The JUST Third Way Graphic Presentation

Here is a graphic presentation binary economist Louis Kelso prepared years ago in 1964 that may make help everyone better understand the Just Third Way and how to finance faster rates of productivity growth: https://www.dropbox.com/s/ozj3m1f4u81fe8s/secondincomeplanpamphlet1001.pdf

Here also is the Center for Economic and Social Justice’s (www,CESJ.org) graphic presentation of the essential ideas of the Just Just Way: http://www.cesj.org/thirdway/graphicoverview/graphicoverview.pdf

We are urging people to open the door for us with top-flight cartoonists and graphic designers to develop even more effective presentations for ordinary citizens and especially young people who might become inspired to organize for changing the system.

IRA Confiscation: It’s Happening

uncle-sam_pan_14223

On January 29, 2014, Simon Black writes on Sovereign Man:

I have an old acquaintance named Sam who has a hell of a deal for you.

Sam is actually a pretty famous guy with a big reputation. Unfortunately he has been a bit down and out on his luck lately… but he’s trying to make a comeback. And Sam is prepared to float you a really great investment opportunity.

Here’s the deal he’s offering: you give Sam your hard-earned retirement savings. Sam will invest your funds, and pay you a rate of return.

Granted, the rate of return he’s promising doesn’t quite keep up with inflation. So you will be losing some money. But don’t dwell on that too much.

And, rather than invest your funds in productive assets, Sam is going to blow it all on new cars and flat screen TVs. So when it comes time to make interest payments, Sam won’t have any money left.

But don’t worry, he still has that good ole’ credibility. So even though his financial situation gets worse by the year, Sam will just go back out there and borrow more money from other people to pay you back.

Of course, he will be able to keep doing this forever without any consequences whatsoever.

I know what you’re thinking– “where do I sign??” I know, right? It’s the deal of the lifetime.

This is basically the offer that the President of the United States floated last night.

And like an unctuously overgeled used car salesman, he actually pitched Americans on loaning their retirement savings to the US government with a straight face, guaranteeing “a decent return with no risk of losing what you put in. . .”

This is his new “MyRA” program. And the aim is simple– dupe unwitting Americans to plow their retirement savings into the US government’s shrinking coffers.

We’ve been talking about this for years. I have personally written since 2009 that the US government would one day push US citizens into the ‘safety and security’ of US Treasuries.

Back in 2009, almost everyone else thought I was nuts for even suggesting something so sacrilegious about the US government and financial system.

But the day has arrived. And POTUS stated almost VERBATIM what I have been writing for years.

The government is flat broke. Even by their own assessment, the US government’s “net worth” is NEGATIVE 16 trillion. That’s as of the end of 2012 (the 2013 numbers aren’t out yet). But the trend is actually worsening.

In 2009, the government’s net worth was negative $11.45 trillion. By 2010, it had dropped to minus $13.47 trillion. By 2011, minus $14.78 trillion. And by 2012, minus $16.1 trillion.

Here’s the thing: according to the IRS, there is well over $5 trillion in US individual retirement accounts. For a government as bankrupt as Uncle Sam is, $5 trillion is irresistible.

They need that money. They need YOUR money. And this MyRA program is the critical first step to corralling your hard earned retirement funds.

According to the “real time” National Debt Clock,” the U.S. is more than $127 trillion in the hole: http://www.usdebtclock.org/

Israel's Gas As Economic Equalizer

On January 28, 2014, Norman Biley writes on Globes, Israel’s Business Arena:

“Own or Be Owned” is the slogan of the Center for Economic and Social Justice in the US, a think-tank devoted to the propagation of projects for the expansion of the ownership of productive capital assets in ever-greater segments of the population. In a recent issue of “The Economist”, the lengthy lead article was dedicated to the ever-increasing phenomenon of the concentration of the ownership of such assets in smaller and smaller segments of the population in advanced countries, and the pernicious economic, social and political consequences of that development.

The facts are startling in their effects on the position of the middle class, on unemployment and on dependence on government transfers. In the most advanced of the advanced economies, the United States, almost one-half the population now depends in whole or in part on such “entitlements”, while the top one percent of income earners receive 22% of total income. A photo-sharing website with 30 million customers was sold for one billion dollars in 2012 to Facebook. It had thirteen employees. Kodak, which used to mean photography for generations of consumers, recently declared bankruptcy. In its heyday, it employed 145,000 people.

