considered to have started in 2007.

And then the referenced "Marzano...lost his job at a telecommunications firm in 2002"

from you below: "'What we needed in 1999 was more ant, less grasshopper.' I would say that’s still true in 2013." That's exactly the straw-headed logic I was pushing back against. Plenty of ants get stepped on ... that doesn't turn them into grasshoppers does it?


saying somebody miscalculated or was imprudent or acted on the theory that they were richer than they actually were is not to demonize these people as losers. You are introducing a dimension to this argument that I didn't put there- you're usually much better than this.

what stories do you have about real ants, people who did not overextend themselves or go eyeballs up in debt, people who saved money against the seven lean years, who are now screwed? I'm sure there are some, but that is not close to the real story of what happened in this country for most people.

what really gets me is the large segment of economists who spend their whole lives demonizing the ants as anti-social hoarders, and encouraging grasshopper behavior and making excuses for all manner of irresponsible 'keeping up with the joneses' behavior, you know, for the sake of precious AD.

It's a sore subject. I understood why the financial system had to be saved in the crisis...I never understood why that argument to the same degree didn't extend to households. I think we are seeing the 'fruits' of that asymmetry in many places now. There are many example of hard-working, frugal people who got screwed in recent years, but your narrative is not without some truth too. I don't demonize any types of people...I just try to see their environment, including shocks, too.

" I understood why the financial system had to be saved in the crisis…I never understood why that argument to the same degree didn’t extend to households."

The counter argument for that would be: Extended unemployment benefits, government mortgage credits, programs for mortgage assistance, two year FICA tax reduction and many other stimulus programs. There were various Federal programs to mitigate the effects of the recession.

However, the root cause on Middle Income wage decline was not The Great Recession. Middle Income wages started dropping over a decade ago (1999) and the underlying downward pressures certainly go back further than the inflection point on the graph. Various expensive stimulus programs aren't going to mitigate structural issues.

Actually the counter argument would have been a massive jobs/re-training program for the unemployed, a turn-in-your-keys initiative for the deeply underwater (or serious restructuring of those mortgages), and monetizing debt through inflation. the bailout of the banks/financial system was not business as usual (in macro stabilization terms)...the programs for households were pretty run of the mill.

I completely agree that are long-standing problematic trends to address too (growing income inequality, slowing educational attainment, technological stagnation, demographics, limited financial literacy paired with more financial decisions, etc.). my argument was that spotlight on the problems of households was amped up by the shocks in the recession.

But why should the story not have been about this part? to wit:

'Numerous studies have found that workers with defined-contribution accounts often put aside too little money, make too many withdrawals or employ the wrong investment strategies to save enough for old age. . . . Officials at money-management firms that handle 401(k)-type investments argue that the tools are in place for Americans to retire comfortably. The problem, they say, is that employers and workers are not using them correctly.

Robert L. Reynolds, president and chief executive of Putnam Investments, noted that 2006 changes in federal law gave employers the power to automatically enroll workers in retirement accounts. But too few choose to do that and even when they do, companies typically set aside only 3 percent of pay — far less than the estimated 10 percent that experts say workers need to set aside to fund a sound retirement.

“I would be adamant that there is nothing wrong with 401(k)s that can’t be fixed by taking better advantage of the current system,” Reynolds said.'

We know far less about Mr Marzano than we'd have to, to learn whether we should be playing violin for him. If he's 60 with a high school senior in the house, did he marry late? Mr Marzano looks well fed and stands inside a sturdy stockade fence: is his house too large by several hundred square feet? What telecom firms would not hire him after 2002? What investments along and along turned so sour, and when? What kind of life was Mr Marzano living or enjoying in the 1960s, 1970s, 1980s? I have never acquired the habit of extending sympathy simply because a media outfit solicits it on someone's behalf.

This is an important issue too, but not the reason, in my opinion, current/near retirees of the being financially worse off now. The brunt of this recession is not just being felt among those who saved little or who are close to retirement. For the vast majority of households their labor earnings are their most important asset and saving for retirement (even optimally) can start pretty late in life. Low earnings growth and high unemployment right in those years of preparation are a big problem. The 401(k) with individual control may have amplified the problems, but they are not the headline, in this case.


Sounds like competing narratives. People who think about retirement finance for a living have been banging this drum for a while now.

