From a macro perspective retirement savings is a big problem, but it is a problem that has to be fixed. The problem with the problem is that all of the accepted fixes actually make the problem worse.
Anyone who studies, or even dabbles in, economics understands the paradox of thrift. Saving for any purpose is wise at the individual level, but deadly to a consumer-based economy if everyone does it. Savings drain demand that could be fueling productivity, but the real resources needed to provide for the future cannot be moved forward in time as demand can, so it is often better to invest in future productivity than it is to secure wealth/demand. If prospective retirees reach retirement and find scarce resources their savings are diminished by inflation as they are deployed to purchase those resources, bidding up prices.
The proper balance of savings and investment must also allow for the volatility of capitalism and the business cycle and recognize that dipping into the funds will be necessary occasionally. For many boomers and GenX this has wiped out their retirement plans as they struggled through the ’08 crash and the painfully slow recovery only to find that their savings anchor, Social Security, is also in trouble. Most of would be happy to get back the payments we made into the program and employee retirement funds/401k we watched go up in smoke.
There is a fix that doesn’t run into the paradox while also securing a dignified retirement for everyone, but it requires a basic rethinking of our government’s role in the economy that has repercussions reaching well beyond Social Security. Given that most of the wealthy nations of the world have figured this out gives us hope, but as Churchill is credited with stating, “Americans can always be counted on to do the right thing — — -after they exhaust all other possibilities”.
We should immediately abandon all FICA taxes, which would return that demand to the economy to bolster productivity, and simply guarantee a minimum retirement benefit to live in dignity to everyone, regardless of their income history. The FICA tax is extremely regressive and has not provided sufficiently the means to secure retirement, but did pose a significant drain on the private sector economy, forcing many into higher interest bank debt that they will carry into their retirement as mortgages on their homes, the previously accepted safe store of value for the middle class.
This “fix” means we must give up many of our comfortable myths surrounding our government and its relation to the money we all use to conduct commerce. The government, being the monopoly issuer of the currency, can “afford” anything that is physically available and for sale denominated in dollars it creates at will. It is not revenue restrained in its ability to spend, so there is no need for it to “get” money from the private sector except to control inflation and accomplish social goals requiring redistribution. FICA, and all other taxes/revenue are destroyed as they pay down the debt that created them as a first order accounting function. They never “fund” anything at the federal level.
One only has to dive into the accounting of Social Security to verify this. In spite of a $3 Trillion “fund” and dedicated taxation of present workers, the payment of benefits is fully funded by appropriations of Congress. What is the point of removing 15% of workers wages if it is destroyed and must be replaced with new spending to fund benefit payments anyway? The absurdity of this is only surpassed by lawmakers insisting that benefits be cut to accommodate an accounting entity that is only slightly less mythical than unicorns. The bonds representing the SS surplus, just like all Treasury bonds, are empty of any real assets.
Bonds are, and always have been, inflation control, not revenue for spending by the monopoly issuer of the currency that needs no revenue. They reflect nothing more than the currency created by Congress that has not yet been used to pay a federal tax obligation, not a debt that taxpayers are responsible for. They are the savings/wealth of our nation represented in interest-earning assets, but they are also an obligation to the combined balance sheet of Treasury/Federal Reserve, so nothing real is gained from them with a fiat currency that is available to Congress on demand to fund any level of benefits it wishes to pay to retirees without reducing their ability to participate in the economy while they are working.