Participation in the labor force is the lowest since 1978 In the 1960’s, one in twenty of men between the ages of 25 and 54 was not working. The figure is now one in seven. The typical male worker made less in 2012 than in 1987 in real terms (adjusted for inflation). And so on and on. The contribution of labor to the value of production of goods and now services as well, is constantly shrinking and the contribution of capital, now in the form not just of machinery and equipment of all kinds, but also in such areas as 3-D printing and advanced automation and robotization continues to rise.

Thus income is increasingly concentrated in those who have the training and education to design and operate such capital assets and the owners of those assets. The social and political consequences of this undeniable development are enormous: a large underclass of state serfs is being created which will support those political forces which promise to maintain or increase public income transfers and populist political movements that promise to penalize the professional and financial elites perceived as being greedy and obnoxious exploiters.

Israel is not exempt from this trend. How can it be addressed? By strengthening antitrust legislation and the enforcement of such laws, certainly. But that may result in only shifting productive asset ownership into more units distributed among the same group of people. By employee stock ownership plans? Certainly, and many Israeli hi-tech firms do have such plans. This is good, but it should be pointed out that such plans simply turn the mental elite, which already commands a large portion of economic returns, into a professional and also ownership elite. The expansion of productive capital assets is not spread beyond those two groups.

An additional measure has been outlined in previous columns. Israel has an historic opportunity to financially empower substantially all of its citizens, due to the discovery of vast resources of natural gas and eventually oil offshore. The earnings from this unexpected bonanza, after satisfying domestic energy needs are going to be gathered in a sovereign wealth fund. So far so good. But how is the fund going to be utilized?

In accordance with the legislation now under consideration, after maintaining a reserve for contingencies, the remaining funds will be used for primarily social purposes; education, health, housing, etc. All well and good except that such distributions simply cause greater societal dependence on the state and its largesse. They do not empower individuals, and in fact increase the dominance of the political class with decreasing controls by society at large.

Why not incorporate the fund and issue its shares equally to all citizens of Israel, at least for a period of years on a non-negotiable basis to avoid concentration; but with voting rights and rights to receive dividend payments? Thus would the individual Israeli be empowered. Alternatively the funds could be used to establish an investment trust for all citizens, which would have the advantage of diversifying assets.

There are examples that can be studied of such programs, especially the Alaskan native corporations, established by the Alaska Native Claims Settlement Act of 1971, which has turned the indigenous inhabitants of Alaska into wealthy owners of mineral, energy, forest, fishing, transportation, tourism and other productive assets.

The opportunity is there. Will it be seized? The Center for Economic and Social Justice, mentioned above, has another motto, taken from the Bible: “Justice, justice, thou shalt pursue.”

 

http://www.globes.co.il/en/article-israels-gas-the-equalizer-1000912956

The Minimum We Can Do To Fight Inequality

ObamaTouchedUponIssueofWageinStateofUnion012914

On January 29, 2014, Sam Pizzigati writes on Nation of Change:

The political profile of economic inequality in America has certainly been growing. So has the political confusion over what overcoming inequality will take. Unfortunately, President Barack Obama’s latest State of the Union address may only add to that confusion.

Obama could — and should — have declared a clear and compelling agenda for combating the concentration of income and wealth that has left America so staggeringly unequal.

In part — small part — he did point to that broad, serious agenda we need. The higher national minimum wage he once again proposed would most definitely help hike the share of our national income that goes to working people.

And Obama’s announcement that all private businesses seeking federal contracts will soon need to start paying their workers at least $10.10 per hour offers a great example of how we can leverage the power of the public purse to rebuild a more equal nation.

But if we really want to overcome income inequality, raising the minimum wage would be the minimum we should do. To fix the ills that ail us, we can’t just look at the bottom of our economic pyramid. We have to look at the top as well.

On the other hand, those wealthy Americans who benefit the most from this top-heavy distribution don’t want to see any action at all that jeopardizes their good fortune. Nor do the politicians these wealthy folks bankroll.Most Americans get this reality, as a new USA Today/Pew Research poll makes plain. Some 60 percent of us believe “the economic system in this country unfairly favors the wealthy.” Only 26 percent feel that the government should do “not much” or “nothing” to reduce the gap between the rich and everyone else. Average Americans want real action against our top-heavy distribution of income and wealth.

