The ‘be careful what you wish for’ economy


In an ideal world, everyone would save money so they could take care of their own retirement.

Some would call this a Jeffersonian ideal. Others might say it is a Republican core belief. But it’s a widely admired idea. It is most admired by those who feel closer to the ideal world than the world in which the rest of us live.

Forty years ago, when I started writing this column, I thought lots of personal saving was a great idea. I lived closer to the ideal world back then. As my father once predicted, I am now a “sadder, but wiser” man.

Reporting on the real world, I realized that saving was difficult for many. Reader letters convinced me that saving was impossible for some. I also saw that while some people didn’t save because they were willfully clueless, many saved but had their savings wiped out by the nuclear bombs of personal finance: divorce, job loss or major illness. Some got the whole trifecta of personal disaster.

That’s why I defend Social Security. It’s also the reason I devoted two recent columns to why the proposals for reforming Social Security from Rep. Sam Johnson, R-Texas, are bad for the 94 percent of American workers who earn less than $118,500 a year. The proposals to “reform” and “modernize” Social Security are particularly horrible for younger American workers. The young will be subjected to paying the same employment tax as their parents — but their benefits will be slashed.

The current proposal to reform Social Security only rearranges the distribution of benefit cuts workers face when the Social Security Trust fund is depleted in 2034. They do nothing to secure the retirement benefits millions of workers will need over the next 75 years. If any exercise deserves to be described as “rearranging deck chairs on the Titanic,” it is the proposed reform of Social Security.

Those who want to see independent personal saving replace Social Security should be more careful of what they wish for. The consequences of having Jeffersonian independence might realize an ideal, but they would be devastating to our consumer economy.

How could that be? Our economy depends on secure employment, worker spending and abundant consumer debt. That dependence has consequences.

Let’s imagine that there are two groups of workers in America. Some get the memo about reduced future benefits. Others don’t get the memo; they are oblivious to future benefit reductions. Only two consequences are possible. Both are ugly.

The workers who get the memo will save more and buy less. They’ll do this in an economy that is 70 percent driven by consumer spending. Less spending means reduced employment, lower tax collections and more federal debt. Skeptics should recall that after the terrorist attacks of Sept. 11, 2001, we were urged to go to the mall and spend.

The workers who don’t get the benefit reduction memo will continue to spend. Instead of spending less during their working life and retiring with savings, they will go over a spending cliff when they retire. Without a corporate pension or personal savings, the only asset they’ll have will be their house — if they are homeowners. They’ll try to sell their houses, but many of their neighbors will be trying to do the same thing.

So home ownership will do less for them, while reducing the value of the most important asset, by far, that middle-class Americans own.

Selling houses may sustain some retirees longer. Or not. Eventually we’ll have a lot of people who can’t afford the deposit for a rental. Expect RV parks to boom. Also, expect lots of people to die at surprisingly young ages compared to their parents.

It’s not a pretty picture.

That’s why we need, somehow, to secure those $11.6 trillion in benefits, not rearrange how they are cut. That’s why the real-world solution — not the ideal world solution — will involve another thing everyone hates: higher taxes. And, like cutting benefits for millions, the real-world politicians will be talking about who will pay higher taxes.

They won’t call it that, of course. It will be called tax “reform” and tax “modernization.”



Reader Comments ...


Next Up in Business

Mayor Adler: Landing Amazon’s HQ2 could push Austin to solve key issues
Mayor Adler: Landing Amazon’s HQ2 could push Austin to solve key issues

Austin Mayor Steve Adler says that if Central Texas did win the bidding ware for Amazon’s HQ2 project, it could help the Austin area tackle some of its major issues. In a Q&A with the Statesman, Adler lays out his vision for the Austin area if Amazon HQ2 were to come here, what his office has been doing as the region pursues the facility and...
Well before HQ2 frenzy, Amazon had major presence in Central Texas
Well before HQ2 frenzy, Amazon had major presence in Central Texas

If the Austin area does somehow beat out more than 200 competitors and land Amazon’s $5 billion, 50,000-employee second headquarters project , the facility would just be the latest addition to an already significant presence Amazon has established in Central Texas. Amazon currently employees thousands of workers in varying jobs in Central Texas...
Austin-area auto sales bounce back in 3rd quarter
Austin-area auto sales bounce back in 3rd quarter

Led by a strong September, Austin-area auto dealers enjoyed a sales bounce in the third quarter that pushed local auto sales ahead of the previous year’s sales pace. Austin-area auto dealers sold 14,333 new vehicles in September, a 17 percent increase over the same month in 2016, according to Freeman Auto Report, a Dallas-based service that tracks...
Central Texas veterans can now shop the Exchange online
Central Texas veterans can now shop the Exchange online

More than 18.5 million veterans nationwide – including an estimated 53,000 in Travis County – will be able for the first time ever to make purchases online from the Army & Air Force Exchange Service this holiday season. Outposts of the Exchange, which has been around since 1895, have long offered active-duty troops, their families and military...
Paige founder: ‘Austin feels like our home away from home’
Paige founder: ‘Austin feels like our home away from home’

A year after its debut, Domain Northside continues to land new-to-Austin – and new-to-Texas – retailers. The list is a long one and grows with each passing week. One of those recent additions is Los Angeles-based Paige, 11700 Domain Blvd., which sells premium men’s and women’s denim. Founder Paige Adams-Geller, a former model...
More Stories