Comments on economics, mystery fiction, drama, and art.

Wednesday, May 30, 2012

Some thoughts on retirement

Retirement, as a common end-stage of our lives, is an artifact of the mid-to-late 20th century (brief histories of retirment in America can be found here or here; a more detailed view, with a somewhat different take than mine is here.).  Before (roughly) the 1950s, people normally worked until (a) they died or (b) they were physically or mentally incapacitated.  People who achieved (b) typically lived wih their children (if they had children) or in abject poverty (often institutionalized, in "county homes").  [Even before 1950, an increasing percentage of the population did, in fact, achieve retirement in the earlier part of the 20th century (as incomes, and the ability to save for retirement rose).  This remained a distinctly minority accomplishment, and was confined to the upper-middle and upper income groups.]

Two developments--public support for retirement through Social Secuirity and the broadening of private-sector pensions to "working-class" employees, generally as a result of union activity--made secure retirement incomes more widely available.  Increasing lifespans, as a result of rising incomes, more widespread access to health care, and health incurance, coupled with increasing provision of retirement incomes, creaed a population of people with the ability and the desire to cease work.  By 1986, the labor force participation rate for men, which was about 47% in 1948, had declined to about 16%.  Retirement, far from being the preserve of (largely white) upper-income families, had become a mass phenomenon.


By 2008, pension coverage had declined.  In particular, participation of workers in defined benefit pension plans had declined dramatically.  In 1979, 38% of all private sector workers were covered by defined benefit pension plans (with or without additional coverage by a defined contribution plan).  By 2008, coverage by defined benefit plans had declined to only 15% of all workers (for detals, see this).

Why do defined benefit plans matter?  What's the problem with the expansion of defined contribution plans?  Simply, defined benefit plans allow for people to make fairly secure plans for retirement; defined contribution plans--as we saw in the declines in asset values recently--subject us to the vagaries of financial markets.


Social Security has come, increasingly under attack, with more and more efforts to delay retirement benefits, or, as proposed by President George W. Bush, to convert it to a defined contribution plan.

So what does the future of retirement look like?  We already know that people are more likely now to remain in the labor force after age 65.  From its low point in 1986 (16%), for example, the labor force participation rate of men has increased to nearly 23%, roughly where it was in 1973.  Will retirement once againbecome the province of upper-middle and upper-class families?  That outcome seems all too likely to me...

Wednesday, May 09, 2012

Why the rich should support strong economic recoveries

Brad DeLong cites Peter Orzag's report of recent findings that the top 1% of the households in the U.S. experienced about half of the total income loss during the recent resession.  Orzag's conclusion is that rational high income families should support vigorous policies aimed at returning the economy to full employment, since they would benefit significantly from this.

What struck me about this is something I found when I was preparing to teach my economic history class last year.  Income losses during the great depression were also much larger among the highest income groups than among lower income groups.  (I found this from data in the Historical Statistics of the United States; all income figures have been adjusted to 2005 dollars):

..................................Average Family Income In
.....................................1929                    1935
Lowest 40%
of Households.............$5,000.................$5,000

Middle Quintile..........$15,000...............$14,800

Next Higher

Top 20%....................$59,500................$54,000

This all suggests that the income losses between 1929 and 1935 were very concentrated in the top 20% of the households--98%, actually, if these numbers are accurate.

What I wasn't aware of is that this would have come as a surprise to anyone...

Thursday, May 03, 2012

Is BusinessWeek worth it now?

In the past few months, I've read a number of comments about the revived BusinessWeek, under Bloomberg's ownership.  So I re-upped, with a 26 week subscription for $20.  Having received three issues so far (and read two of them), I'm not so sure I'm thrilled.

Leaving aside issues of appearance, style, and layout (the pages feel cramped; it's often difficult to tell where a story ends), I have found the content less than stellar.  One example will do for now, I think.

The cover story in the April 23 issue deals with the resurgence of the Securities and Exchange Commission's enforcement efforts, despite a small budget and miniscule staff.  The article refers to a turnaround from four years ago, and suggests that enforcement was downplayed when Christopher Cox was the Commission's Chair.  All true.  But I seem to recall something else that happened in 2008...let's see...what could that have been?

That's it--no mention that we elected a new president, who is committed to enforcing the securities law (and even to strengthening them), replacing a president who quite apparently didn't care and defeating a candidate who was clueless about these issues.  That's right.  Barack Obama is not mentioned, and the Dodd-Frank package receives only one passing mention.  Strange...