But these politicians have a problem. America’s grand economic divide has become too gaping to deny. So what do these politicos do instead? They spread confusion. They blur the distinctions between inequality, poverty, and opportunity. They reduce inequality to a matter of poverty and blame poverty on the absence of opportunity. If we just gave poor people more opportunity to succeed, their basic line goes, inequality would be no great worry.

This clever messaging totally rewrites our recent history. We don’t have a grand divide between the rich and everyone else — and a collapsing middle class — because poor people lack opportunity. We have an economy that’s stopped working for average people, middle class and poor alike, because the rich have rigged the economic rules in their own favor.

We need an anti-inequality offensive that takes on the rich and their capacity to rig the rules. For example, our billionaires shouldn’t be able to buy candidates and elections.

Instead of suggesting that kind of offensive, Obama simply ignored the political role the rich have played in his speech.

The blame for our current inequality? He pinned it on vague “massive shifts in technology and global competition.” But other major industrial nations have faced those same “massive shifts” and ended up with distributions of income and wealth far more equal than ours.

The difference between those nations and ours? Other nations have not let the rich set the basic rules for how “global competition” plays out within their borders.

Other nations, for instance, have tax rules in place that require the wealthy to bear a meaningful share of the tax burden. And other nations have labor relations rules that foster a healthy give-and-take between labor and management over the distribution of the wealth that modern economies create.

Back in the middle of the 20th century, we had rules like these here in the United States. But we’ve let the rich erase them. We’ve become, as a result, the most unequal major developed nation on the face of the Earth.

Amid this stark inequality, we can certainly try to “build new ladders of opportunity into the middle class,” as Obama proposed during his State of the Union address. But if we continue to let the wealthiest Americans — and the corporations they run — shove people down those ladders, out of the middle class, real opportunity in our country will eventually belong only to our most privileged.

2014 State Of The Union (Minus The Corporate Influence)

On January 29, 2014, Dennis Trainor, Jr. writes on Nation of Change:

Mr. Speaker, Mr. Vice President, members of Congress, fellow citizens- 60 years ago, President Franklin D. Roosevelt delivered his annual State of the Union Address to the Nation as a Fireside Chat from the White House in which he outlined a proposed second bill of rights that would to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known.

The power elite have been guiding this country in a direction in the exact opposite of the spirit behind that second bill of rights ever since. It is because of this- the outsized influence of a few rich people and multi-national corporations that I must report to you that the state of our Union is in tatters, and if allowed to continue on its present trajectory, presents an existential threat to human life both at home and abroad and to the only habitat that human life has ever existed on: planet earth.

Tonight, I’m announcing that I will issue an executive order that will raise the minimum wage for federal contract workers to $10.10 an hour.

Most people on the right will take their cue form mister tan and spray sitting behind me and frown, arms folded, and most people on the left stand and applaud like a bunch of fan girls at an anime convention, but both sides of the isle know this: if those of us in service to the power elite (and if you got elected, about 98% are in that group) don’t at least make an attempt to keep up the illusion of the American Dream, then the whole House of Cards could come down.

Count how many times the phrase “middle class” gets uttered in the state of the union. The truth is, when you aspire to or have a attained the label of American middle class know that – first, the label itself was probably made in Bangladesh, and more importantly, the existence of a middle class, which by definition requires a poor class is, in the richest country in the world, immoral.

So we will do this $10.10 an hour thing, and not only will we NOT jail Jamie Dimon, but we will secretly admire him for getting a raise while serving as a CEO of a company that had to shell out more in legal settlements that the GDP of several continents combined, and just like the magic show that wowed you as a kid the don’t watch the left hand watch the show hand and wham bam thank you sir the neoliberal hungy hungry hippo machine gobbles up all the marbles and leaves the rest of us begging for crumbs like some bit player in a Dickensian pageant.

Speaking of Dickens!

It is time to admit we lost the industrial revolution. The lifestyle it has created, which we now think of as non-negotiable of a the middle class lifestyle that the $10.10 is supposed to help more of us attain, are generating increasing ratios of carbon dioxide in the atmosphere to the point where even US Navy scientists are predicting an ice free arctic summer by 2016.

