A 401(K) plan for everybody
Today in the New York Times, Tyler Cowen weighs in in favor of a universal 401(k). The basic idea: Create retirement plans with a government match for contributions. In theory, these plans could be run by private companies and chosen by employers, or they could be administered by the government. The universal 401(k) would one way to realize President Bush's vision of an "ownership society," without a big ideological confrontation over private accounts within Social Security.
Instead, we could have a big confrontation over how to pay for it.
The chief proponent of universal 401(k)s is Gene Sperling, former national economic adviser to Bill Clinton. In his version of Universal 401(k)s, the match would be financed by estate taxes. Cowen would strike a different bargain: Reduce government spending on Medicare and Social Security, by cutting or freezing benefits. Doesn't that just make "universal 401(k)s" privatization by another name?
It's holiday time... what can you give?*
Hanukkah starts at sundown tonight, and around my house that means that the holiday gift season is officially here.
Our oldest child is just big enough now to grasp the concepts of giving as well as getting. So my wife and I have been talking about ways to teach her, during this hyper-acquisitive month, some small lessons about charity. Which is to say, we're trying to teach our child to value something that, truth be told, we don't really value as much as we should ourselves. I've been doing some reading lately about charitable giving trends, and I've learned that I'm kind of a slacker.
Giving is actually a hot political topic this holiday. A new book by Syracuse professor Arthur C. Brooks, Who Really Cares: The Surprising Truth About Compassionate Conservatism, claims that conservatives are more charitable than liberals. (I haven't had a chance to read it, but this article seems like an even-handed discussion Brooks' findings.) But Brooks' data also seem to confirm something that other researchers have found: The affluent and middle-class are actually less generous than the less-affluent. A recent article in the Stanford Social Innovation Review puts it this way: "If 189,000 affluent (upper middle class and middle rich) [tax] filers age 35 and younger had donated to charity the same proportion of their assets as did their less-affluent peers, they would have donated an additional $2.6 billion, or 19 percent more than they actually gave." The gap is even bigger among older Americans.
Clearly, giving is about a lot more than just having a surplus of cash--or of warm feelings for your fellow man. So what stops people who could and should be giving more from doing so?
In my case, I'd say it's poor planning. Paychecks come in, bills get paid, but often I don't feel that I have a clear enough picture of my finances to be sure how much I could do without. But that's not an excuse, just a sorry explanation.
So I'm going to try to do better this year, and I'd like readers' advice on how to do it. What do you think? Should I only give after I've carefully set down my household budget to see how much slack I have? Or is it better to first decide how much to give and then just make it work? And if it's the latter, how do I come up with the right number?
And since this is a political blog, I'd also be curious to know this: Does the tax deduction on giving motivate you to give more? If the working poor, who usually don't itemize or qualify for deductions, are good givers, maybe it's not so important. Or turn the question around: If the tax code changed so you could always deduct charitable giving, whatever your income, do you think you'd give more?
Update (12-17): Ethicist Peter Singer asks What Should a Billionaire Give--and What Should You? in today's Times magazine. Singer calculates that if the top 10% of earners in the U.S.--those earning $92,000 a year and up--gave their "fair share" it woud add up to $404 billion a year. That's more than 10 times U.S. government economic and military assistance to the rest of the world.
*With apologies and gratitude to the Baby Bard of Brooklyn, Dan Zanes.
Boomers and retirement: Trouble ahead!
Boston College's Center for Retirement Research has surveyed employers, and they predict that half of their Boomer workers won't be financially ready to retire at the traditional age. Not surprisingly, many of the employers also say that a big chunk of those Boomers will want to keep on working.
Working after the age of 65 can make a lot of financial sense. If you can do it, that is. I wrote a fairly upbeat article about delayed retirement a year ago, but the more I reflect on it--and the more reporting I do on this beat--the more skeptical I am that employers will happily welcome older workers as more Boomers hit their 60s. Management gurus and HR consultants often warn of a coming labor shortage, but of course it's their job to scare employers into thinking they'll need help finding good workers. As I wrote last year: "Peter Cappelli, an economist at Wharton, does think more older workers will stay on the job. But, he notes, hiring them won't be the only option for employers. Just behind the busters [the smaller group of workers born after the Baby Boom] is a huge group of new workers: the boomers' own kids. And taking on older folks is just one way for companies to deal with a tight labor market; they might invest more in technology or ship jobs to Bangalore."
