You Cannot Make This Up: New Criterion Tells Us We Should Ditch Social Security Because All Minimum Wage Earners Can Become Millionaires

People who write for right wing outlets live in an alternative reality. The piece that Michael Thomas pointed out to me from the New Criterion, “Future tense, V: Everybody gets rich,” by Kevin D. Williamson, belongs in a special category of its own in terms of the degree of disconnect it exhibits.

As much as I enjoy shredding articles, this piece has so much wrongheadedness in a compressed space so as to make a full bore exercise of unpacking it a a major exercise. Let’s deal with just this part, which is a neat one-two effort to tell us no one need safety nets like Social Security because even people making minimum wage can be rich (and not by creating a business on the side and going public at a big multiple….):

The welfare state isn’t a very good buy. The average Social Security benefit runs just over $1,100 a month—peanuts, hardly enough to keep you in cut-rate butter once your median rent of more than $800 has been paid. For that, you’re taxed 12 percent of your take-home pay. Compare that to this: A married couple, each earning the minimum wage, investing only 10 percent of their earnings at a modest 7 percent return, retires with an annual income of more than $100,000 a year—even if they never touch the $1.5 million principle they’ll leave to their children. President George W. Bush was mocked for calling his proposal to cultivate such minimum-wage millionaires the “Ownership Society,” but it was the most important initiative of his presidency.

Erm, the worst is I get the strong impression Williamson believes every bloomin’ word he wrote. I gather no one told him the global financial crisis was the culmination of the ownership society, which was purchased with minimal equity and cheap leverage. It’s a broader scale version of Josh Rosner’s 2001 (!) comment on housing: a home without equity is just a rental with debt.

Let’s start with the most obvious reason why Williamson’s little tale of minimum wage people retiring as millionaires is observed about as often in the real world as unicorns: his fantasy expectation that they save 10% of their incomes. The savings rate for Americans as a whole hasn’t been over 10% since 1984 (and it was only rarely above 10% from the beginning of the data series in 1959 through that date. With the exception of 1984, it was strictly a recession phenomenon). It is currently 3.5%.

How exactly do two people earning minimum wage save 10%? Kids are out of the question (although he refers to them), since two incomes and kids necessitates two cars, unless you live in a major city with excellent public transportation. Even if they do manage to save that much intermittently, has he not heard of how short job tenures are? Any job interruption at any income level leads to a depletion of savings. And minimum wage earners don’t get meaningful benefits. How are they to pay for anything in the medical category over and above an annual checkup? The Grand Canyon sized hole in this logic is you have to have an entire working career of uninterrupted earnings and nothing bad happening (oh, including a divorce).

And that’s before you get to the barmy investment return assumptions. Williamson is selling the Kool Aid that the crisis proved wrong and Beniot Mandelbrot debunked in his book written for the layperson, The (Mis)Behavior of Markets. In it, Mandelbrot describes how all the standard financial markets models greatly understate risk, leading both professionals and ordinary investors to take on far more risk than they can tolerate. This looked like a brilliant approach from the early 1990s through the early 2000s, since disinflation produced strongly rising asset values. That era is over. 7% returns? Sustained?

Williamson’s mention of the Bush “Ownership Society” was a major tell. The push to privative SS to help Wall Street earn more fees is on. You can see how this works. Trying to hit return levels that aren’t attainable with prudent risk assumption means more people will got into hedge funds. Maybe not minimum wage types, but certainly more of the middle class. And that means more fee extraction and more churning.

And to let readers in on the fun, let’s try a “Where’s Waldo?” exercise. Tell me everything you see wrong with this part of the article (hint: as a Manhattan resident, I can barely restrain myself from going after the car ownership part):

I noticed a fellow at the recent Occupy Wall Street protests carrying a sign reading: “They eat filet mignon. I eat the dollar menu.” This of course says a great deal, and not at all what he meant for it to say. Here is an American man in apparently good health complaining that, while he can have a modest meal for 8 minutes and 30 seconds of work at the minimum wage in New York, (including the sales tax)—and have somebody else cook it for him, at that—he’d really rather have filet mignon, thanks very much.

I sympathize: Earning the New York minimum wage, he could report for work at 9 a.m. and by noon have earned enough to have a two-inch thick USDA prime twenty-one-day-aged filet mignon for lunch, providing he is willing to cook it himself. If he reports back to work at 1 p.m., he must then work until 3:15 p.m. to pay the rent on his modest New York City apartment ($500/month in the Bronx, via Craigslist, with hardwood floors, heat, and hot water included) and then until about 3:45 p.m. to pay for his monthly subway pass or to make the lease payment on his Kia—which, at $99 a month, is a bit less expensive than the subway pass, but then there’s gasoline and insurance to think about. The money he earns between then and 6 p.m. ought to be sufficient to cover his other meals and incidentals, if he’s thrifty, though he’ll probably need to put in a few extra shifts a month or get some overtime to keep current on his taxes


Print Friendly, PDF & Email


  1. Walter_R

    That is hilarious. It’s the ultimate con of American Conservatism. Anyone actually paying attention realizes that the essence of Conservatism is making damn well sure that wealth is reserved only for the select few.

    1. rotter

      Steve Martin used to do a short stand up bit (back in the 70’s when he was funny and i still listened to AM radio occasionally) Called: “you can be a millionaire and never pay taxes” (taxes were still collected from millionaires in the 70’s and they’ve never forgiven anyone for it)

      After the lead in he says; “FIRST, get a million dollars. now…” thats how most rightwing punditry goes.. they smuggle the foundational lie of the whole piece right in the front door, down their panties or something, then build the entire rest o’ the “piece” on it,carrying on as if it were empirical fact. Its funny casue in the Steve Martin bit the way you get over on tax fraud is just tell the IRS you forgot to pay…HAHAHAHAAAA…oh that Steve Martin. Where’d he ever get a wild and crazy idea like that??!!

    2. Jus7tme

      Conservative means to want to conserve ans expand the wealth of those who have wealth already, at the expense of everyone else.

      It is not *supposed* to mean that, but it in practice, that’s what it is.

  2. Steve Roberts

    I’m pretty conservative but SS isn’t really negotiable. On the other hand, why are Democrats willing to let SS funding become a political strategy they’ve given away.

    1. 2laneIA

      Because too many of them are beholden to Wall Street, and rich guys themselves. They have no idea what the lives of many SS recipients are like. For over 60% of recipients, SS is the major or the only sources of income.