So- ice won’t reflect sun; the Arctic Ocean will absorb the suns rays, warming things up in a way that will alter jet streams and maps. Do you know the last time we had an ice-free arctic summer? Never before in human history. I could tell you all to start composting and stop buying plastic water bottles but the truth is the greatest climate polluter is the US military.

Yes, the 600 hundred pound homicidal blowback inducing elephant in the room. The thing is, overreaching is part of our DNA as Americans. As an infant country, we expanded through a brutal campaign of genocide we condone in our high school history curriculum with the phrase Manifest Destiny.  All these years later, Manifest Destiny has grown up and given birth to a child.

Manifest Destiny’s Child.

This child still governs our foreign policy decisions, it serves as the justification for the over 700 military bases we keep around the world. It serves as the justification for extrajudicial drone killings in countries that have not declared war on us and pose not threat to us. It serves as the justification for the massive spy agencies that we need to protect us.

Ask yourself this, Mr. Speaker, Mr. Vice President, Members of Congress and viewers playing along at home: how much resources do the Swiss have to expend on protecting themselves from terrorists? Is there such a thing as an anti Swiss terrorist network?

Chew on that.

Manifest Destiny’s Child is a threat to all living things, and must be euthanized immediately.

It is customary to close with “God Bless these United States”, but in the interest of fairness we will minimize the role of man made all knowing creators of the Universe and his influence over our affairs and say simply, peace.

 

http://www.nationofchange.org/2014-state-union-minus-corporate-influence-1391011244

 

What The State Of The Union Could Have Been

On January 29, 2014, Thom Hartmann writes:

Last night, President Obama delivered his State of The Union address, and what we didn’t hear is almost as important as what he said.  The President said he wants 2014 to be a year of action to fight income inequality, but he never mentioned raising taxes on the rich, or helping labor groups fight the war on unions.  We heard the President talk about working with CEOs to help the long-term unemployed, but he never suggested a new public works program to make our government the employer of last resort.

He talked about climate change and the importance of green energy, but he never explained how nuclear, fracking, and so-called clean coal are going to help us address global warming.  And, President Obama talked about “opening new markets,” but never addressed the fact that free trade ships our jobs overseas and puts downward pressure on American wages.  The President did address equal pay for equal work, he announced an executive order giving federal contractors a raise, and he talked about rewarding companies that bring American jobs back from overseas.  But, this speech could have been so much more.

President Obama could have come out strongly against the Keystone Pipeline, the TPP, and the Republican obstructionism that’s left Congress at a standstill.  He could have embraced policies that have worked in our nation – like FDR’s “New Deal” or President Harry Truman’s Public Works Administration.  Those are the policies we need to repair our nation, and revive the American Dream.  Those are the ideas that could usher in a new era of shared prosperity, and the actions that Americans would support.

Nor was the critical issue of Who Owns America and Who Should Own America was NEVER addressed. Instead, the sole focus was on Jobs Creation and Education, neither of which will be effective unless there is a solid, continuous momentum in the economic growth of the country, and that means simultaneously financing growth while creating new capital asset ownership whereby EVERY citizen over time can acquire a viable income-producing productive capital estate to augment job-sourced income. Even President Obama’s proposal for creating “retirement savings bonds” will require the pledge of “savings” and the denial of personal consumption, which in reality will benefit the more well off than the vast majority of Americans struggling to pay check to pay check. – See more at: http://www.thomhartmann.com/blog/2014/01/what-state-union-could-have-been#comment-252212

http://www.thomhartmann.com/blog/2014/01/what-state-union-could-have-been#comment-252212

Obama Offering Retirement-Savings Plan For Workers

On January 29, 2014, Mike Doming and Margaret Collins write in the Personal Finance section of Bloomberg:

President Barack Obama offered more Americans the chance to save for retirement through payroll deductions with a plan for new government-sponsored savings accounts.

The accounts, which Obama announced tonight in a State of the Union Address that concentrated on expanding economic opportunity, will be available to workers who don’t have access to a 401(k) plan, administration officials said.

The “MyRA” accounts, similar to an individual retirement account, will provide “a new way for working Americans to start their own retirement savings,” Obama said in the text of the speech released by the White House.

