Posted by
FeargalX on Saturday, January 03, 2009 7:26:45 PM
Bad public policies (mostly advanced by Republicans) are creating a ticking timebomb in the United States. We are headed in a direction of massive numbers of elderly poor people.
First, understand that defined benefit programs are the only kind of retirement plans that provide "security." Market based defined contribution plans (like 401k plans) foster instability and destitution. The "winners" who are lucky enought to retire at the right time and be in the right fund (at the right time) do not balance out the losers. The "losers" create collateral human casualties that are ignored when measuring out a comparison between a defined benefit and a defined contribution retirement system. For example, even if a defined benefit and a defined contribution plan pay the same average of $3000 per month consider this comparison: which is better 10 people averaging $3000 per month, or 5 averaging $5000 per month combined with 5 with $1000 per month? The difference between living on $3000 per month and $5000 really is not much -- the difference between $1000 per month and $3000 per month is huge. You will be destitute living in many places on $1000 per month -- and whether you earn $3000 per month or $5000 per month you will be middle class in most of America.
The collateral costs of many poor people is they (and those who are impacted by them) support (and need) large social welfare programs and higher taxes. Many people who are in their 60s, 70s or 80s simply cannot work (or are not employable). While "conservatives" can rail against "class warfare" and "class envy" they are ignorant of the fact that the Republican Party helped usher in a major pre-cursor to Social Security -- pensions for people who served in the Union Army.
The Grand Army of the Republic lobbied and won this program. My great-great Grandfather in his 60s was able to receive the equivalent of about $1000 per month in recognition of his service.
Many former Confederate states passed similar programs for veterans in the late 19th Century.
Social Security will almost certainly be less of a benefit for future retirees since (1) people are living longer and longer and (2) fewer and fewer workers (for a variety of reasons) are going to be paying for Social Security. Over the past 40 years, Social Security taxes have increased a great deal -- but realistically they cannot increase a whole lot more.
I would figure on people in their 40s to receive about 2/3s of what the equivalent of current retirees will receive. The math would indicate that would be sustainable almost indefinitely. However, the difference between people in their 40s and those in their 60s is that a much smaller segment of retirees have defined benefit pension programs. Many countries have cancelled these programs and even many unions are giving up this benefit (most new U.S. autoworkers do not have a pension).
People fail to appreciate that the policies that have been advanced over the past 20 years are a radical departure from what America's retirees faced between 1950 and 2000. 401k programs are inherently desinged for wealthy Americans (they benefit much more than middle class Americans since the taxes they are deferring and much higher).
While historically people might be able to say over 100 years the stock market might grow at about 8 or 10 percent -- there have been periods of 20 years at a time where stocks went nowhere. Over the past 10 years, and index fund would earn you less than a CD based on current values.
This policy is very similar to the irresponsible policy of allowing large numbers of very poor illegal aliens to America in order to drive down construction, restaurant and agricultural wages. Once again, the collateral costs (what society pays for education, health care, incarceration and housing code violations) are ignored by Republicans since they make the claim that (as GWB said) that there are some jobs Americans will not do. What is actually true is that Americans will not do certain jobs for $4 per hour -- but an illegal alien who lives at the employment site will do this work.
Our middle class was largely built during an era where we cut off most immigration (from 1930 to 1960) -- it will likewise be destroyed with open borders and unfettered "free trade." Of course, it will benefit rich people and those who want to employ a full time maid, driver, gardener and nanny.