Beyond the macroeconomics, there's the human factor. I've talked to lots of laid-off professionals in their 50s and 60s, and they complain that its hard to get younger managers to take them seriously. This is particularly tough on the most accomplished people, such as those who have run departments or even entire companies. There are only so many positions near the top of the pyramid, and once you get knocked off it's hard to climb back on. Meanwhile, you've spent the past 15 or 20 years focusing on management tasks, so your technical skills (which you'll need to find work lower down on the pyramid) might have grown stale. And even if they haven't, age discrimination is common enough that you won't get the credit you deserve for what you can do.
The growing importance of technology at work, and the breathtaking pace of technological change, may only make this worse. I'm just 35 and relatively tech-savvy--hey, kids, I'm blogging!--but I often feel like there's a huge gap between myself and people in their 20s. I struggle to get my head around new Web applications such as social networking, and I'm sort of amazed and often a bit disgusted by the ability of the young'uns to multitask. Not long ago, and to my mild shame, I lost my temper with someone who, on the phone, sounded youngish, and clearly was both reading emails and finishing up a conversation with someone else on a cell phone. (In my day, phones connected to walls and we had to talk to one person at a time... and we liked it!) So how am I going to do fifteen years from now, when all of the kids coming out of college have communication chips implanted in their skulls and nobody gets my Dana Carvey references anymore?
Wait... that last part has already happened.
How to make college less risky
On Friday, I wrote about the financial risk of going to college. It seems to have struck a chord with readers. For more (and better) thoughts, check out this December 3 blog post from giant-brain University of Chicago economist Gary Becker. He suggests that perhaps student loan repayments should be based on graduates' earnings, rather than fixed interest rates.
Congress chokes, and it costs you money
The 109th Congress didn't manage to pass a budget this year, so the incoming 110th Congress will have to do it instead. So what? Douglas Holtz-Eakin, the respected former director of the Congressional Budget Office, explains it all in this Sunday radio interview.
One problem with kicking the can down the road, says Holtz-Eakin, it that everything gets lumped into one big bill that has to be passed in a hurry. That increases the odds that porky earmarks will get attached. And that raises your taxes. Or more precisely, since we seem to have abandonded the idea of paying for government on a real-time basis, it raise your children's taxes.
Update: The Dems say no earmarks this time. For real? Reason blogger David Weigel thinks maybe.
Is it risky to go to college?
Who doesn't think college is a good thing? In their "100 Hours" agenda, the House Democrats say they'll try to cut interest rates on college loans in half. One Washington Republican complains to me this "won't help anyone go to college... it's nothing but throwing money at the middle-class for voting D." But even among conservatives, the conventional wisdom is that post-secondary education and retraining can help Americans cope with the "creative destruction" of jobs and businesses that comes with globalization and technological change.
Still, going to college is no guarantee of economic success. In fact, it's actually a risky thing to do, says Yale political scientist Jacob Hacker.
This sounds weird--nearly every middle-class kid has it drilled into his or her head that college is mandatory--but it makes perfect economic sense. You can't have reward without risk. And of course the potential rewards of going to college are enormous.
In a recent interview with me, Hacker was at pains not to say that going to college is a bad idea. On average, those who go to college do better than those who don't. But look past the averages: The range of outcomes for college grads has been getting wider. In other words, if you look at college grads as a group, the richest grads are getting richer than the poorest grads.
Hacker points to a couple of reasons that college is becoming more financially risky. First, it's a significant money investment. In his book The Great Risk Shift, he observes that in 2003, some 58% of public-university grads had student loan debt, up from just 25% in 1993. Tuitions at public colleges have been climbing at a fantastic rate in recent years. Obviously, the more you pay to go to college, the more it hurts if you don't have a successful career afterwards.
Also, many careers today require highly specific skills, many of which you learn in college. But some skills can become obsolete. "A person who works as an advanced technician in the computer software industry has invested [his] human capital in a specific line of work," says Hacker. "If that line of work dries up, those investments are stranded."
The widening gap between the most successful and least successful college grads isn't altogether surprising. The percentage of American adults with a college degree has more than doubled in 30 years. With more kinds of people going to college, you should expect more kinds of results. (A point Clive Crook makes far more elegantly in this subscription-only Atlantic article summarized here.) But that just means that there's even more at stake when we talk about higher-education policy.