Under the initiative, workers would be allowed to have a portion of their pay deducted for deposit into an account invested in U.S. government bonds that would be treated for tax purposes as an individual retirement account, administration officials said.

The accounts, set up through the Treasury Department, would have a maximum balance after which money would have to be rolled over into an IRA, the officials said.

The officials project that millions of Americans will take advantage of the savings accounts.

“This isn’t earth-shattering stuff,” said Brian Graff, the chief executive officer of the American Society of Pension Professionals & Actuaries. “But it is a step in the right direction to get more people saving for retirement, which I would think is a bipartisan issue.”

Existing Authority

Obama can establish the savings program under existing executive authority without new legislation, the officials said. He will announce details of the plan tomorrow.

“I don’t expect this to get a lot of pushback,” said Graff, who discussed the proposal in advance with Treasury officials. He said it draws on an existing program that permits workers to purchase U.S. savings bonds through payroll deductions and adds “a retirement twist.”

The proposal resembles an earlier Obama administration plan that would have required employers to offer an automatic IRA option to employees. That plan, which was included in Obama’s 2014 budget, would have cost the government an estimated $17.6 billion in foregone revenue over 10 years.

About 68 percent of U.S. workers had access to retirement benefits as of March 2013, with 54 percent participating, according to the Bureau of Labor Statistics.

Company Reaction

“Although we don’t have the details yet, Vanguard is generally supportive of expanding savings opportunities for those not covered by a workplace retirement plan,” Linda Wolohan, a spokeswoman for Vanguard Group Inc., said in an e-mail.

Wolohan declined to comment further before hearing the specifics of Obama’s proposal. Vanguard was the second-largest manager of 401(k)-type assets in 2012 behind Fidelity Investments, according to researcher Cerulli Associates.

Fidelity, which is also the largest provider of IRAs, declined to comment before hearing the speech, according to an e-mail from spokeswoman Eileen O’Connor.

JPMorgan Chase & Co. (JPM), which manages retirement assets and administers plans, declined to comment before seeing more details, Gregory Roth, a spokesman for the bank, said in an e-mail.

Under the proposal, proceeds couldn’t be cashed out without a tax penalty until the depositor reaches retirement age, unlike ordinary savings-bond purchases, Graff said. The funds could be transferred to an ordinary IRA without penalty, he said.

Access Lacking

One of the biggest challenges for the U.S. retirement system is that many workers don’t have access to a pension or 401(k) plan through their employer, said Lisa Mensah, executive director of the initiative on financial security at the Aspen Institute.

“We have to get people in,” Mensah said. “You do need an automated way for people to get into the savings system.”

Small-business groups in the past have opposed such proposals because they say that setting up the required payroll deduction would be a cost for them.

U.S. savings bonds designed for retirement accounts have been proposed in the past and termed R-bonds, said Don Fuerst, an actuary and senior pension fellow at the American Academy of Actuaries.

The securities are seen as a way to allow low-income workers to save for retirement, Fuerst said. They usually can’t contribute much at the start, making their balances expensive to administer and vulnerable to investment-management costs.

‘Small Amount’

“If you’re only putting a small amount into the plan the fees could eat up your investment income,” said Fuerst, who is based in Washington. “This gets around that.”

With savings bonds the U.S. government could issue the investments and cover the costs of keeping track of them, he said.

The accounts aren’t as attractive as a typical employer-sponsored 401(k) because there is no employer match and only one investment option, Graff said.

Even so, he said, it may significantly boost retirement savings for middle- and low-income workers who don’t have access to a 401(k) account, Graff said.

Research has shown that middle- and moderate-income workers are likely to save for retirement when they can do so with a payroll deduction and are unlikely to do so when they don’t have that option, Graff said.

Among workers earning between $30,000 and $50,000 a year, 72 percent of those covered by an employer-sponsored payroll deduction retirement plan such as a 401(k) participate, while only 5 percent of those without such a plan set aside money through an individual retirement account, according to a 2010 analysis by the Employee Benefit Research Institute.

Participation in the Obama retirement savings program would be voluntary, Graff said.