Here's a seminal article from 2003, the result of years of analysis prior to that time:

Promises for lifelong pensions and health care benefits were made in the 1970s and 1980s, when health care was a fraction of its current costs and interest rates were close to double digits. This was always untenable. Companies have been forced to acknowledge these costs in a realistic fashion, so they got the memo a long time ago. Nobody's happy when companies move these costs and risks to employees, but hey, they ain't running no charity- they have to be responsible with their promises.

To this day, in the public sector, almost nothing has been done to address these promises. At the federal level, Social Security has been cut back and will be cut back more, and it looks like we might get changes to Medicare as well to make it more viable. But at the state and local level, massive denial reigns.

Promises that don't hit as cash for decades are, IMO, an excellent case study for understanding poor governance in the public sector, and the pernicious agency problems that public choice economists have been on about for some time now.

And this: "The ‘nanny’ state for all its flaws has the ability to smooth large macro shocks across generations." Hocus pocus, I say. The Baba Boomers are in the process of perpetrating a massive intergenerational rip-off based on this fuzzy thinking, but by the time the crap hits the fan, they'll be gone.

In other words, my sympathy for the current crop of 60 year-olds is pretty limited. These people, like all Americans (me, for example) have not paid what they should have in taxes over the past 11 years of 'anything goes'.

I was there in 1999- I remember it well. The stock market was producing 15% per year like clockwork for the previous two decades, everyone was gonna retire at 40. (There were sane voices, like Warren Buffett, but back then, he was an old man who didn't 'get it'.) In retrospect, we weren't nearly as rich as we thought we were. And we made decisions on that faulty basis. What we needed in 1999 was more ant, less grasshopper. But OMG, that might have hit GDP! As you sow, so shall you reap.

"What we needed in 1999 was more ant, less grasshopper."

I would say that's still true in 2013.

He was forced

If he lived like a man who wanted to be retired for 30 years he would [probably be in good shape. He will be fine. I have been in the bottom 25% of earners and the top 2% of earners and it is better to be in the top 2% but not that much better.

#6: At inception, no mandated retirement benefit package anywhere on the planet was intended as an end-of-life vacation. It was merely insurance against the rare event that you lived longer than you were able to work. Gravy came only much later, with the post WWII baby boom.

Welcome back to the real world: Plan to work longer, procreate more, or save more! [Another impossible trinity.]

As someone nearing "retirement age" I tell my children that if they are not pissed at their elders now they will be in a few years.

Solutions include living more simply and more frugally, working longer, adjusting the "official retirement age" upward in light of increased longevity, going Galt, going mini-Galt, and enjoying the decline.

Solutions do not include increasing retirement benefits at the expense of younger people.

Screw the insurance company AARP - it does not speak for me.

"Solutions do not include increasing retirement benefits at the expense of younger people."

Indeed. Class warfare is one thing, and western civilization is at least familiar with that. Generational warfare will be less pleasant -- particularly since it is tinged in the U.S. with ethnic changes as well.

You don't have to be much of an economist to think that $1000 spent on well baby care is a better investment than $1000 spent on someone in their 60's (my age).

" Generational warfare will be less pleasant — particularly since it is tinged in the U.S. with ethnic changes as well. "

Tinged so in most countries I would think. Japan, China and Korea may be exceptions. Everywhere else in the rich countries there are a lot of old white people and a lot of darker, younger, immigrants.

And as usual the whole article misses the macro-economic and demographic issues (which posters above notice (:-)

To wit: It doesn't matter how much you save, you will be buying the output of the still-working to afford your retirement. If there are too many retirees per worker, all of the "money" in the world won't help.

Likewise the fallacy that defined benefits pensions would be better - if BigJobCo implodes, whether via bankruptcy or not, then what you get for a pension is all down to what was set aside or refilled by insurance. And then you have the same problem as above - even if your defined pension pays "lots", inflation in general or inflation in the particular things the retired you needs to buy, will be a problem.

The ONLY way out of this (for society as a whole) is for savings to be actually invested rather than just transfered, and for productivity and total output to grow.

Data? Since when don't we have the output capacity to keep everyone pretty well fed, housed and probably decently entertained?

Here is your data:

Sorry didn't see anything about our production capacity potential. Show me the destroyed factories, the bombed out shopping malls, the ravaged business centres...

