Universal 401(k) Accounts Would Bring the Poor Into the Ownership Society

[DeepModem Mom]

NYT: Economic Scene
Universal 401(k) Accounts Would Bring the Poor Into the Ownership Society
By TYLER COWEN
Published: December 28, 2006

Of the current proposals to address income inequality, the universal 401(k) is the most likely to bring general prosperity.

The core idea is simple. The federal government creates tax-free retirement accounts for lower-income Americans, supplementing private accounts where they already exist, and matching personal contributions to those accounts. The amount of the match would depend on the income of the family and how much they save.

Gene B. Sperling, senior fellow at the Center for American Progress and the best-known proponent of this idea (americanprogress.org/issues/2004/01/b289151.html), calls for a mix of 2-to-1 and 1-to-1 matches, but of course the exact ratios depend on what we are willing to spend.

Just as the earned-income tax credit pays poor people to work, the universal 401(k) would pay poor people to save. The idea is to bring the benefits of markets and investing to the poor. An H&R Block study (“Saving Incentives for Low- and Middle-Income Families: Evidence From a Field Experiment With H&R Block,” by Esther C. Duflo, William G. Gale, Jeffrey Liebman, Peter R. Orszag and Emmanuel Saez, published in The Quarterly Journal of Economics in November) indicated that lower-income Americans have a strong demand for easy-to-use matching retirement accounts.

But currently only 55 percent of Americans working full time hold a job with a retirement savings plan; the rate is even lower for part-time workers and the poor. Thus the bottom 60 percent of taxpayers receives only 10 percent of the tax incentives for savings....

http://www.nytimes.com/2006/12/28/business/28scene.html?bl&ex=1167714000&en=bc41ecec3961a29a&ei=5087%0A

[zalinda]

1. That would assume you have money you can save n/t

[jwirr]

2. Are the poor expected to save their own investments into these

accounts? If so it is the most ridiculous idea I have ever heard. The poor including many low income workers do not even have enough to live on let alone savings.

[Joanne98]

3. Getting a raise would bring them into the "ownership society" too

The greedy never stop.

[nadinbrzezinski]

4. Ah yes the right is coming back with yet another

"idea" on how to end the country

[antigop]

5. oh, brother

>>
The idea is to bring the benefits of markets and investing to the poor
>>

And they expect us to believe this crap?

No, THE IDEA IS TO LINE THE POCKETS OF WALL STREET, WHO FEED THE MONEY BACK TO POLITICAL CONTRIBUTIONS.

They really do think we are stupid, don't they?

[NashVegas]

6. I Lost Everything In My 401(k) Thanks to Fraud

I was lucky, had only started and had less than 4k in. Others? One guy lost 400k.

The Feds have no business mandating this unless they intend to guarantee the money will be there.

This proposal is just more BS for the SS phase-out.

[Union Thug]

7. LOL...okay. So the average american is into a negative savings cycle...

the stock market is just Vegas on steroids, and 401ks for people that can hardly pay the bills are the answer?

I hope american's aren't stupid enough to buy into this bullshit. Just another card handed to the wealthy to destroy social safety nets, by creatively taking money from the poor and putting it into their own pockets.

[RB TexLa]

14. You can invest 401(k) money in currency or bond funds with very low

risk, they all have an option with a guaranteed low return.

[Union Thug]

21. That's not the point. To me, every person in this country should

be guaranteed a basic standard of living for their retirement years and we, as a community are should take responsibility for providing that. The individualism doctrine that provides the foundation for the 401k 'proposal' is cancerous and guarantees that for every winner, there will be scores of losers.

Low income and working class people saving enough money to retire on their own? Not going to happen.

Guaranteed low returns? Good luck, workers of the world.

[MaryBear]

8. An interesting idea and certainly one way to provide

universal retirement. However,it would do nothing to alter the balance of wealth in this county.

[sandnsea]

9. That's how they destroyed guaranteed pensions

This is just a backdoor method of ending guaranteed social security insurance. We need baby bonds so that people have something to build on when they go into the work force, instead of having to go into massive debt before you even get to the starting line.

[Union Thug]

10. If people aren't in massive debt at the starting line, how the hell

will they keep people dependent on their system? You certainly wouldn't want to provide stability for the vast majority of americans. They might then have time to think about the inequity in the system and have time and energy to do something about it.

[RB TexLa]

11. It's a good idea even if it's not much matching from the government

which I don't see there being much of, smells too much like redistribution to fly too far. The key is getting people to lock money away from themselves for lengths of time. Being self employed I do this with annuities, a $5000 one here, a $3000 one there so on and so on.

[dave_p]

12. No

Ownership isn't a share in an uncertain dividend, it's possession and control of a good.

Saving should be encouraged and subsidized where appropriate, but entitlement to a third-rate scrap of elite rents (conditions permitting) isn't ownership.

It's generally for people to have something than to have nothing. But it's others who own and have the power to get the best deal: the rest of us get to sustain the overall price level and share a slice of whatever's left after the players have taken their cut.

[TahitiNut]

13. The 'greater fool economy' is drafting fools.

Rather than deal in loans, we deal in 'ownership' ... and the inflated meringue of the 'market'.

[antigop]

25. All a ploy to inflate stock market prices

The amount of stocks will not increase, but demand will as more people move to 401(k)'s.

Now what happens when you have a big increase in demand, but not an increase in supply? The price goes up. So stock prices become inflated.

[TahitiNut]

28. Yep. Notice the equity vs. loan dynamic.

When too much money chases too few (quality) equities, the "market value" of the stock goes up and the general quality of the underlying enterprise goes down. It's a "dream come true" for the "fly-by-night" types ... concoct a maze of intercikined corporate entities (Enron was more than 500 'corporations') and play shell games -- a massive money laundry.

When too much money chases too few borrowing 'demands' then interest rates go down (including credit care and home mortgage and T-bills) and risk is managed ... BUT the bankers don't have 'float' and middleman payola. Americans benefit when Americans LOAN each other money, imho. When small business people (owner-operators) borrow money and make a success of the business, paying off the loan, they're FREED of the burden. But when they sell themselves into the slavery of 'ownership' - FOREVER having to pay some non-laboring 'owner' the RENT on their one-time injection of capital. they're never free of the 'debt' until repurchased against a 'MARKET' that raises the repurchase price - assuming the 'owner' even wishes to sell.

[antigop]

32. And how are CEO's of corporations compensated?

Uh, maybe on the stock price? And their options are based on what? Uh, the stock price?

[TahitiNut]

33. Indeed. And repurchase is motivated by keeping the market price up.

It's not motivated by returning 'ownership' to the operators/workers. Even when such corporations go 'private,' the owners are not workers in those companies any more than the plantaion owners worked their fields next to their slaves.

The entire idea of a business being owned by those who do the work is limited solely to the instances of owner-operated small business ... and is at the very lowest economic rung of business. It's really sad - the entrenched enmity today's capitalism has for labor ownership is infused throughout our economic system.

[Greyhound]

15. Mom, do you have an opinion on this?

I was just wondering why you posted it.

[DeepModem Mom]

18. The Center for American Progress is a progressive thinktank. Here's a link...

to its site: http://www.americanprogress.org/

So I posted because of the mention of a supporter from this organization, and also because I found the article on the list of NYT "most blogged" articles.

As for an opinion, it's a new idea to me -- and, I confess, economics is not my strong suit! I'll be interested in responses.

[Greyhound]

27. Thanks for your reply. I would make two suggestions.

1. read some of the materials suggested in the other replies.

2. just assume that when ruling class spokespeople promote a financial strategy for the "regular folks", they are simply trying to steal your future.

[TahitiNut]

29. I regard them as "Third Way" ... not liberal.

While certainly not of the neoconservative stripe, they're probably closer to "Eisenhower Repbulicans" than FDR New Deal Democrats. They're more corporate-friendly than labor-friendly.

[cosmik debris]

16. What a load of crap!

People who live paycheck to paycheck don't need a 401(k). They need a decent paycheck.

This just shows how out of touch these people are. Reality has completely escaped them.

[crikkett]

17. sounds like privatizing social security

to me.

[JDPriestly]

19. I have invested in 401Ks for quite some time.

I possess very little and control nothing. It's a fool's paradise. Social Security and guaranteed benefit pensions are the only way you can own anything once you retire. At an interest rate of 5% average a year, you need io have saved a lot of money io afford from $50,000 to $60,000 per year for decent assisted living in L.A. Ownership is irrelevant when you are very elderly and need care not hot air.

[pansypoo53219]

20. pfft

another prop for the wall street casino. couldn't get SS money, so they will try anything.

[applegrove]

22. And the poor end up competing with the rich on stocks..and they loose.

Don't ya think that the rich are dying to dump all their GE & Ford stock? They need buyers for those things. The rich will win because they have expensive investment advice. Plus the poor are often on month of bad luck away from being evicted. Who is going to tell them they cannot withdraw money in that case?

It doesn't make sense. The GOP wants a bigger base and the stock market to roar. The poor & lower middle class are already doing a great job of helping out the stock market by facing lower wages and fewer jobs...thus fighting inflation on their own. Fighting inflation helps the rich. What they deserve is a good health care plan..for all their hard work during this asymmetric economy. They are owed at least that.

[antigop]

23. I would STRONGLY recommend the book: The Great 401(k) Hoax

If you want to know why Universal 401(k) accounts are a bad idea, read this book.

[antigop]

24. Best quote I have found....

http://www.msnbc.msn.com/default.aspx/id/13530778/site/newsweek/

This article discusses the shift from defined benefit pensions to defined contribution (401(k)) plans:
>>
Pension plans also earn more on their investments than a typical 401(k) due to better management and lower expenses. "We're moving from an efficient retirement system to a less efficient one," says Watson Wyatt's Kevin Wagner. It's a loss.
>>


Watson Wyatt is a consulting firm.

[antigop]

26. Let me put it this way....

I'll believe this is a good idea when members of the U.S. Congress vote themselves out of their defined benefit pension plan and have to go solely with a 401(k).

[wishlist]

30. Many middle class people can't afford and borrow (draw on) their 401k's

The stock market downturn a few years ago took out half of the value of most 401k's invested in stock funds, and many other people end up borrowing on their 401's when they get short on funds for major purchases. Definitely not a solution or replacement for conventional pensions and guaranteed Soc Security benefits.

[newportdadde]

31. The federal gov will match.. with what? Toilet paper dollars?

I'm starting to think our government won't be satisfied until our dollar is about as valueable as something you wipe your ass with.

I tell you what.. you want to help people.. all Americans then stop the ability for EVERYONE to possess so much easy credit and make it actually pay to save. Easy credit and debt is inflating us into oblivion.