If you have a 401(k) or equivalent retirement plan, you've probably been watching nervously the past few weeks as your nest egg has shrunken owing to the current turmoil in the markets.
Well, it could be worse. But don't take heart, for what we mean is it could get worse. The market turmoil has some politicians on Capitol Hill eyeing the end of the 401(k) as we know it. Workforce Management reports on a hearing of the House Education and Labor Committee earlier this month:
A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. . . .
Under Ghilarducci's plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.
The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.
"I want to stop the federal subsidy of 401(k)s," Ghilarducci said in an interview. "401(k)s can continue to exist, but they won't have the benefit of the subsidy of the tax break."
Ghilarducci outlined her plan last year in a paper for the left-liberal Economic Policy Institute, in which she acknowledges that her plan would amount to a tax increase on workers making more than $75,000--considerably less than the $250,000 Barack Obama has said would be his tax-hike cutoff. In addition, workers would be able to pass on only half of their account balances to their heirs; presumably the government would seize the remaining half. (Under current law, 401(k) balances are fully heritable, although they are subject to the income tax.)
Sounds pretty unappealing, doesn't it? But in her congressional testimony, Ghilarducci offered a sweetener:
Short-term I propose . . . that the Congress allow workers to swap out their 401(k) assets, perhaps at August levels, for a guaranteed retirement account--just a one-time swap. . . .
How would this work? You go back to your districts and meet up with a 55-year-old who had had $50,000 in his account last month and now has $40,000 in the account. He can swap out that $50,000, valued in August, for that guarantee of what would become, if he retires at 62, a $500 a month addition to Social Security.
A 55-year-old who lost 20% of his 401(k) because of the recent stock market decline was investing more aggressively than he should have, given his age. Ghilarducci proposes to reward this imprudence in exchange for dramatically limiting everyone's ability to take risks (and enjoy the corresponding rewards) and for greatly increasing government control of Americans' retirement funds.
It is by no means a certainty that Congress or a President Obama would embrace such a proposal, but this is a direction in which things may move if the Democrats make big gains next month.
Mistakes Were Made
The New York Times recounts the sad story of Jody Crispin, a 39-year-old mother of two from Virginia Beach, Va. In 2006 Crispin decided to buy her first house, for $205,000. The $1,650 monthly payments wouldn't be a problem, given that she earned a six-figure income selling ads for a Web site.
But soon after she closed on the house, things went wrong for her at work. Her sales commissions started declining. "Then in August of that year, after a supervisor reassigned some of her clients to another staff member, she made a decision she came to regret: 'They told me they were giving accounts I made to someone else. I quit.' "
She did not have another job lined up. She thought about becoming a real estate agent, but realized it was not an opportune time to go into that business. She found a couple of other jobs, but was making far less than at her earlier job. By August she had missed three mortgage payments, and the bank foreclosed and sold her house at auction.
Crispin proceeded to move in with an ex-boyfriend, the father of her 6-year-old son, whom she had apparently never married. "The arrangement is especially difficult, she said, because she still has feelings for him, though he is dating someone else and has made it clear that they will never get back together." This left her so "emotionally distraught" that last week she missed two days of work, and she worries she may get the ax.
On Friday the ex-boyfriend told her to move out. "But she has saved only $130 toward renting her own place. So she posted a flier at Starbucks offering her big-screen television for sale, and, without a destination, began packing her van."
The Times, in its Paris edition, headlines the story "The Personal Cost of the Mortgage Meltdown." To be sure, the story is a sad one, but what does it have to do with the "mortgage meltdown"? There is no indication that Crispin's mortgage was beyond her means at the time she took it out. By the Times's account, she lost her home because of a combination of bad decisions and bad luck. True, some of the latter was owing to unfavorable economic trends, but this could have happened at any time. The Times seems to be straining to fit it into the "mortgage meltdown" narrative.
My Brilliant Shariah
The Daily Lobo, student newspaper at the University of New Mexico, reports on a novel proposal for curing America's economic ills:
The U.S. may be able to solve its financial troubles by being more like Middle Eastern countries.
At least that's what Loretta Napoleoni, author of Rogue Economics: Capitalism's New Reality, said during a presentation in the SUB [Student Union Building] on Wednesday.
She said the banking systems in Islamist countries operate according to religious laws and are more successful for it. . . .
Napoleoni said that in Islamist finance, banks do not charge interest for loans and that this encourages entrepreneurs.
"Money has to be invested," she said. "It has to be invested in the real economy, and through real growth, they can produce more money. This system could help us to get out of the current crisis."
According to the CIA World Factbook, in 2007 Saudi Arabia, which practices Shariah (Islamic law) had a per capita gross domestic product of $19,800. Of course America might not quite be able to match this, since the Saudis have insane amounts of oil wealth. Probably we'd end up somewhere between Saudi Arabia and Yemen, a country that borders Saudi Arabia but has no oil to speak of, where the per capita GDP was $2,500.
Then again, the per capita GDP of America was $45,800. So it's just possible we're doing something right.
The Partisan Press
Conservatives and Republicans have complained that the media are in the tank for Barack Obama, as did Hillary Clinton supporters back in the day. It turns out that this perception is widely shared. According to a new survey from the Pew Research Center for the People and the Press, 70% of Americans "believe that the media wants Barack Obama to win the presidential election." Only 9% think the media are pulling for John McCain, with 21% saying they don't know or the media are neutral.
Pew asked the same question in the four previous elections, and found a similar but far less dramatic pattern. In 2004, 50% said the media wanted John Kerry to win, vs. 22% for George W. Bush. The percentage who didn't know or said the media were neutral was as high as 31% in 1992 and has never been as low as it is today.
To some extent, the media's perceived preferences may reflect a change in public opinion. After all, indications are that a higher percentage of Americans want Obama to win than wanted Kerry four years ago. But the increase in voter preference is unlikely to be anywhere near as dramatic as the increase in perceived media preference. Journalists' favorite candidate may win this time around, but their reputation for impartiality is taking a beating in the process.
We're Not Prejudiced, We Hate All Groups Equally
Yesterday we noted that Lewis Diuguid of the Kansas City Star had identified "socialist" as a code word for "black." In a column today, Diuguid predicts that Barack Obama will lose the election, because "the burning fires of racism" mean that "the majority is unlikely to elect an African-American leader."
That is hardly an original prediction. What makes Diuguid's viewpoint unique, however, is that he attributes the loss of several other candidates--including those Obama beat--to prejudice:
Ethnicity got bumped first when New Mexico Gov. Bill Richardson, who's Hispanic, dropped his bid for the Democratic nomination for president in January. This country is building fences on the Mexican border and isn't ready to put a Latino in the White House.
Religion got an "F" next when former Massachusetts Gov. Mitt Romney, who is Mormon, dropped out of the GOP bid for president in early March. He had the credentials, the experience, the money and good looks to be president.
But Mormons I know say his faith was what likely did him in. They've explained that Mormons face discrimination that rivals what African-Americans have had to endure.
Gender was the third to fall. Overpowering sexism is real in America. Sen. Hillary Clinton, who has been horribly treated by the media and the public, conceded to Barack Obama.
Obama will face Sen. John McCain, who added gender on a lower tier by picking Alaska Gov. Sarah Palin as his running mate. A lot of GOP pundits are "hating" on her now.
What's brilliant about this is that even if Obama wins, Diuguid doesn't have to give up his belief in enduring racism. He can just blame McCain's loss on sexism, or perhaps on bias against old people.
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