Obama's myRA Plan Doesn't Go Far Enough To Fix Broken U.S. Retirement System

President Barack Obama walks along the Colonnade at the White House, hours before giving his State of the Union Address before a joint session of Congress. (AP Photo/Carolyn Kaster)

On January 29, 2014, John Wasik writes in Forbes:

In his State of the Union address Tuesday night, President Obama indirectly admitted what U.S. employees have long known: Retirement security stinks in this country and 401(k)s are not the answer.

Retirement accounts should be universally available — you shouldn’t have to depend upon an employer to offer them. That’s why the president is making these proposals in addition to raising the minimum wage to $10.10 an hour:

* “myRA”  ”Our retirement system should help these potential savers and encourage them to begin building their retirement security,” the White House said in a statement prior to the speech. “The President is using his executive authority to create “myRA” (my Retirement Account) – a new simple, safe and affordable “starter” retirement savings account that will be available through employers and help millions of Americans save for retirement. This savings account would be offered through a familiar Roth IRA Account and, like savings bonds, would be backed by the U.S. government.”

In his State of the Union speech, the president pledged to “Offer every American access to an automatic IRA on their job.”

The prior White House statement expanded on the rationale:

* Removing Retirement Tax Breaks for the Wealthiest While Improving Them for the Middle Class. “About half of all American workers do not have access to workplace retirement savings plan.  Furthermore, our tax incentives mostly benefit high-income individuals already well-positioned for retirement, allowing them to reap tens of thousands of dollars more in tax breaks than middle-class families. The President’s budget will propose to establish automatic enrollment in IRAs (or “auto-IRAs”) for employees without access to a workplace savings plan, in keeping with a plan that he has proposed in every budget since he took office.”

Why Retirement Security is Sagging

Economic inequality is partially perpetuated by this country’s fractured retirement security policy.

Those who can afford to save do — and have a bevy of tax breaks and programs tailored for them. But most workers aren’t that fortunate. Here’s how bad the situation has become, according to the Center for American Progress:

* About half of all workers do not have a retirement plan at work, and those who do have a 401(k) have only accumulated enough money to give
them a monthly retirement payment of about $575 on average.

* Ernst & Young estimated that 59 percent of new middle-class retirees will outlive their savings.

* Traditional defined-benefit pensions—a staple of good, middle-class jobs a generation ago—have become a rarity.

* The tax code also reinforces inequality in retirement; its upside-down-pyramid shape offers larger incentives for those at the top to save—even though they are already more likely to do so—and relatively little help for those at the bottom.

* Personal contributions to qualified retirement accounts receive a tax deduction, meaning that those in the top tax bracket, for example, receive 39.6 cents back for every dollar they save, while those in the 10 percent tax bracket receive 10 cents back for every dollar they save.

Old Proposal Gets New Life?

What the president proposed, however, is not entirely new.

It’s a retread of ideas that have been bouncing around Washington for years. These proposals are unlikely to get traction in this Congress, although anything can happen as we head into the mid-term elections later this year.

Here’s how to tackle this problem, as outlined by the Center for American Progress:

“The Secure, Accessible, Flexible, and Efficient, or SAFE, Retirement Plan would automatically enroll workers in a collective defined-contribution plan, offer low fees and professional fund management, collectively pool participants’ assets, and turn these assets into lifetime payments in retirement at a low cost. Additionally, a Universal Savings Credit, which would replace all existing deductions with a new flat tax credit based on their contributions to a savings account, would flip the upside-down pyramid of tax benefits to better help low- and middle-income families save for retirement.”

The problem isn’t that Americans don’t have enough ways to save for retirement — they have too many. Look at the alphabet soup of plans from 401(k)s, 403(b)s, 457s to Roth IRAs. Why not consolidate them and make the tax breaks uniform through credits? Make a universal plan with low fees accessible to everyone — regardless of where they work. It’s not only a way to address inequality, it will improve retirement security for everyone.

http://www.forbes.com/sites/johnwasik/2014/01/28/why-retirement-security-stinks-in-u-s-and-how-to-fix-it/

http://www.latimes.com/opinion/op-ed/la-oe-scorse-myra-ira-20141016-story.html

 

 

 

How Will Obama's New myRA Retirement Plan Work?

in-his-state-of-the-union-address-obama-said-hell-issue-an-executive-order-for-a-new-retirement

In his State of the Union address, Obama said he’ll issue an executive order for a new retirement plan.   (Chip Somodevilla/Getty Images)

On January 29, 2014, Peter Weber writes on The Week:

There weren’t a lot of surprises in President Obama’s State of the Union speech on Tuesday night…But I don’t think anyone was expecting the myRA.