      Congress members talk about sacrifice as if it’s something they themselves would have to experience, when their lives are secure, they have generous health insurance and pension plans, and many of them are millionaires. But shifting Medicare costs onto people who are subsisting on $14k a year is a real sacrifice, and cruel besides. Not to mention that it raises costs for Medicaid.

      I don’t think they get it, or care too. I include Obama in that judgment. I do not include a few people like my own Senator Harkin, who have fought their own party to protect the vulnerable, the sick and the old from the Pete Peterson-funded hacks who are trying to sell them out for campaign contributions from investment banks.

    2. scraping_by

      Because what you’re watching is right wing, corporate capture of leftist parties. Think New Labour in the UK, the Socialists in France and Italy, etc. The people who uphold the party’s philosophy are marginalized, intimidated, and sometimes actually harmed to get them out of the way. All that’s left is empty suits.

      Down in Arizona, a bunch of right wing Republicans got together and registered as the Green Party. Stealing a label.

      1. ambrit

        Sir (or Madam;)
        Considering the colour of Americas Conservative Icon, (hint: you buy stuff with it,) Green Party is quite logical. See you at the 19th old fellow!

      2. Lafayette

        Think New Labour in the UK, the Socialists in France and Italy, etc. The people who uphold the party’s philosophy are marginalized, intimidated, and sometimes actually harmed to get them out of the way

        Before making such an asinine statement, you might check your facts.

        Nobody in the French Socialist party, I am quite sure, feels intimidated. In fact, the socialist candidate has an excellent chance to put the present Rightist presidential candidate out of power in upcoming elections. (I certainly hope not, because the Socialists haven’t the foggiest notion of the Deep Doodoo France is in or how to get out of it.)

        Ditto the Labour Party in the UK, where their is no Right-wing bogeyman out to intimidate or marginalize their candidates. They too haven’t an inkling of how to get the UK out of its present mess. It has lost so much of its industrial base that flipping hamburgers at Macdonald’s is considered a “great job”.

        Even Tony Blair’s tenure in power was a fluke and he considers himself lucky not to be in Downing Street nowadays. Any hack can manage in good times, when the European Left had its fat-years running economies. It when the economic sh*t hits the fan that a politician’s mettle is best tested.

        Most, frankly, don’t make the grade. It is difficult to imagine how easily some people can compromise basic principles to get elected to high office.

        Happens every day in America … where political principles are like commodities the price of which fluctuate greatly on a daily basis.

        1. Mikhail Kropotkin

          I think you missed the meaning implied in the terms “leftist party” and “party’s philosophy”. The comment is not asinine as it is referring to anyone in those parties who is actually a socialist, not just a member of a party of the same name.

  3. Fraud Guy- Also

    The article’s ridiculous return assumptions also imply an absurd assumption of how much the retiree can draw down each year in retirement. In the current environment, for someone below 75 to draw down more than three percent of their savings corpus and earnings annually is foolish.

  4. Paul Tioxon

    First of all, if you only get $1100 a month, you need to go to a place to meet someone you can shack up with and combine income to get to $2200/mo. Then of course, you get a $500/mo rental. Provided you can live with yourself and not have a nervous breakdown believing all of the travel channels goodies really were meant for you in the first place, back before you got old and lost your looks, your high paying middle class station in life and all the bennies that went with, you should be fine. Yea, no can do Manhattan anymore, but there is life beyond the tunnel and bridges. Keep that COLA coming Obama, 3.6% for 2012, more stimulus disguised as nanny state unsustainable ticking time bomb demographic train wreck that we can’t afford. Ha Ha, gotta love that Peterson Institute austerity lying crap. Such wordsmiths. But, you gotta love the COLA, I mean, 3.6% every year now for the next 20 years, not bad. Not bad at all. $1100/mo will balloon up to about what, $2000/mo and with the shack up $4000/mo.

  5. Chris T.

    What is actually absurd about this article, is that it conveniently forgets the pernicious effects of inflation.
    Part of that is that savings ARE NOT desired by our masters, and certainly not 10%.
    That is why those that would even try to do so are not, and will not be able to do it.

    However, there is some truth to this, and it is from a real life example:
    Our society until about the 1920s, jsut about the time, when the FED came into its own.

    Back then, and certainly before 1910, the average American DID save quite a bit, and was able to obtain a REAL interest on that savings of about 5%.

    Compounded over a working life of about 40-45 years, it provided enough to retire with, with the interest at 5% on the now-compounded principal being more than last year’s income.

    BUT: we are talking REAL 5% and NO income tax on it or on the income in the years leading up to it.
    That is long gone, and thus this article is truly ridiculous.

    Once again, the root of all evil is pernicious inflation, THE tax on the poor (and middle class), redistributing all to the elite.
    End the Fed!

    1. LA-CC

      Inflation eats at savings but is good for debtors. The poor and middle class are more likely to have debt (student, mortgage, consumer, auto) than a large savings account. I think inflation hurts those with substantial savings accounts (wealthy) than the poor. The problem has been that wages haven’t kept up due to concerted efforts at increasing a cheap labor pool (globally and domestically) which also benefits the wealthy and hurts the working class.

      1. Chris T.

        Not correct.
        Inflation is a hidden tax, implemented by the wealthy elites for their gain, against the middle class (and poor).
        it redistributes wealth from those classes to the connected oligarchy.
        Just look at the connection:
        the oligarch/banksters/elite clamored and set the stage for the Fed.
        The Fed has devalued the dollar by about 96% over the last 100 years.
        In order to hurt its owners/masters?

        Simply put:
        The next marginal, inflated dollar goes first to the elite. They spend this as if it hadn’t been created, meaning at its pre-creation value, and so on.

        The reason the classes you mention are more likely to have debt is BECAUSE of inflation making it impossible to maintaining the standard of living they were/are used to.

        For just two simple examples from the middle class (they are the real victims of the inflation robbery, they have something to steal unlike the poor):

        Tuition at Yale in the early 1960s; about $2000
        Median family home in northern NJ back then: $8000-14000
        At only $500 per month in income, or about $3/h it only took:
        1/3 of annual salary to pay for Yale
        1-2 years to buy a house.

