South By North Strategies, Ltd.

The Wobbly Retirement Stool

In a recent presentation to Congress, Ross Eisenbrey of the Economic Policy Institute argued that public policies surrounding retirement have done little to help  middle- and low-income households prepare adequately for retirement. This results from the shift of retirement plans from defined-benefit ones (e.g., traditional pensions) to defined-contribution ones (e.g., 401(k)s).

Argues Eisenbrey:

How can it be that after 32 years and trillions in tax subsidies, 401(k)s have worsened—rather than improved—retirement security?  First and foremost, the design of the 401(k) ensures that its tax subsidies go disproportionately to high-income earners who least need the government’s help in saving, while providing little or nothing to low-income earners, many of whom struggle to meet their daily expenses, let alone save for a distant retirement.
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The Urban-Brookings Tax Policy Center estimates that 80% of the tax subsidies for retirement savings go to the top 20% of earners.  This is government welfare stood on its head.  There is no rationale for providing a larger tax break to a millionaire than to a Wal-Mart cashier for the same dollar contribution to a 401(k) plan (and nothing at all if the cashier owes payroll but not income tax).  Similarly, high earners receive more help from employers, who contribute 5% of earnings, on average, to the retirement accounts of households in the 75th percentile, compared with less than 2% for those at the 25th percentile, according to the Congressional Research Service.

Around The Dial – Oct. 27

Economic policy reports, blog postings, and media stories of interest:

• The Wall St. Journal reports on glum housing news.
• Naked Capitalism explains why “foreclosure fraud isn’t mere paperwork.”
• David Cay Johnston notes that 1 of every 34 wage earners earned nothing in ’09.
• Calculated Risk analyzes the newest Case-Shiller housing data.

Racial Wealth Disparities In North Carolina

A recent study commissioned by the Z. Smith Reynolds Foundation considers differences in wealth between North Carolina’s white and African-American households.

The report found that North Carolina households belonging to both racial groups possess less wealth than do their national counterparts. Nevertheless, the median household wealth of the state’s white households is over seven times that of black households ($71,900 vs. $9,500).

The table below shows wealth data by racial group and income category for the state and nation.

The Myth of Expansionary Austerity

In a new research paper, the Center for Economic and Policy Research explains why fiscal austerity measures are unlikely to expand the American economy. From the report …

In short, there is little reason to believe that a fiscal adjustment will lead to a substantial improvement in the United States’ trade position any time in the near future. This channel for offsetting the contractionary impact of deficit reduction is not very promising.
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The investment channel does not appear much more promising. With interest rates already at historic lows, it seems implausible that whatever further decline may occur as a result of adjustment could have very much impact. In most sectors output remains far below capacity, so firms have little incentive to expand capacity far in advance of demand. This is especially true because the bubble in non-residential real estate led to enormous excess supply in most areas.
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Businesses can invest in modernizing equipment, but the impact of further declines in interest rates is likely to be limited. There is a large body of research that finds that investment is not very responsive to interest rates.8 Furthermore, the rate of growth of equipment and software investment is already quite rapid, with growth averaging 19.9 percent from third quarter of 2009 to the second quarter of 2010. It does not seem likely that lower interest rates will increase this rate substantially, especially in a context where demand is contracting due to budget cuts.

Around The Dial – Oct. 26

Economic policy reports, blog postings, and media stories of interest:

• Naked Capitalism offers some scary foreclosure  fraud estimates.
• Paul Krugman despairs of falling into “the economic chasm.”
• The Wall St. Journal reports on potential changes to tax expenditures.
• James Fallows explains the journalistic role of National Public Radio.