From Lawrence Summers, former President of Harvard, former Treasury Secretary and former economic advisor to President Obama, writing for the Washington Post:
Few economic virtues are more universally applauded than thrift.
Going back at least to Ben Franklin, Americans have equated greater thriftiness with greater worthiness. Progressives decry the limited saving and wealth accumulation of middle-income families ... Conservatives applaud thrift as an aspect of self-reliance and propose ideas such as health-savings accounts to help families prepare for emergencies. Moderates believe universal social insurance programs such as Social Security and Medicare, which they label as entitlements, should be modest or even curtailed out of fiscal prudence.
In the current economic context of extremely low interest rates, however, these views are more wrong than right. The federal government should provide more, not less, social insurance. If it did, the result would be reduced inequality, a more secure middle class and a stronger economy.
The real challenges that keep middle-class families up at night are retirement, economic dislocation and supporting their children as they go to college and then buy a first home. These ... are not best met by personal saving. Rather, a generous and well-functioning society in which Social Security meets retirement needs, appropriate unemployment and wage insurance programs cushion economic shocks, adequate public funding holds down college costs, and health insurance has generous coverage would greatly reduce the need for most households to save.
It is highly inefficient to rely on individual saving rather than universal public programs to deal with life’s contingencies. Social Security, for example, pays out close to 99 percent of the revenue it collects in benefits. In contrast, individuals saving for retirement or the proverbial rainy day can over a lifetime dissipate as much as 20 percent of their savings in commission payments to financial institutions. Similar, and probably greater, efficiencies are associated with government provision of other forms of insurance.
There is the further point that self-reliance is an especially implausible way to deal with catastrophes such as disability or the loss of a good-paying job without the availability of an alternative. Genuinely preparing for such contingencies would involve building up a large nest egg at a substantial cost in terms of current consumption. Meanwhile, the feared contingencies never arise for most people. That’s why pooling risk through insurance is the best strategy. ...
We don’t need fewer entitlements for the American middle class. We need more.
Who is going to pay for it?
ReplyDeleteI agree but how many employees voted for Trump. All Veterans that I hired were open about voting for Trump. How many employees sat out the last election? Overall how many people voted against their own self interests? Entitlements will never be expanded if your mantra is MAGA.
ReplyDelete@8:37
ReplyDeleteAny additional entitlements would presumably be paid for out of the general treasury fund, or else out of an independent fund assuming any new entitlement program were structured that way. As to how those funds would be funded, through taxation of the populace.
@8:37
ReplyDeleteYou are going to pay one way or another UNLESS you are a boomer who is unlikely to be in the workforce when the coming storm truly hits.
Gen X got hit harder by the Great Recession than Boomers, and Millenials got hit even harder. Far fewer in Gen X and Millennial generations have defined benefit retirements compared to Boomers and fewer have workplace retirement savings accounts, invariably layoffs or disability result in those savings plans being gutted.
I'm Gen X and we were doing everything "right" until my wife lost her job. She was a professional and produced 50% of our household income. We had savings to get us through three months just as was suggested and we successfully used them to carry us for nine months but that was also because after four months of no interviews took a minimum wage position and was making $7.25 that quickly became $8 but was always kept at 34 or fewer hours instead of the $25 per hour she had made.
By the time she found a "real" job we had been forced to liquidate her retirement account. Then I changed jobs and likewise liquidated my retirement account to stave off foreclosure.
Then after nine years back in a "real" job in her field that paid only $15 per hour, her health took a turn for the worse and was directed by her physician to stop work. She took FMLA in the hope treatment would get her back to work. It did not and she eventually became one of those people awarded disability upon application but her disability pays only 2/3rds of her last job. Fortunately live in a state where it isn't taxable as income other than on the Federal return.
For much of her career, she carried me on her health insurance because it was cheaper than the insurance my employer offered.
The difference between us and our adult children with degrees is we had retirement accounts to liquidate and our employers didn't offer health plans with $3000 deductibles.
Relying on your employer's retirement and health insurance is a huge gamble. Business closes, they have layoffs, you become unable to work, and you are wiped out.
I'll GLADLY pay higher taxes to shift my retirement and health insurance out of the private sector. I'll take my chances that I'll end up with more money in my pocket at the end of the month and in retirement vs private sector insurance and retirement plans.
I don't trust the government to pay me a dollar of what I pay into the system.
ReplyDeleteSo unlike 1:48, I will take my chances and be in control of my own destiny and put my own hand in my pocket instead of holding it out for the government to dole out my portion.
4:02 do you trust Wall Street? This program came from a time when Wall Street impoverished the whole damn country and left about half the population eating dirt. Based on everything I see we are almost 100 hundred years later getting ready to repeat the process. I believe one particular large Wall Street institution is insuring derivative bets to the tens of trillions of dollars similar to what AIG did in the mid 2000's with what I'm certain will be a similar result. Before giant money took over our politics and bought the government there were some checks and balances and real people had some impact. Give the money to Wall Street and privatize everything. Let the Wall street gang play with the money.
ReplyDelete"reduced inequality" has become the phrase to actually mean "take from productive citizens and give to those unwilling to work."
ReplyDeleteWhat the left doesn't realize is those that truly need help are being squeezed out by those searching for a handout.
@9:21
ReplyDeleteOther than naivety I question what basis you have for presuming those with less willingly place themselves in that position rather than an inability to accrue equity as a result of societal, geographical, and other factors outside the individual's direct control. As to those who are "truly" in need of help being squeezed out by those searching for a handout, we have means tested programs and universal programs. Both can be useful depending on the circumstances. I take it from your language, you support means tested programs?