        Was a middle class family able to do both for itself and the children?
        of course.
        Now compare to today:
        Yale: 60000
        House: 150,000+
        Does the typical middle class person make so much that it is 1/3 of Yale (=180000)? No
        Doe that person make enought to buy the house on 1-2 years pay? Also no.
        Why not? inflation has robbed him of his salary and assets forcing debtor status in order to consume these things.
        And ditto for health care, or look up car prices back then and on and on

        1. Rcoutme

          Although some of your points are well taken, your estimation of Middle Class earnings is not. Teachers’ salaries are about $50k. Two teachers (as today’s middle class family has two earners) would be paid $100k. That would easily allow one to buy a house with three years salary. I am not saying that they could save three years salary, only that your math is way off.

          1. RR

            Remember that most middle-class household income in the ’60s came from one earner.

            If the figures in Chris T.’s and Rcoutme’s posts are more or less accurate, then it now takes two “average” earners in a household to match the purchasing power of the single household earner in the ’60s.

            In other words, the purchasing power of one “average” earner has dropped by about 50% in the last 50 years.

            I understand this to be the point of Chris T.’s examples.

  6. F. Beard

    7% returns when real economic growth averaged over the boom-bust cycle is ~2-3%? That 7% contains a lot of price inflation and/or risk and/or some one else is getting looted.

    Also, it is likely that that 7% would include gains from usury – which is distinctly unsavory.

    But let’s compromise. Let’s eliminate FICA taxes and means test Social Security. If one has worked a sufficient time in the US that alone should qualify one for a government pension, assuming it is needed. Let’s also abolish the government enforced counterfeiting cartel and practice genuine capitalism so as to maximize REAL wealth generation.

    1. PL_2

      I’ve learned a lot from you and I’m with you on most of it. Especially bailout for the rest of us, and the brilliant way you’ve structured it.

      But got to mention you know a lot of people say that a means test would destroy SS in the long run, by turning it into ‘welfare’ by destroying its greatest strength — a 100% constituency.

      1. F. Beard

        by turning it into ‘welfare’ by destroying its greatest strength — a 100% constituency. PL_2

        I feel pretty entitled to SS just because I (until mid 2002) have worked all my life since the 10th grade.

        But you have a point. The loathsome Right is trying to kill SS even though it is fully funded till 2037, claiming “THE MONEY ISN’T THERE” as if money can’t be created at will by the US Government. Yet, they will always find funds for needless wars.

        But optimum growth must include some risk-taking and risk-taking requires some spare cash. It’s better the individual have that 12.4% than to destroy it via taxation.

        1. JamesW

          “Yet, they will always find funds for needless wars.”

          There you go again, “needless wars” indeed! Now how else do they destory economic surplus (Thorstein Veblen) and do massive and quick wealth transfer, if not from all those “needless wars” mon ami?

          Did not Rockefeller, Morgan, Harriman, the Mellons, et al., not greatly yearn for WWI — needless war, indeed?

          Wars are to war profiteers what young, innocent victims are to serial killing psychopaths.

          Who made money off of the Iraqi war? Hmmm…why not ask David Rockefeller, Timothy Geithner, Daniel Zelikow, Reuben Jeffery III; not only about those missing billions, but those oil securitization deals.

          “Needless wars” indeed!

        2. PL_2

          “It’s better the individual have that 12.4% than to destroy it via taxation.”

          OK, I’m with you on that. I guess I’ve learned that much.


        3. LA-CC

          What’s the 12.4% supposed to represent? – The employer portion as well as employee or the income tax on top of employee FICA/Medicare? If the former, the individual wouldn’t get the 12.4%, but 6.2%. Your position doesn’t change, the impact does, however.

          1. F. Beard

            If the former, the individual wouldn’t get the 12.4%, but 6.2%. LA-CC

            Maybe 6.2 + 3.1 (split difference with employer) = 9.3% is more realistic.

  7. Hondo

    Only if the State was not in the way and the game was not rigged in favor of those with illicit information using it against (to steal) from those without such information.

    That’s not going to happen so Kevin’s piece is a total crap of an analysis.

  8. Susan the other

    Do we think that our economy is ahead of the rest of the world enough to pretend this millionaire stuff? To quote Mitt: “It isn’t as millionary as it sounds.” The infamous third world is hot on our heels. Or maybe we’re third. Does anyone even know?

    Great article in Vanity Fair by Stiglitz, January 2012: “The Book of Jobs”
    This was really good. He’s the first to clearly blame it on productivity. But it certainly makes good sense. And the solutions are so obvious. Jobs for the future.

  9. PQS

    $500/month apartment is a dead giveaway to the BS.

    You can’t even rent anything in boring old Seattle or any of its many suburbs for $500 a month, unless you are sharing. Must be rent control – dang gubmint getting in the way of Freedumb again.

    And 7% interest would be like winning the lottery to this Decimated 401Ker.

    1. rotter

      Yeah I know. LOL a 500$ apartment..where are they? on top of rightwing Kook mountain? the view is beautiful the commute is a real bitch.

      1. PL

        How about $99 for a Kia in NYC when the monthly car payment is only a fraction of parking garage fees or parking tickets? Another whopper.

        1. rotter

          And right there is the entire rehtorical mechanism which has been used to push the center of public discourse so far to the right, one would need to start building creamtoriums and barbed wire compounds to move a standard deviation aways from it to the right….The notion of WHY we should privatize or get rid of social security isnt argued, we wind up bickering over the price of apratments…its a very old and simple con, and americans love to be taken in by it.

          1. PQS

            Agreed. Just a few short years ago GWB was laughed at for his “Privatize SS” Scheme which got no traction.

            Now Obama thinks Pete Peterson has everyone’s best interests at heart, and has convinced just about all of Congress that “teh deficit” is the most important Issue of Our Time.

            Infuriatingly sad, truly.

    2. Tia

      I knew the 500 bucks a month in NYC was ridiculous the second I saw it. 500 dollars a month is the average going rate for a 1 bedroom here in Hicksville, South Carolina.

      And even if it’s not, I’ll be this guy went with the absolute cheapest one he could find and a price that would be hard to duplicate.

      1. cwaltz

        Since he went with minimum wage as his preface, I’d bet it’s a section 8 rental. You pay based on your income with those buggers.

  10. George

    The real problem with both sides of this argument is that prior Progressive actions and on-going actions by the Fed have removed all risk and price information from the investment system.

    We longer have any idea what savings rates and interest rates are possible, given a particular level of risk.

    Thus, we can’t evaluate either side of the argument : the ‘everyone can become a millionaire’ argument is pefectly reasonable, perhaps. Certainly Japan has relied on this mechanism, so it is not beyond the pale.