In the middle of the address, after a section about raising the minimum wage, Obama said he will “direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA,” which he described as “a new savings bond that encourages folks to build a nest egg.” He elaborated:

“Today most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s…. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans, offer every American access to an automatic IRA on the job, so they can save at work just like everybody in this chamber can.” [SOTU, via Federal News Service]

Not a lot of information. The White House gave a bit more of a look at the new savings vehicle in a fact sheet, calling it “a new simple, safe, and affordable ‘starter’ retirement savings account” that would “be offered through a familiar Roth IRA Account and, like savings bonds, would be backed by the U.S. government.”

The White House promises to provide more details today. But Damian Paletta and Anne Tergesen at The Wall Street Journal note that myRA appears “similar to an idea Treasury officials have studied for several years, which would create something called an R-bond, allowing employees to have a certain amount of money deducted from each paycheck and directed toward a specific investment.”

The retirement plans will be voluntary for the employees of participating companies, and sort of structured like IRAs: Workers won’t pay taxes on the wages diverted into the myRA, but they would pay penalties for cashing out before retirement age. The money can be rolled over into an ordinary IRA without penalty, though — and will have to be after the account reaches a certain balance, reports Bloomberg News, citing government officials.

In other words, it really is just a “starter” retirement account. But that doesn’t mean it can’t be a big deal.

The idea that Americans aren’t setting enough aside for retirement isn’t controversial. Here are some quick numbers:

The myRA aims to improve that last statistic by encouraging businesses to offer their workers at least this one avenue for retirement savings, and opening the door to lower-income workers. Because the the accounts will be administered by the Treasury Department, modest investments won’t be devoured by fund-maintenance fees. The White House hasn’t said what kind of return it expects on the new accounts, but any guarantee of growing balances will also attract more risk-averse workers spooked by the recent stock market crashes.

The downside of a myRA, compared with many 401(k) plans, is that there will be no employer match and really only one investment option.

 

Technology And Wealth Inequality

On January 28, 2014, Sam Altman writes:

Thanks to technology, people can create more wealth now than ever before, and in twenty years they’ll be able to create more wealth than they can today.  Even though this leads to more total wealth, it skews it toward fewer people.  This disparity has probably been growing since the beginning of technology, in the broadest sense of the word.

Technology makes wealth inequality worse by giving people leverage and compounding differences in ability and amount of work.  It also often replaces human jobs with machines.  A long time ago, differences in ability and work ethic had a linear effect on wealth; now it’s exponential. [1] Technology leads to increasing wealth inequality for lots of other reasons, too—for example, it makes it much easier to reach large audiences all at once, and a great product can be sold immediately worldwide instead of in just one area.

Without intervention, technology will probably lead to an untenable disparity—so we probably need some amount of intervention.  Technology also increases the total wealth in a way that mostly benefits everyone, but at some point the disparity just feels so unfair it doesn’t matter.

Wealth inequality today in the United States is extreme and growing, and we talk about it a lot when someone throws a brick through the window of a Google bus.  Lots of smart people have already written about this, but here are two images to quickly show what the skew looks like:

 

[0]

As the following table shows, wealth inequality has been growing in America for some time, not just the last few years.  It’s noticeable between the top 20% and bottom 80%, and particularly noticeable between the top 1% and bottom 99%.

And here is a graph that shows the income share of the top 1% over time:

The best thing one can probably say about this widening inequality is that it means we are making technological progress—if it were not happening, something would be going wrong with innovation.  But it’s a problem for obvious reasons (and the traditional endings to extreme wealth inequality in a society are never good).

We are becoming a nation of haves and have-nots—of prosperous San Francisco vs. bankrupt Detroit.  In San Francisco, the average house costs around $1mm.  In Detroit, the average house costs less than a Chevy Malibu made there. [2] And yet, I’d view a $1mm house in San Francisco as a better investment than 20 $50k houses in Detroit.  As the relentless march of technology continues, whole classes of jobs lost are never coming back, and cities dependent on those lost jobs are in bad shape. [3]

This widening wealth divide is happening at all levels—people, companies, and countries.  And either it will keep going, or innovation will stop.

