Paul Krugman: Think about it: Has anything done as much to enhance the dignity of American seniors, to rescue them from the penury and dependence that were once so common among the elderly, as Social Security and Medicare? Inside the Beltway, fiscal scolds have turned “entitlements” into a bad word, but it’s precisely the fact that Americans are entitled to collect Social Security and be covered by Medicare, no questions asked, that makes these programs so empowering and liberating.

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http://www.bing.com/images/search?q=images+mammon&qpvt=images+mammon&FORM=IGRE#view=detail&id=C715B9B0CA73F31CE3C69DCD49FFBA6E5680BFB5&selectedIndex=92

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http://www.nytimes.com/2014/02/14/opinion/krugman-inequality-dignity-and-freedom.html?ref=paulkrugman&_r=0

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So what would give working Americans more dignity in their lives, despite huge income disparities? How about assuring them that the essentials — health care, opportunity for their children, a minimal income — will be there even if their boss fires them or their jobs are shipped overseas?

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Conversely, the drive by conservatives to dismantle much of the social safety net, to replace it with minimal programs and private charity, is, in effect, an effort to strip away the dignity of lower-income workers.

And it’s something else: an assault on their freedom.

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Modern American conservatives talk a lot about freedom, and deride liberals for advocating a “nanny state.” But when it comes to Americans down on their luck, conservatives become insultingly paternalistic, as comfortable congressmen lecture struggling families on the dignity of work. And they also become advocates of highly intrusive government. For example, House Republicans tried to introduce a provision into the farm bill that would have allowed states to mandate drug testing for food stamp recipients. (A commenter on my blog suggested mandatory drug tests for employees of too-big-to-fail financial institutions, which receive large implicit subsidies. Now that would really cause a panic.)

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http://www.nytimes.com/2014/03/07/opinion/krugman-the-hammock-fallacy.html?ref=paulkrugman&_r=0

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Over all, here’s the verdict of one comprehensive survey: “While there are significant behavioral side effects of many programs, their aggregate impact is very small.” In short, Mr. Ryan’s poverty report, like his famous budget plan, is a con job.

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Mr. Ryan would have us believe that the “hammock” created by the social safety net is the reason so many Americans remain trapped in poverty. But the evidence says nothing of the kind.

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Which brings us back to the hypocrisy issue. It is, in a way, nice to see the likes of Mr. Ryan at least talking about the need to help the poor. But somehow their notion of aiding the poor involves slashing benefits while cutting taxes on the rich.

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http://baselinescenario.com/2014/03/05/poterba-retirement-security/

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James Poterba wrote up a very useful overview of the retirement security challenge in a new NBER white paper. (I think it’s not paywalled, but I’m not sure.) He provides overviews of much of the recent research and data on life expectancies, macroeconomic implications of a changing age structure, income and assets of people at or near retirement, and shifts in types of retirement assets.

In the past, I’ve used the Federal Reserve’s Survey of Consumer Finances as my source for data about the inadequacy of many households’ retirement savings. Poterba has a new, perhaps even more stark snapshot:

Screen shot 2014-03-04 at 2.20.32 PM

You have to read down the columns, not across the rows. That is, the first row doesn’t give you the financial picture of the 10th-percentile household. Instead, it gives you the net worth of the 10th-percentile household by net worth, the present value of Social Security benefits for the 10th-percentile household by Social Security benefits, and so on.

Still, it’s eye-opening. It says that 50% of households have personal retirement accounts worth $5,000 or less; 50% of households have other financial assets of $15,000 or less; and 50% of households have no defined benefit pensions. 30% of households have total wealth, not counting annuitized pensions, of $72,000 or less. As of late last year, a 65-year-old woman buying a life annuity with a 3% annual escalation clause would get 3.7% of her up-front payment per year (Table 15), so $72,000 in wealth would generate just $2,664 per year—and that’s assuming she finds a way to liquidate her home equity (often the main source of wealth for people in the low-to-medium wealth tiers). And these data are from the 2008 Health and Retirement Survey, so they are only partway down from the housing market peak of late 2006.

These figures might not be so worrying if defined benefit and defined contribution plans turned out to be substitutes for each other—that is, if households without DC plans tended to have DB plans and vice versa. But that doesn’t seem to be the case. First, 26% of households headed by individuals aged 55–64 have no retirement plan at all, and 37% have only one plan (DC, DB, or IRA). Second, it turns out that the more retirement plans you have, the more you tend to have in each one; for example, people who have IRAs, DC plans, and DB plans have higher balances in their DB plans than people who have fewer plans (Table 13).

The overall picture is that the combination of income inequality and a retirement system that largely caters to high-income workers (for example, through tax preferences that disproportionately benefit people in high tax brackets who can afford large retirement contributions) has created vast inequality in retirement preparedness. Poterba does some back-of-the-envelope calculations indicating that people will most likely have to save a lot more than most people are saving today if they want to enjoy decent replacement rates in retirement.

This is true as an arithmetic point, but of course your ability to save depends more than anything else on your income. Absent some form of lifetime income risk sharing (like Social Security), it’s not clear there is a solution for people near the bottom of the income distribution.

 

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