    OTOH, Japan’s version of a managed economy has failed also.

    Perhaps the real lesson is that no country has been successful in managing their economy, and that SS and other social safety net mechanisms are attempts to manage systems complex far beyond human comprehension, and thus inherently un-managable?

      1. George

        You like their atomic energy regulation agency? Bank regulations, … are all the same.

        Their suicide rates?

        Purchasing Power Parity ~70% of the US.

        The number of people working as temps for the nuclear power industry for whom no cumulative radiation exposure data is kept?

        The numbers of homeless? How about their unemployment rates? Nobody even has a clue what these are, because so many people are let go in their 50s, are no longer counted in the work force and there isn’t any central authority keeping track.

        Rate of economic growth? Depending on what rate of inflation you use for the yen (of course understated by their gov), it has been flat for the last 10+ years.

        Population is declining, there soon won’t enough people to take care of the older population, much less keep the economy going — thus the emphasis on robotics.

        And, of course, their oligarchy has a much firmer grip on the system than the oligarchy in the US has.

        Japan is not a success I would want to emulate.

        1. Yves Smith Post author

          Japan’s high suicide rate is cultural. They had high suicide rates by world standards before the economic bust (and anyone will tell you our suicide rates are considerably understated, both our of cultural prudery and to avoid voiding life insurance contracts). They don’t have the Judeo Christian strictures against it, and killing yourself properly was a big deal for samurai (in seppuku, the honor isn’t just in slicing open your stomach, it’s in making the final upward jerk through your liver). They have pretty much nada crime.

          They still score at the top of all advanced economies on every other social indicator. I vote for Japan.

          1. George


            Not no crime, by any stretch of your imagination.

            The rest of Mich’s headline read :
            Japan’s Problem

            Remarkably, rolling over US debt is unlikely to be a problem. The same cannot be said for Japan. Because of demographics, pension plans will be net sellers of Japanese bonds. Unless balance of trade or tax revenues increase enough in 2012 Japan will not be able to roll this debt over at 1%. A rise to 3% would consume nearly all of Japanese revenues.

            — there must be some mistake in that last sentence, but it is pretty clear that Japan is insolvent, will default by inflation. —

            Still want to trade?

          2. George

            Also, their ‘culturally-approved’ suicide rate has jumped a lot recently, given the increased homelessness, joblessness, …

            You certainly didn’t do a complete comparison before making that decision.

          3. Max424

            YS: “…the honor isn’t just in slicing open your stomach, it’s in making the final upward jerk through your liver…”

            Indeed. For all you seppuku masters-in-training, Yukio Mishima explains the proper technique here:


            Remember, do as the great Mishima said, not as he did. Yukio chose an incompetent second, or kaishaku. Big mistake! The kaishaku hacked at Mishima’s neck three times; and went oh for three (shoulder, jaw, temple).

            A second second was required (very bad!), to finish the botched service properly, if belatedly.

            Note: If your role in the ritual suicide is that of the kaishaku, bear in mind, you do not lop off the coconut. The head should remain attached to the torso, preferably by a thread.

            Who wants to see a loose noggin bouncing around the garden?


          4. Yves Smith Post author


            You are clearly new to this blog. Go read up on MMT. Japan does not have to “roll over its debt.” As as sovereign issuer of currency, it can “print.” It does not need to issue bonds, and Japan could desperately use some inflation.

            The US is a near police state with one of the highest levels of surveillance the world, the biggest % of the population incarcerated of ANY large country, and you are caviling about Japan’s crime rate? Have you ever even BEEN to Japan? Please.

      2. George

        World’s Biggest Economies Face $7.6T Debt Led by Japan $3 trillion, U.S. $2.8 trillion; Rollover Problems in Japan and Europe

        The headline on Mish’s blog, just thought you might like to see more of Japan’s ‘success’.

        1. F. Beard

          What debt? Government bonds are near perfect money substitutes (Actually they are better than money since they pay interest). To payoff the National Debt would just mean exchanging a non-interest paying asset (fiat) for interest paying paying assets (government bonds).

          1. George

            So gov debt is a good thing?

            So Japan, … should be going great guns, having more debt that most countries?

            How do you account for the reality that government debt seems to depress the economy? Everywhere? No exceptions?

          2. F. Beard

            How do you account for the reality that government debt seems to depress the economy? George

            Whether that is true or not, it is certainly a waste (and fascist) for government to rent its own money supply.

            Also, I think you have it backwards. It is banking that depresses the economy thereby requiring more deficit spending to ameliorate the damage. But deficit spending does not require borrowing much less usury.

          3. George

            First of all, it is true.

            Second, you make a lot of assumptions without citing any evidence.

            I like evidence, myself. Teasing out cause-and-effect in complex systems isn’t easy, even with lots of evidence, but it is impossible without it.

            Given the complexity of the systems we live within, it is very difficult to understand the consequences of our decisions even within our own small spheres of influence. It is completely impossible for government-level programs, so far as I can see.

            Approaches that are not based on evidence are known not to work at all, even for simple systems.

          4. Yves Smith Post author


            Let me give you some evidence: Japan has had a falling savings rate and still has super low interest rates. Dirty secret you seem not to understand: the BoJ could go buy Japanese debt at auction. Japan does not need third party buyers. It’s constraint on this is inflation, and there is none in sight.

            You need to read up on this, you are just showing you are out of your depth.

          5. EconCCX

            The illiquidity of bonds puts a brake on their inflationary potential. They’re securities bought and sold, rather than media of exchange. Think about what paying USG expenses through currency issue would do to the price of oil, and to our ability to enter into contracts. Let’s be thankful there’s a bond workaround, a deferred, illiquid security that supports the work of the public sphere without busting the currency.

            Service-backed, debt-free money would be optimal. The greenback would be catastrophic.

            F. Beard>>Government bonds are near perfect money substitutes (Actually they are better than money since they pay interest). To payoff the National Debt would just mean exchanging a non-interest paying asset (fiat) for interest paying paying assets (government bonds).

          6. F. Beard

            The greenback would be catastrophic. EconCXX

            To bankers, yes. That is why there is so much opposition to them. However, government money (after a universal bailout) should only be legal tender in fact as well as law for government debts, not private ones. If that were the case then over-issue of government money would only hurt the government and its payees, not the private sector.