But it feels really unfair.  People seem to be more sensitive to relative economic status than absolute.  So even if people are much better off being poor today than king 500 years ago, most people compare themselves to the richest people today, and not the richest people from the past.

And importantly, it really is unfair.  Trying to live on minimum wage in the United States is atrocious (http://www.forbes.com/sites/laurashin/2013/07/18/why-mcdonalds-employee-budget-has-everyone-up-in-arms/).  That budget, incidentally, assumes that the worker is working two jobs.  Even though they’re outputting less value, that person is certainly working harder than I am.  We should do more to help people like this.

Real minimum wage has declined, failing to track real averages wages and massively failing to track the wages of the top 1%.

In a world where ideas and networks are what matter, and manufacturing costs trend towards zero, we are going to have to get comfortable with a smaller and smaller number of people creating more and more of the wealth.   And we need a new solution for the people not creating most of the wealth—many of the minimum wage jobs are going to get innovated away anyway.

There are no obvious/easy solutions, or this would all be resolved.  I don’t have any great answers, so I’ll just throw out some thoughts.

We should assume that computers will replace effectively all manufacturing, and also most “rote work” of any kind.  So we have to figure out what humans are better at than computers.  If really great AI comes along, all bets are off, but at least for now, humans still have the market cornered on new ideas.   In an ideal world, we’d divide labor among humans and computer so that we can both focus on what we’re good at.

There is reason to be optimistic.   When the steam engine came along, a lot of people lost their manual labor jobs.  But they found other things to do.  And when factories came along, the picture looked much worse.   And yet, again, we found new kinds of jobs.  This time around, we may see lots more programmers and startups.

Better education—in the right areas—is probably the best way to solve this.  I am skeptical of many current education startups, but I do believe this is a solvable problem.  A rapid change in what and how we teach people is critical—if everything is changing, we cannot keep the same model for education and expect it to continue to work.  If large classes of jobs get eliminated, hopefully we can teach people new skills and encourage them to do new things.

Education, unlike a lot of other government spending, is actually an investment—we ought to get an ROI on it in terms of increased GDP (but of course it takes a long time to pay back).

However, if we cannot find a new kind of work for billions of people, we’ll be faced with a new idle class.  The obvious conclusion is that the government will just have to give these people money, and there’s been increasing talk about a “basic income”—i.e, any adult who wanted it could have, say, $15,000 a year.

You can run the numbers in a way that sort of makes sense—if we did this for every adult in the US, it’d be about $3.5 trillion a year, or a little more than 20% of our GDP.  However, we’d knock out a lot of existing entitlement spending, maybe 10% of GDP.  And we’d probably phase it out for people making over a certain threshold, which could cut it substantially.

There are benefits to this—we’d end up helping truly poor people more and middle class people less, and we’d presumably cut a ton of government bureaucracy.  We could perhaps end poverty overnight (although, no doubt, anything like this would cause prices to rise).  And likely most of this money would be spent, providing some boost to the economy.  We could require 10 hours a week of work for the government, or not.  A big problem with this strategy is that I don’t think it’ll do much to address the feeling of inequality.

Many people have a visceral dislike to the idea of giving away money (though I think some redistribution of wealth is required to reasonably equalize opportunity), and certainly the default worry is that people would just sit around and waste time on the Internet.  But maybe, if everyone knew they had a safety net, we’d get more startups, or more new research, or more novels.  Even if only a small percentage of people were productive, in a world where some people create 10,000x more value than others, that’d be ok.  The main point I’m trying to make is that we’re likely going to have to do something new and uncomfortable, and we should be open to any new ideas.

But this still doesn’t address the fundamental issue—I believe most people want to be productive.  And I think figuring out a much better way to teach a lot more people about technology is likely the best way to make that happen.

[0] http://www.youtube.com/watch?v=QPKKQnijnsM

[1] There are lots of other significant factors that cause wealth inequality—for example, having money makes it easier to make more money—but technology is an important and often-overlooked piece

[2] http://www.huffingtonpost.com/2012/07/20/home-cost_n_1690109.html

[3] I was recently in Detroit and was curious to see some of the neighborhoods where you can buy houses for $10-20k.  Here are some pictures: