As people prepare to pop champagne corks at midnight on New Year’s Eve, I see media hype about the years 2000-2009 being the "lost decade" in America. Those years overall were bad ones for Wall Street, but not for Main Street. So what if 401k portfolios became "201k" in and around the 2001 recession? House prices still went up. Jobs disappeared primarily in computer technology sector. The American middle class directly or indirectly measures its economic well being first by jobs and second by home ownership. All the other factors combined don't equal to either of these factors. Just because the stock market performed poorly over the zeroes doesn't mean it was a lost decade in suburbia. Middle America did just fine all the way through 2007 when the unemployment rate last stayed below 5%. Too bad Main Street’s lost decade didn't start on an even number nicely packaged for media spin and public consumption.
On the topic of the 401k, there is a faction attacking this popular employee benefit. For example, Stephen Gandel of Time Magazine wrote: "The average 401(k) has a balance of $45,519. That's not retirement." His conclusion: "The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves." There the media goes again. Another factoid spun into a fallacy.
I consider my situation typical. I have multiple accounts in addition to my 401k. They are called rollover IRAs; I have worked for multiple employers like almost every employee who started working since 1980. Portability is why 401k's gained traction in the first place. My accounts are spread over multiple mutual fund companies. On average, they are less than the quoted figure. Together, they represent years of prudent saving and investing. Apparently Mr. Gandel forgot to add. A few employees suffer life events that set back their finances, more handle their finances irresponsibly, and many more than that do just fine. The left wing press has lost touch with how the middle America leads its financial life.
Unfortunately, some magazine writers aren't the only disconnected ones. "[The 401k] may be a good tax-free-savings system for wealthy individuals," said George Miller, Congressional Democrat of California's 7th District. Well I have news for you, Mr. Miller, I'm not wealthy, and the 401k works well for me and millions of registered middle class voters just like me. So what would politicians like Mr. Miller do? Invited to speak before a Congressional Committee, academic Teresa Ghilarducci proposed to replace the 401k with another government run program. I feel saved.
The ugly truth really is that people like Gandel, Ghilarducci, and Miller remain ignorant of and/or politically biased against what's good for the American middle class. These ivory tower denizens don't want to give the ordinary American the opportunity to win or lose. They want the US government to immunize working people from risk taking and decision making. They want to mandate equal outcomes. Everybody wins! Nobody is below average! If they haven't figured it out by now, government is part of the problem.
The 401k is the rare exception where the government got it right by combining personal responsibility with payroll friendly accounts. The feds standardized rules and then kept their hands off operations. Each plan might have limited choices. However, rollover IRAs into which 401k balances get funneled after switching jobs involve many options. With disappearing pension plans and the now exposed IOUs in Social Security, the 401k plan is this best opportunity for the middle class to retire at all.
Personal responsibility is an idea that is anathema to left wing ideologues. These same ideologues would better serve not only the American middle class, but all Americans by fixing the real retirement problem. The real retirement problem in the US is the intergenerational Ponzi scam absurdly known as the “Social Security Trust Fund.” In the coming decade, coming up with real money to pay social security benefits will threaten the solvency of the American government.
I don't mean to single out liberals. In fairness, other segments of the status quo deserve criticism. For their part, Republicans were all too eager to bail out the fat cat bankers and their Wall Street handlers. (By the way, I haven't seen a change in 2009.) Money that could have funded Social Security obligations has already been spent. Also, Republicans never met a tax cut they didn't like because "deficits don't matter." Well, deficits don't matter, until they do. That moment next decade when federal financial mismanagement matters, those leaders will be long gone and blame everyone else if confronted.
For their part, the bankers and financiers have joined forces to serve their own interests. Wall Street doesn't seem to have changed much since the market meltdown of 2008. The rules enabling them to dump toxic securities on the global markets still exist. CEO Chuck Price: when "the [speculation] music is playing, you've got to get up and dance." They take the money and run. Also, now bankers won't lend to creditworthy small businesses. The biggest job generation machine stalls as a result. Where is the modern counterpart of Amadeo Giannini?
If 2007 was the start of the lost decade, then the end won't get behind us until late in the teens. Credit crisis recessions don't resolve themselves after a year or two like excess inventory recessions. While US consumers and the banks deleverage, the US government leverages up. Uncle Sam is taking on more debt that it can't pay back. A debt default is too much an obvious television event, the kind that gets politicians unelected. Politicians are dumb, but they aren't stupid. The US Congress, the Administration, and the Federal Reserve will instead opt for under-the-table money printing during 2010-2017. The writing on the wall says "inflation." Alas, if only Milton Friedman were still alive.
America's current power brokers just don't get it. I know, there are always exceptions, like my Congressman Ron Paul and media figure Lou Dobbs. Upon us now blows the perfect storm combination of serious economic problems and poor leadership. The media's detachment from the ordinary American's plight, the federal government's stubborn reliance on party line politics and empty promises, and Wall Street's greed ensures a smaller American middle class towards the end of the next decade. I don’t plan to be a statistic. Self education, spending less than your income, control over your accounts, and big picture awareness of the global economy can make you succeed as well.
Copyright © 2009 Chuck DiFalco