Production capacity has two components. You've sited examples from one of those two....

"I am the Great Cornholio, I want t.p. for my state park!"

From the Washington Post article:

Then the downturn destroyed 40 percent of Americans’ personal wealth,

Technically speaking that's true, but what the article doesn't say is that much of the (destroyed) wealth consisted of equity that had been created by hyperinflated, unsustainable house prices. It wasn't the sort of wealth that the holders could reasonably rely upon for retirement funding.

Yep, that's a highly misleading statistic. The whole article was pretty weak.

Unfortunately, the problem is real.

Re #6: it's a shame those people didn't have the forsight to chose better careers. We'd better just tell them they're zero marginal product workers, victims of a great stagnation, and because we're not as wealthy as we thought we were, there's nothing we can do for them, better luck next time.

I suggest you donate to a charity.

#6: I've been threatening an essay to the effect that Tom Brokaw could not possibly have told the truth in labelling the WWII generation "the greatest generation". The proof I would adduce: that cohort gave birth to the Boomers. --in which case "the greatest generation" (of the 20th century, at least) was the generation of WWI-era Americans that gave birth to the WWII generation: the WWI-era cohort produced the generation that fought WWII, while managing the domestic scene well enough to produce the post-war economic and political posture that the WWII generation and its broods have since . . . managed.

Boomers as a cohort seem really to have fallen deeply and uncritically for the socio-political nonsense spoken of so freely in the 1960sff., aided and abetted by vastly overenthusiastic drug consumption, from every appearance. They've carpe diemed themselves into a nice nice fix. Let them eat brown acid.

Re #4: I am inclined to think visitors to Hearst Castle are so horrified by the hideous edifice and its decor that they defecate.

I disagree Hearst Castle is surprisingly attractive once you get into the vibe. A friend of mine's uncle asked me what I thought of it and I remember saying: it is like visiting Satan's lair and realizing he wasn't a bad interior decorator. I guess the real question is how much do you like medievl Spanish ceilings?

More generally, Sacramento might consider additional detail for its model before making decisions--is the park (eg Santa Monica) close to non-park amenities? Is wilderness-excretion socially unacceptable (eg hearst / big sur being right off the highway)? Does the park have a greater proportion of "serious" outdoors-people, more likely to use nature's facilities (clearly *not* hearst)?

Also, I'm a little impressed at how low the tp budget is, considering CA spaces are collectively bigger than most US states. But I suppose it doesn't include county/town/municipal spaces, nor all the national forest/wilderness/park area? We need a more complete tp accounting.

What's the super-bulk rate for buying the lowest-quality tp ? How much can $250k buy, anyway?

#4 in all my years going to Cali state parks, I think I have only used toilet paper at Hearst Castle, even though I have been there exactly once. Most of the other parks have such terrible restrooms I would never imagine going there. Most with only terrifying outhouses that were rarely emptied or cleaned and almost never had toilet paper at all. I have to question this metric.

#6 Fuzzy math:

"Someone making $200,000 a year and contributing 15 percent of pay to a retirement account would receive about a $7,000 subsidy from the federal government in the form of a tax break, whereas workers earning $20,000 making the same 15 percent contribution would get nothing because they don’t earn enough to qualify for a deduction. Someone making $50,000 and making the 15 percent contribution would receive only about a $2,100 tax deduction."

7/200 = 3.5% effect for the high income taxpayer
2.1/50 = 4.2% effect for the middle income taxpayer.
That looks progressive to me -- less % tax break for the high income taxpayer.

If we look at the tax break as a percentage of the 401k contribution,
7/(200*15%) = 23.3% for the high income taxpayer
2.1/(50*15%) = 28% for the middle income taxpayer
Again, we have the progressive effect.

Plus, the high income taxpayers (plural because you can't get to a 15% -- $30,000 -- contribution to a 401k unless there are multiple taxpayers) are much more likely to run into employer limits which means they won't be able to put 15% ($30,000) into their 401k. My employer refunds thousands of dollars of my contribution each year because our plan isn't attractive enough to get enough lower paid employees interested.

It's worse than that. The tax subsidy in these plans is not the upfront deferral of taxes, it's the value of the 'tax-free inside build up'. Distributions are fully-taxable, so a 'Roth' plan, which provides no upfront tax deferral but allows tax-free distributions, is equivalently valuable, assuming constant tax rates.