    1. scraping_by

      All price and risk information were removed from financial markets by the shadow banking system, opaque derivatives, long chains of ownership, forgery, bribed ratings agencies, bogus record keeping, and other perfectly legal scams.

      The problem is not central control (regulation, law enforcement, the nanny state…) it’s the opposite: underhanded behavior justified by misuse of the word free in free markets. It’s been propagandized as free-as-in-speech, while in reality it’s been-free-as-in-lunch. As in dependent on premium-free insurance. Meh.

      Finance cannot exist on its own. Its only justification for existing is to capitalize economically useful enterprises. It isn’t laws that lets it avoid its connection to the real economy, it’s the lack of enforcement of laws.

  11. Kelja

    I guess your assumption is the 12% saved by the taxpayer by not contributing to SS would be squandered, not saved.

    If indeed that’s the unstated assumption, it should be clearly stated. I don’t necessarily disagree with the premise. The vast majority doesn’t know squat about investing wisely. The majority of the remaining minority who do know something about investing, do it poorly. Very few succeed.

    The answer is not Big Government saving us – it’s already proven it cannot. If we had real money, money back by something other than a hope and prayer, and interest rates weren’t artificially crushed by the Fed, then there’d be a chance people could save for their retirement.

    1. F. Beard

      If we had real money, money back by something other than a hope and prayer, Kelja

      Fiat is backed by government FORCE; one must pay taxes with it. Any other backing is a waste.

      and interest rates weren’t artificially crushed by the Fed, Kelja

      True the Fed should be abolished. But non-usury based forms of money are needed too such as common stock.

      then there’d be a chance people could save for their retirement. Kelja

      Savings do not require usury; it is enough if savings don’t lose purchasing power due to price inflation.

      1. Kelja

        Retirement is a recent development in humankind. After all, our ancestors used to work ’til they dropped which was usually well before 60. The only non-eroding real money out there is gold. I visualize some guy squirreling away coins and bars in a buried safe. Unfortunately, the masses will come to this realization when it’s way too late.

        Release the Krakin!

    2. scraping_by

      Someone’s assumption? No, your strawman.

      Read _A Random Walk Down Wall Street: The Best and Latest Investment Advice Money Can Buy_. The entire moral of the book is that no one, and that is no one, can create a return on the financial markets that beats, say, a credit union CD. Not for more than five years, and we’re talking about a forty year time line.

      “Sophisticated” investment advice is nothing but sales patter. The lie that someone else is making more money as a small investor is just to panic otherwise realistic thinkers into handing over savings to scam artists.

      And thinking that 10% can be saved in the face of emergencies and setbacks is another lie.

      1. jake chase

        That book is nonsense and it is forty years old. You need only two things to make money in stocks: common sense and courage. Buy when THEY are selling but don’t catch a falling safe. Stick to established corporations with restrained executive looting patterns. Watch for insider selling. It forecasts tops better than anything else. Above all, don’t listen to Wall Street brokers and analysts, CNBC commentators, government stooges. I am not saying it’s easy, but it’s easier than finding a job.

  12. Dan B

    This argument is recycled W.F. Buckley misdirection from his Firing Line days. He would smugly say anyone who’s poor “need only invest modestly in the market” to prosper. Here’s a real story: a single mother with a minimum wage job in Pittsburgh decided to take her kids to the amusement park for an afternoon of fun. This indulgence set up a chain of events that left her and the kids on the street. She was was fortunate -people came forth to help her- that someone got her story into the paper as a “How could this happen?” story.

    1. JamesW

      Thanks for mentioning Buckley, a clown who could never do an unscripted debate.

      I once saw him in an extemporaneous debate with William Kunsler, the defense attorney, who really reamed Buckley a new one (Kunstler was an unscheduled guest on a TV talk show where Buckley appeared).

      Saw the same type of extemporaneous debate take place between Gore Vidal and Buckley, with the same result.

      Buckley was quite the stooge, which is probably why Ariana worshipped him…..

      1. Chris T.

        google for Gore Vidal’s obituary about WFBuckley.
        You will enjoy it!
        GV is not one to follow the mantra “never speak evil about the deceased” and one can’t think of a more worthy object.

        1. ambrit

          Considering the wonderful unscripted banter between Vidal and Buckley during the convention I can’t wait to read the obituary you mention!

  13. Justicia

    Fact-free analysis is the order of the day for neo-cons and, alas, neo-liberals.

    What’s wrong with the eating fast food every day — just ask Morgan Spurlock who made “Super Size Me.” He gained 24 lbs (13% of his body weight) in one month and his cholesterol level jumped (not to mention suffering mood swings and sexual dysfunction. Do we really want a nation of morbidly obese people adding to the our already obscene health care (really, disease care) costs?

  14. Blurtman

    If everyone were a millionaire, then the 1% would have to be gazillionaires. And a Big Mac would probably cost $10,000. Without fries.

  15. steve from virginia

    Hard to see people living on minimum wage much less saving any part of it. First of all, no full-time, 40hr jobs but 25hr ‘part time’ jobs. A worker needs two jobs each @ 25 hrs but then the worker has to get to the jobs. This means owning a car.

    Even hispanics cannot survive on minimum wage unless they can solve the transportation ‘issue’ by using transit or working within a group.

    50hr x $7.25 = $362/week but taxes are withheld along with ‘fees’ by the employer (for uniforms, cleaning services, etc.) Take-home pay is about $275/week.

    There are no insurances or benefits. Annual take-home will be $14,300 or a bit less than $1,200/month. Rent in a motel room will cost $110/week plus $30/week for gasoline. This leaves about $100/week for food, clothing, car insurance and repairs on the old car. Where the cuts must be made, in food: the worker will enroll in SNAP/food stamps which saves $50/week or $2,600 additional per year.

    Worker cannot afford to eat at (overpriced) McDonalds.

    Working fifty hours also includes 10-15 hours per week driving unpaid. A major car repair or an illness unravels the entire regime unless the person can ‘turn tricks’ or sell drugs on the side.

    Most low-wage individuals are immigrants who ‘double up’ housing to save rent. These move onto semi-skilled jobs that pay more than minimum wage: construction, drivers, clerical, health-care.

    Others move into the underground economy full-time, selling drugs, guns, stolen goods, counterfeit lottery tickets and ID, they smuggle ‘people’ including prostitutes as well as undocumented workers … eager to take the minimum wage jobs.

    The fastest growing part of the US economy is the criminal underground. American establishment has voted with its pocketbook for more pot farms and meth labs. This is why #Occupy cannot gain any traction. Americans are hard-working and entrepreneurial … why hold a sign when you can grow weed in your back yard?

    1. Yves Smith Post author

      You have to read the piece. He argues that the minimum wage worker can eat sirloin. This is the modern version of “let them eat cake.”

      1. run75441


        This article is hilarious and it is amazing this turd gets press time any where. Thanks for taking the time to post something as inane as this piece.

        He most certainly is not a conservative.

      2. Rcoutme

        From what I have been told, the “let them eat cake” quote is not referring to what we call “cake”. It is more like saying, “Let them eat crackers (or gruel)”. The peasants had no yeast for flower. The queen was suggesting they prepare meals without yeast.

        1. Justicia

          “Qu’ils mangent de la brioche,” is the quote attributed to Marie Antoinette (long after her death) that was meant to show how oblivious she was to the conditions of the poor. Brioche is an enriched yeast bread made with eggs that the poor could hardly afford.

    2. ambrit

      Dear Steve;
      $110 a week for a motel room? Where? I could add 50% to that and undersell all the motel rooms in the South! What a business model! $30 a week for gasoline? When the lowest rung on the economic ladder makes do with the oldest and least fuel efficient automobiles? Double that figure at least! What about all those ‘mandades’ the governments have piled onto the backs of the labouring classes? Compulsory auto insurance, medical insurance, regressive taxes, ‘fees’ and ‘service charges’ for everything, etc. etc. I’m just happily surprised that plain old fashioned civil unrest hasn’t broken out yet!

  16. Bob 3

    had to look up the $500 apartment on Craigslist. it was a for a room in a basement apartment (there are two ads both for the same apt it seems). you got to share the kitchen and the bathroom. Just the thing for a family of 4.

  17. ECON

    Over the last several years of observing the self-demolition
    of a prez, the TBTF lunacy and the GOP loonies and The Battlefield Directive signed by the prez on New Years eve, and much much more, I have come to the point of concluding the “the land of the free” has many ironic and contradictory meanings. “Free” to do what?

  18. Chris T.

    F. Beard,

    we have written elsewhere, but your equation of all things interest to usury is misguided.

    Time preference has a value, and that should be compensated by a borrower.
    That is not usury.

    1. F. Beard

      Time preference has a value, and that should be compensated by a borrower. Chris T.

      With genuine liberty in private money creation, you MIGHT find someone willing to pay rent for your money supply. Or you might not. Why should anyone rent your money supply if they can create their own rent-free?

      That is not usury. Chris T.

      See Deuteronomy 23:19-20. Any interest is forbidden between fellow countryment.

      1. Skippy

        Screw the other mob! Great bumper sticker beardy.

        Skippy… ahhh the warm fuzzy loving logic, now why was is the bible so full of war, death, killing… ummmm.

  19. PrometheeFeu

    “How exactly do two people earning minimum wage save 10%?”

    I dunno. How about you return to them the 12% that Social Security took and they save that?

    1. cwaltz

      Actually I think individuals only contribute 6.2%. Can anyone guarantee that business wouldn’t pocket the other 6.2% or decrease it at will like they have for 401Ks? If not then the net gain for workers is only 6.2%, not 10%.

      1. PrometheeFeu

        OK, so we can solve that easily. Keep the social security tax. On your tax form have a checkbox. If you check it, you get your social security tax rebated to you so you can invest it as you see fit.

  20. Ed Bradford

    I’ll just comment on one observation of NC.
    All working citizens are forced to save 12.4% of their wages today.
    Ten percent is less that 12.4 percent.

    Therefore, we do save 10% and have been doing so for years.

    Furthermore , if you look at the return on investment of your SS contributions you will not be happy.

      1. PrometheeFeu

        If your concern is that “bankster weasles” might steal your savings, why don’t we make social security optional? I for one trust bankster weasels more than congresscritters. So that way, I give my money to the bankster weasel, you give it to the congresscritter and we’re both happy.

        1. Ransome

          Every time I watch an Adam Curtis documentary, I become enlightened and depressed. In “The Trap” you realize both the bankster and the congresscritter work for their own self-interest regardless that the congresscritter was voted into office to represent. The depressing part is that they look around and say now I have all this money and power, what to do with it, and making your life better is not on their list. They embark on half baked grand projects that have unanticipated outcomes, frequently destructive. You could say Obamacare is a noble endeavor but it has been hijacked by 2000 pages of special interests creating too many revenue leaks.

          1. PrometheeFeu

            The big difference between the “bankster” and the congresscritter is that if we take away the power of the congresscritter, the bankster would suddenly have to earn money by providing a service to customer going from nuisance to helpful while the congresscritter would go from a nuisance to useless.

    1. F. Beard

      Furthermore , if you look at the return on investment of your SS contributions you will not be happy. Ed Bradford

      Are you arguing that SS benefits should be increased?

      Sounds like a good idea to me. What are we doing cheating the old folks of their due?

    2. Blissex

      It is quite malicious to think of OASDI as having a return on investment, as it is mainly an insurance scheme.

      It is as malicious as asking what is the return on investment of car insurance.

      It could be argued that car insurance is a socialist redistribution scheme: it takes money from deserving virtuous people who don’t have accidents to give it to strapping young drivers and insurance queens who keep having accidents to sucker free money out of the system.

    3. Blissex

      «All working citizens are forced to save 12.4% of their wages today.»

      That’s absolutely false, no BIG GOVERNMENT jackbooted thug is holding a GUN TO YOUR HEAD to force you to pay any OASDI premium.

      First, nobody forces you to work or to work in an income earning job. You can just speculate and derive your income entirely from capital income, like dividends, or from capital gains. If you are a WINNER like a hedge fund manager you don’t need to pay a cent of OASDI. Only a LOSER who freely chooses to be employed or self-employed needs to do that.

      Second, there are many jobs and localities that have legally opted out of OASDI entirely even for employed and self-employed losers, famously the city of Galveston. You can freely choose to move to one of the localities or work in one of the industries that have opted out of OASDI.

      The workers of Galveston have recently found how risk-free (and net of fees) those 7% returns are…

    1. Kelja

      the Government hasn’t squirreled away that 12% it collects from paychecks. What are you insane. That money has been spent. There is no lock box. Money is gone and all you got is some IOUs that probably won’t be worth anything soon.

      Wake up people.