We could reduce the risk of going to college by making it more affordable, or, as Hacker suggests, by providing better social insurance to protect people who have found that their training is now outdated. We may also have to do more to ensure that we're getting our money's worth. The Bush administration has been pushing for higher standards in higher ed; New Democrats Bruce Reed and Rep. Rahm Emanuel would tie increased college aid to greater accountability from colleges with regard to graduation rates.
But let's not just focus on the high-cost, four-year residential college model. We need to be less snobbish about community colleges, which provide real training for real jobs, at a fraction of the cost. Which is to say, with a fraction of the risk.
Update: Speaking of financial risk and college...
Quick hits: Medved feels your pain. Libertarians want new friends.
The conservative radio talker Michael Medved notices that middle class voters are anxious about money. He acknowledges it. He relates. He says conservatives really have to address this. How? Apparently, it's time to explain the free market to the people again. Except. More. Slowly. This. Time.
Meanwhile, Brink Lindsey of the free-market Cato Institute sees room for small-government types to cut a deal with liberal Democrats. They might even be able to get behind expanded "social insurance" programs, including wage insurance. He'd still cut back Social Security, though. Lindsey argues that Social Security and Medicare--the two biggest social insurance programs we've got--don't really count as insurance. Since everybody knows they are probably going to get old and need medical care, he says, it's not really a risk that needs insuring. You just have to be responsible and prepare for it.
That's a good argument. A question, though: Just because I'm pretty sure I'll get both old (I hope) and sick (I'm resigned), that doesn't mean I know exactly how old or how sick I'll get. Don't I still want some insurance against the extremes? I can save enough on my own to live to, say, 90, and I might be able to set aside enough money to pay for doctor's visits and prescriptions in old age. But what if I make it to 100 and have a few very expensive strokes along the way? Can't government help me get insurance--not a hand-out--to protect against the cost of that?
Whaddaya mean "Generation Risk"? (And am I in it?)
Welcome to Money's new blog on money and politics. It's best to start, I think, with a word of explanation about the slightly grandiose title we've chosen for it.
When my editors at Money magazine asked me to do a political blog, the first question I had to ask myself was, "What does a reporter from Money bring to this discussion?" We're not a political magazine, and there's a whole range of important economic issues that obsess Washington, but about which I have nothing special to say. You won't be reading about telecom legislation, accounting standards or patent law here.
What we do know at Money? Middle-class pocketbook issues: Health insurance, retirement, college savings, retirement, taxes, jobs, money management, and retirement. (Did I mention retirement?) And over the past several years, we've noticed something: This stuff is getting harder to manage. The results aren't necessarily worse. But it is undeniably a lot more complicated.
Take--ahem--retirement. Are traditional pensions better than 401(k)s? Well, not if you worked for United Airlines. But if you've ever sat down with your company's 401(k) plan booklet and puzzled over which of 30 different mutual funds you should entrust with your retirement, you've probably had this thought: "I could really, profoundly, and spectacularly mess this up." In other words, the risk is on you, not your employer. You not only have to live with this risk; you have to learn how to manage it.
You're in Generation Risk if you've ever wished that someone could help you pick the right funds for your retirement. You're in it if you wonder whether you should save even more because Social Security and Medicare benefits might not be there for you. You're in it if you've been watching your co-insurance payments go up while your health-care choices seem to dwindle. You're in it if you worry that your kids won't be able to go to your local state university without piling on huge debts.
Some decisions made in Washington may leave you exposed to more risk than you can handle. Others might protect you from risk, but at the expense of shutting off far better opportunities. In between, there are lots of interesting policy ideas, from both sides of liberal/conservative divide, which could help make the new risks more manageable. (I've written about some of those ideas here and here.) This blog will cover all of the above.
And it's a great time to kick it off. In the coming year, expect the debate about risk to get louder. The Democrats have won Congress, and they're buzzing about "The Great Risk Shift" , an important new book by political scientist Jacob Hacker that argues that ordinary Americans are very much worse off thanks to the rise of risk. (More on Hacker in a coming post.) Republicans, meanwhile, must be thinking hard again about how to make the flip side of risk--opportunity--more visible in their policies. Here's an excellent start, written before the election, from the Weekly Standard. We'll have lots to talk about.
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