This isn't how the 'tax expenditure' is scored for budget purposes, though, so a provision allowing for Roth conversions, included in the fiscal cliff legislation, was scored as a 'revenue raiser'. Nor is it how these plans are represented in the media, as the WP article illustrates.

" a provision allowing for Roth conversions, included in the fiscal cliff legislation, was scored as a ‘revenue raiser’."

I'm happy to see that our legislature is as ignorant about TVM and basic arithmetic as the general populace.

When will we learn that tax relief should only go to those who don't pay taxes?

I'm bemused by the apparent assumption that a person making $20K can afford to put $3,000 yearly into a retirement account.

Does it help to know that someone making $20,000 per year doesn't have to put anything into a retirement account, because Social Security will likely provide a reasonable retirement income on its own for such a person?

Well I guess it depends on how you define reasonable, doesn't it.

My point is that this guy is wringing his hands about tax benefits for the guy making $20K. The author is not thinking like a person who makes $20K. The guy making $20K has significantly more pressing financial problems than "I don't get an adequate tax benefit from my 401k." At that income level I suspect that you'd need a dollar-for-dollar rebate -- essentially a gov't provided 401K -- to convince most people to put 15% of their incomes into a retirement plan.

A guy retiring at 65 who made $20,000 in 2012 (something close to a 'career minimum wage employee': does this guy even exist?) would receive $11,576 tax-free from Social Security in 2013, with cost-of-living increases thereafter, and Medicare too, of course.

Feel free to consider this 'not reasonable'. To me, this pushes at the upper limits of where I want my nanny state.

So, I don't see the system making huge savings demands, or much of any savings demands really, on the low-paid, and the fact that someone making $20,000 can't afford to save $3,000 doesn't trouble me.

Your larger point is a fair one. The public policy rationale for the 401(k) tax expenditure, the way I see it, is not as a tax break for the rich, who are gonna be fine- it's an inducement for the middle class, for whom Social Security ain't gonna be enough, to make up the shortfall. As a taxpayer, it's not obvious to me that this tax expenditure is money well spent, but the analysis is much more complicated than most people consider. Under a tax regime with favorable capital gains taxation, for example, it's quite possible that the 401(k) system is not a good deal for high-margin taxpayers who invest in stocks (which skews toward the rich, who are better positioned to absorb the risks of this strategy), since 401(k) distributions are taxed as ordinary income regardless of how the money was invested.

I used the quick Social Security calculator at and a salary of $20,000 seems to get you a monthly benefit of $800 ($9600 per year). (born 1950, retire 2017) Whether this is "a reasonable retirement income on its own" is questionable. Poverty level is $11,700 (1 person HH).

I think you're doing it wrong. This guy is retiring at age 67 in your example. You have to make an assumption about COLAs. He'll entitled to five years' worth of COLAs at age 67, plus an 8% bump for a 'delayed retirement credit' since the normal retirement age for someone born in 1950 is 66. Assuming 2% annual CPI growth, I'm getting $1,074 a month ($12,893 a year) as the 2017 payment for this guy (assuming pay tops out at $20K in 2016.)

1 in 4 retirees currently rely on Social Security for at least 90% of their income- I don't think there's an epidemic of poor old people in our country today.

The difference between your figure and mine seems to be that I'm using constant dollars and you are using future dollars (The SSA site will do either.) Since I wanted to make the comparison to the current poverty level figure, I thought constant dollars was more appropriate.

It's worth noting that one source of "inadequate retirement savings" is the lack of real growth in peoples' existing portfolios of savings. That's the result of deliberate government policy intended to incent people to spend rather than save by dropping interest rates. "Financial repression" implies direct harm to some.

In other words, when the governments of the world all drop interest rates, then the interest rates paid on retirement savings drops. The victims are both those who depend on that income to live right now and those who are depending on that income for their savings to grow so they can support future retirement.

I suspect that many of the "undersaved" would be in better shape to retire if the last decade had been one with a real interest rate of 3%, given that many apparently use cash and near-cash (CDs, short-term bonds) accounts to save with.

This is a test of the forum system. In the event of a real emergency you wouldn't be reading this.

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