      1. ambrit

        Dear Kelja;
        Well mate, it’s like this, Social Security isn’t money squirreled away somewhere until you feel like digging it up again. Properly speaking, it’s invested by the Administration in all sorts of supposedly productive state enterprises. In fact, invested in things designed to increase the general good and wealth of the nation, or should be. You know, roads, bridges, ports, waterworks, sewage systems, regulation agencys.
        The oldsters have done their bit, and invested in the nations future, indirectly, through the Fund. They deserve to enjoy the return on their investment as much as, if not more than, any elite.
        The present Robber Baron cohort has been pushing for the “privatization” of the nations wealth for many years. They do indeed have a “cunning plan” for the reorganization of society. Let’s hope their schemes are as successful as Baldricks’.

  21. Aquifer

    Well, as i have already admitted a number of times – I have no brain for finance, though I do have a professional degree and am not, at least i hope, a total airhead. I am quite glad that the gov’t has been squirreling that 12+% aside all these years as SS is about 60% of my income, and I will fully admit that had i had that all along in my pocket to “save”, i wouldn’t have it now. i think SS is about the best program that this gov’t has instituted and i think the funding mechanism is a wiae one – the beneficiary is funding it him/herself – the employer’s share is a deferred wage. It is not “an entitlement” but a well planned, well thought out, IMO, savings plan. I will choose that over a WS “investment” any day, though i realize that probably makes me look like a total idiot on a financial blog. But the more i read on this site, and elsewhere, the more i thank the stars i have SS .. Until someone figures out a way to stuff that, as well, into WS’s wallet …

    1. Blissex

      «the employer’s share is a deferred wage. It is not “an entitlement” but a well planned, well thought out, IMO, savings plan. I will choose that over a WS “investment” any day, though i realize that probably makes me look like a total idiot on a financial blog»

      OASDI is primarily insurance, not savings. Just like with car insurance you don’t have some kind of savings account, a sum of money that you own. You pay a premium, and you get an insurance payout in instalments.

      It is insurance against living too long for your savings, and indeed when you die the insurance payment terminates, and if you die early you paid in a lot more than you got (indeed you get nothing back if you die too young) and viceversa if you die later.

      Again, it is insurance against becoming too poor and old. You are also expected to have savings to give you a somewhat better lifestyle than minimal insurance can give you.

      And as insurance it is excellent value: very low overheads, the insurance assets are government treasuries that pay a decent interest, the insurance scheme is actuarially sound and run in a totally transparent way. And it is more reliable than many private insurers in the life assurance business, think of AIG.

      BTW, it is little know, but the Treasury and Fed bailed out AIG and its creditors mostly to ensure that the life policies depending on AIG and its creditors were still payable.

      Very few private companies have the reliability to assure you that you pay into their account for 40 years and then they give you the annuity that you purchased.

    2. Blissex

      Perhaps this needs to be repeated many many times: OASDI is insurance. and the “A” part is insurance against living longer than payout date (retirement).

      If you die before the insured event happens, that is before you retire, you get absolutely not a cent. Exactly like car insurance if you don’t have accidents.


      As an insurance scheme it has a disproportionate impact, favouring in particular women and in smaller part the rich (they live longer) and paying out a lot less to men and the poor (they live less because of more stressful work and harder life). But it is still insurance, because it insures everybody equally against living too long and being too poor.

      1. Aquifer

        Well, i told you i would look like a financial idiot, at least i got that part right!

        In any case, I realize that, looking back on my life, I would not have “saved” that 12+% (ah, the rashness of youth) and i am very glad in retrospect that i was obliged to put that money into whatever you call SS …

        And i do think the mechanism of funding – individually, is a good one. I am under the impression that Roosevelt did that specifically and deliberately so that the funds would be “owned” by the beneficiaries and not subject to the whims of Congressional largesse, from year to year.

        But never underestimate the deviousness of a politician – cutting the payroll tax in the name of “helping the little guy”, or back door stimulus, guts that funding mechanism, and if perpetuated will fatally, i suspect, underfund the program – even now, we are told the money lost from the cuts will be made up from the grab bag called the general fund, whose appropriations are dependent on those very whims of Congress. Soon enough, we will be told, we can no longer “afford” to appropriate those funds and the program will be rendered useless … Voila! WS to the rescue ..

        As only Nixon could go to China, only Dems could destroy SS and they are well on their way …. first you starve it, then you kill it with a stick – and this is the way SS will end, not with a bang, but a whimper ..

        1. jake chase

          Aquifer, you are not such a financial idiot as you pretend. Wall Street is like the church: they take the present and promise you the future. What they would like best is to pay you in the hereafter. I believe Goldman is working on that.

  22. Nyeve

    What $1.5 million? Looks they must have dropped a zero …. For two people making a $7.25 wage, working 40hrs/week, 52weeks/year with 30% tax rate, with a $800 monthly apartment rent fee (as mentioned in the quoted text), and saving 10%, I get $1151.20 to save yearly. For 30 years of saving, with 7% rate of return I calculate $100553. At 68 years of saving, I calculated $1.5 M.

  23. Lafayette


    KDW: The welfare state isn’t a very good buy.

    What benighted bunk. Only someone who has never lived in a country a prime political objective of which has been Social Justice can come up with such unmitigated nonsense.

    America has one of the world’s best and worst Health Care systems. Best because the professional competence is first-rate, worst because 16% of Americans have no access whatsoever to adequate Healthcare services. (And given our mindless bent for obesity, Americans are contracting long-term illnesses that will weigh heavily on its Healthcare System.)

    America has the both the best and the worst Educational System. Best because it is run by competent professionals and worst because it is incapable of preparing far too many young Americans for the job-market. Insufficient numbers of students transit into Tertiary Level education that will provide them with the skills necessary for decent work at decent wages. And why? Because it is too expensive for those who do not have affluent parents funding their postsecondary education.

    And these are only two examples of a typical European “Welfare State” where both Health-care and Education are government funded and provisioned. NO ONE is left behind, because these two are Public Services subventioned by the “Welfare State” that its citizens find key to an equitable and morally just society.

    Every political current has the right to Free Speech, but the flip side of that liberty is an imperative to articulate their arguments with reasoned lucidity.


    Worse yet, far too many Americans have been so Dumbed Down by the boob-tube that they do not have the intellectual capacity to differentiate the horse-shit that the Rabid Right passes for “well reasoned thought” from the brown-stuff found on stable floors.


