Wednesday, March 6, 2019

Why Two Tropes - "There's NO Retirement Crisis!" & "Workers Earn A Shrinking Slice of Pie" Cannot Both Be True

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Recently two different articles were published in two different issues of The Wall Street Journal (print edition). The most notable aspect is that the two make claims that logically must contradict each other.  Before presenting them let's agree to the proposition that unless one earns a very good wage - at least up to the standard of being able to buy a starter home in the community one lives-  s/he will not be able to have any kind of secure retirement.'

So we begin with Andrew Biggs''s op-ed "The Phony Retirement Crisis" (March 1, p. A15) in which he claims:

"There is no retirement crisis among either today's retirees or tomorrow's. Eight in 10 retirees tell Gallup they have enough money to 'live comfortably', and 6 in 10 working age households say the same. Seventy-five percent of retirees tell the Federal Reserve's Survey of Consumer Finances they 'have at least enough to maintain their standard of living."

Meanwhile, from Paul Kiernan ("Workers Claim A Shrinking Slice of the Pie",  Feb. 25, p. A2) we learn:

"Labor's share of domestic income has been declining since 1970 and has barely recovered in this expansion from the lows last seen when the U.S.  was pulling out of the Great Depression."

Note that was 'Great Depression' not the Great Recession!

He goes on:

"Employee pay and benefits fell to 52.7 % of gross domestic product in last year's third quarter for the fourth straight quarterly decline, according to the Bureau of Economic Analysis.  It was as high as 59 % in 1970 and 57% inf 2001.  If workers were commanding as much of domestic income as they did in 2001 they'd have nearly $800 billion more or $5,100 per employed American."

Think about that!  $5, 100 more per working American.  In other words, with that added amount we would not see - as we did during the shutdown - the god awful stat repeatedly trotted out that 4 in 10 American workers did not even have enough saved to cover one emergency or income crisis - with inflow cut off 4 weeks or more. Moreover, the partial shutdown brought to light that most workers in the US of A - even with "good paying jobs" - didn't have the luxury to miss one single paycheck!  One!  Is this a solid barometer for future retirement? I seriously doubt it!

Kiernan goes on solidifying my contention that either Biggs is lying through his teeth, or the people responding to those polls are  doing so out of a misbegotten false pride:

" The numbers reflect a decades long trend that has coincided with stagnant middle class incomes...while corporate profits benefit some households in dividends and higher stock prices, wages are the biggest source of income for most Americans."

.  This is germane given that - "while the labor share has fallen, business profits are on the rise."

Kiernan noting they climbed from 12 % of gross domestic income in 1980s "to more than 20 percent now".

This report by Kiernan occurred with 3 weeks of a separate Denver Post item ('Teacher Pay Falls Below Average In Most States', Feb. 3, p. 5K) wherein we see:

"Women teachers once earned more than similar workers in other industries but now earn 15.6 percent less as of 2017.  Male teachers took an even bigger hit, earning 26.8 percent less than comparable workers."

This also dovetails with a separate D. Post piece noting the average Denver teacher's salary of $47.000 is nowhere near enough to buy even a starter home in the Mile High City, or even afford rent. (Now at about $1,500 a month).   Here in El Paso County, with Colorado Springs- the situation isn't much better.

According to one finance specialist appearing on KOAA-TV, the average renter in our county is in a retail service job and earning barely $10.22 an hour when that wage needs to be at least $20.65 an hour to make most rents and not pay more than 35 percent of income for them.   This bad news also comports with the enormous pressures on household mortgage debt  and auto loans - which have now pushed U.S. consumer debt to $13.3 trillion   (WSJ, 'Household Borrowing Hits High',  Aug. 15, p. A3), noting:

"Debts rose by $82 billion in the second quarter driven by rising mortgage, credit card and auto loan balances, according to the Federal Reserve Bank of New York's quarterly report on household debt and credit."

Adding, ominously:

"Total debt is now higher than before the financial crisis when widespread defaults, especially on mortgages, contributed to the longest and deepest recession since the Great Depression. After paying down debt through 2013, in aggregate, consumers gradually began to borrow again and household debt is now nearly 20 percent higher than five years ago."

Further, n "aggregate household debt grew for the 16th quarter.".

All of which tells me that Biggs is full of it. Either he is misrepresenting the facts or the people responding to the Gallup, Federal Reserve Consumer polls are lying, or the polls themselves are defective. Take your pick. But it is evident Biggs' claims of a rosy retirement future for most U.S. citizens don't square with his proportions. 

Let's also try to recall that despite those earlier WSJ pieces on household debt etc.  Biggs had also trotted out codswallop ('Memo To Trump: There Is No Looming Retirement Crisis', WSJ, Aug. 15).  He basically used the same false stats, ignored others - what we call selection bias - and wrote as brazenly as he has more recently.

In that earlier iteration I also beat back his bull crap, citing  The Hill in a special report, i.e.

"The Insured Retirement Institute found that only 23 percent of the Baby Boomer generation and 24 percent of Gen X-ers are confident their savings will last throughout their retirement years.

Small wonder, as more than 40 percent of Boomers and over 30 percent of Gen Xers report having no retirement savings whatsoever.

Of those with savings, only 47 percent of Boomers and 27 percent of Gen X-ers have saved $150,000 or more. With only 25 percent expecting income from an employer-provided pension in addition to Social Security, these are very low levels of savings."

Personal finance specialist Jill Schlesinger confirmed  the preceding take in her May 15, 'MoneyWatch' segment as part of CBS News:

"According to Fidelity Investments, the average 401(k) balance among its 11.8 million accounts increased to $74,600 at the end of the first quarter 2012, a 62 percent increase since the end of the first quarter 2009. While it's good news that balances are up, the number of accounts is alarmingly low for such an industry giant.

Older employees are better off, but not by much. Workers over age 55 have about $130,000 saved on average, and, for those over 55 who have been active in a plan for 10 years, that average jumps to approximately $230,000. That's certainly an advantage for plan participants, but even this group may not accumulate what is necessary to maintain their living standards.

The reason for the trend is obvious: The recession and market crash inflicted pain on retirement accounts, lopping off about a third of their total value. Additionally, as many families sustained job losses and lower incomes, they were forced to withdraw retirement funds or reduce contribution levels"

This leads us to ask: Why is Biggs on this phony campaign to try to lie about there being no retirement crisis?  Indeed, why are the WSJ editorial writers on the same kick? (p. A16, March 4, e.g. "The current generation of seniors is the most financially secure in history.  They're receiving more generous benefits from Social Security than they've earned because of an inflation formula that increases benefits at a faster rate than actual prices as measured by chained CPI."

Leaving out or ignoring the fact - in 1930s  U.S. history - sick  and indigent seniors typically went out into the bush or hovels to die by themselves.  So referring to today's seniors as the "most financially secure in history" isn't saying a whole hell of a lot.  Also, no word that the chained CPI doesn't factor in the much higher drug and other medical costs for seniors, and the need for more costly treatments such as for prostate and breast cancers, hip and knee replacement etc.. "The more generous benefits" then,   help cover the costs of things Medicare doesn't cover such as eyeglasses, eye exams, and dental care.

 Worse, the chained CPI ensures a race to the bottom via its assumptions.

Thus,  it  assumes that as prices increase, consumers will buy lower cost alternatives, reducing the amount of inflation they experience. For example, if the price of stew beef or hamburger rises by 30 cents a pound, they'll opt for cheaper pork. If pork rises too much they will descend to eating canned tuna. If that rises too much - well - bring out the Alpo! So no wonder many hard pressed seniors refer to the CPI COLA as the "dog food option".

The answer then is simple as to why neither Biggs or his WSJ editorial allies want any expansion of Social Security benefits!   This, despite the fact we can see from the preceding references and citations there is a real crisis, and also from a recent WSJ piece (WSJ,  March 1, p. B5) that it is getting more and more difficult for workers to train to get jobs with higher incomes.   This is especially so as the employers assert it is all on employees to do whatever retraining needed.  Quoting one  labor adviser (Andy Van Kleunen):

"We're asking people to negotiate an increasingly complicated labor market on their own."

Adding it can be particularly difficult to make training or education choices when "automation is making it unclear what the jobs of the future will look like."  Kiernan's article is also quick to point out, in terms  of why ordinary labor is losing an increasing portion of the 'pie' that  "workers' ability to negotiate wage increases has weakened".   Hand in hand with this, globalization has played a role in millions of job - many intermediate tech - being farmed out overseas to places like Bangalore or Delhi. This "gave manufacturers and tech companies a cheaper labor alternative."

In addition to all this, "employment contracts have become increasingly riddled with noncompete agreements, occupational licensing requirements and no poaching clauses that impeded worker mobility."  So good luck trying to move elsewhere for a higher paying job in the same industry.

What we DO know is that most ordinary workers are now missing that $5,100 per annum chunk of the pie cited by the WSJ's Kiernan, and hence are falling deeper and deeper into a savings hole for retirement.  Is there a retirement crisis? Yes indeed, according to most experts in the know. We also know a significant swatch of Social Security money is already having to suffice for many millions - who often have to choose between food and rent.

The only two options then become either implementing a universal basic income (UBI) or expanding Social Security.  Most reasonable people who've thought about it at all, believe the latter is far more politically plausible (and doable) than implementing the former.  

What we do know is that we had better act soon, or we will find the number of homeless citizens exploding - and not just in super high home price cities like Denver or San Francisco.

The new specter for older workers - and many others (an estimated 36 million according to The Denver Post Business section)- is automation- AI taking over their jobs.   

According to a 2017 WSJ  report ('Firms Leave The Bean Counting To The Robots') in the Business and Investing section (p, B5, Oct. 23) AI -based robots will soon be taking over CFO and accounting work across the land. That will essentially displace all those humans currently holding such jobs and likely pulling down big bucks in salary.  That includes older execs still salting away money for retirement.

The piece also observes:

"Two thirds of large global companies  expect to automate some or all of their finance department tasks over the next two or three years, according to new research by Hackett Group Inc. Hacket's report is based on benchmark and performance studies at hundreds of  large global companies."


"The new technologies are designed to cut costs, liberate workers from time consuming repetitive tasks and - in many cases - reduce finance and treasury department employee numbers."

Jim Hightower - in a column around the same time - provided more insights in his recent column:

"With corporations socking away massive profits and the labor market still tight why are worker's wages stuck at miserly levels? One big reason is that corporate boards and CEOs have their heads stuck in a dreamy future. Nearly every economic sector is spending vast sums of money on workers p just not on human workers.

While few Americans are aware of it, bosses are investing in hordes of sophisticated autonomous robots powered by a cognitive technology called artificial intelligence. Instead of paying a decent wage to you, corporations are buying millions of these cheap, human-esque thinking machines in order to take a shocking number of jobs away - well, from you!

All of which, in concert, discloses the future for older Americans will not be bright at all and also likely explains why nearly 1 in 3 near-retirees have barely $50,000 saved. Indeed, MONEY  magazine noted (November, p. 44) pointed out:

"Most Americans today haven't even got sufficient money to live to 75 far less 90 or 95."

So where do the WSJ editors and Biggs get this codswallop that most seniors have never been better off?  Well, by twisting facts to try to slap down any thought of expanding retirement security - by expanding Social Security.

Stay tuned, because the false information blitz about retirement in the US of A isn't over - not by a long shot!

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