    When the Rabid Righ pulls its “Welfare State” rabbit out of a hat for public exposition, typically that gesture is to denounce it as a “waste of money”.

    Which is correct if you believe deep-down that money should defy gravity (abracadabra!) and Trickle Upwards to a select few. What the Right cannot fathom is the meaning of some well-done economic research that indicates clearly America’s unjust Free-Enterprise system.

    We, the sheeple, are being ripped off – and the vivid proof of that scam is here.

    Scroll down to the pie-charts on that link for an eye-opener. You will find in those charts from where the term “1 percent” came. You may be a member of the 99%, but I’m not.

    Rather, I am a member of the 80% of Americans who must share only 7% of our economic wealth. The other 20% get the rest, which is 93% of the wealth. Read that fact and weep.

    Cuz it ain’t horse-shit …

  24. j.grmwd

    I wish that the government would just make the following announcement and all the confusion about social security and pensions would be over. 1. We are introducing a pension today. It is not a fortune but it is at a level we think is fair and will enable you to enjoy your retirement. You qualify simply by working for 40 years. 2. It will be indexed each year to the real inflation-adjusted growth rate of the economy. It’s purchasing power (as a percentage of GDP) will be the same next year as it is this year. 3. This will be paid for by an income tax that matches to the cent what is paid out each year. This is what it means to allow people to retire. The things you make today are taxed away and given to other people. When YOU retire, YOU in turn will be given things that other people had to make. 4. If you want to save more and live better in your retirement, by all means volunteer to increase your contribution. You will receive it back when you retire. It will also grow at the real inflation-adjusted growth rate. The government will invest it for you in schools, roads, hospitals etc. 5. If you think you can do better, or you think the government will malinvest your extra savings, by all means invest them in the private sector. If you are smart and lucky, you will enjoy a return above the real growth rate. Many won’t. 6. 50 years in the future, there may be fewer workers and more retirees so the % of GDP taxed away from those workers may have to be higher. This probably won’t be a problem. If the economy keeps growing, the pie will be so much bigger they’ll hardly notice. 7. However, the workers of 50 years time may decide to turn the old folk of 50 years into soylent green rather than allow them to retire. This is not our problem. You can not solve the problem by saving up more financial claims today. If the children of the future are not willing to be taxed sufficiently to transfer what THEY make to YOU, then the value of your financial claims will simply inflate away.

    1. Lafayette


      If the economy keeps growing, the pie will be so much bigger they’ll hardly notice.

      But this is where we find the fly in the ointment as regards such fanciful notions that SS-contributions must be sufficient to maintain a life-style throughout retirement.

      There is no reason whatsoever that Our Economy should have the growth of the post-war years. In fact, with the economic paradigm-shift happening, as we transit from the Industrial Age to the Information Age, more and more work will come from the Services Sector – with its lower level pay-scales.

      MY POINT

      Also, we are living longer but perhaps not better. Americans are eating themselves to death and retirement is just more time for them to eat.

      No, the better measure is to extend retirement out to 70 years of age, perhaps half-time beyond the age of 65. Keep those people away from the fridge and maybe they can enjoy long lives.


      If you cannot save, by means of owning your own residence, throughout your lifetime, then you are in for some very bad retirement years – when you should no longer need to pay for house in which you reside.

      1. j.grmwd

        Nevertheless at any time from now until end of time retirements are funded by taxing away what the workers of THAT time are producing and giving it to the retirees. All we can do today is invest in the way that we predict will grow the economy. No guarantees. If we invest poorly then the pensions we can afford today may be more burdensome for the workers of tomorrow. But who knows , maybe they’re much kinder people than we are today and don’t mind if the proportion of their income taxed away increases to pay for the same pension. At any rate, it’s a political question for the people still alive at the time, not us.

        1. Lafayette


          All we can do today is invest in the way that we predict will grow the economy. No guarantees. If we invest poorly …

          There’s the rub … BIG little word, “if”.

          The paradigm shift is not likely to favor the large countries with high(er) labor costs. So, where are the jobs to come from?

          My take: For far too long, the US has been sitting on its industrial laurels. With the lowering of the Iron Curtain, particularly that around China, the total World Labor Supply was doubled.

          China is NOT a backward country as we may have thought. It’s coming out in the early 1990s established the country firmly at the lower end of manpower skills, by which it seized the market for low-skilled labor content goods.

          Those jobs are not coming back to the US. In fact, China will have a problem keeping them as its labor costs rise and Western industries start looking further along – like Vietnam.

          So, what is left for the modern, developed economies? The answer, I submit, is Services Industries as we transit into the Information Age. It is here that we should be adding value in terms of manpower skills that will provide decent jobs with decent wages.

          For that to happen, however, we must be transmitting more of our youth from secondary to postsecondary education (vocational, college, university). And we are barely getting them out of High School.

          The challenge is enormous, but if we will only take our eyes and mind off the present, then maybe the future will look brighter for our youth, who will soon inherit their roles in our workforce.

      2. j.grmwd

        Some detail. Number receiving some sort of Social Security, Disability or both, in America : 60,671,000 Average benefit : $1100/mth (whether this figure is just for social security or if it includes disability and combinations of both I don’t know, but just for the sake of argument) Total Cost : 60,671,000 X 1100 X 12 = $801 billion. % of GDP for one average benefit : less than 1 billionth of a percent % of GDP total : just under 6% (Actually after doing that back of the envelope calculation I just looked it up. It’s even less. 4.4% as of 2010, predicted to peak at 6.2% in 2070.) 4.4% is the only figure relevant to the affordability of any government pension system. This is the amount of purchasing power that has to be transferred from worker to retiree. This is the case no matter how you do the actual accounting, be the pension paid from general revenue, a trust fund, or a personal account. At present that percentage doesn’t seem particularly high. If benefits are indexed to the real growth rate, then each retiree will forever receive something less than 1 billionth of 1 percent of GDP. And since in reality benefits are indexed to inflation (which is probably easier to fudge downward) rather than the growth rate, they may well get less. The only way the total percentage increases is if the number of retirees at any one time increases. This, of course, will happen but if it peaks at 6.2, so what. Still doesn’t seem like a lot. And if future voters want to keep the percentage at 4.4, then there are many ways they could do so -means testing, higher age of eligibility, changing the indexing. If you want to take those measures TODAY because you think that the 4.4% slice TODAY is too big, fine, make your case. If you want to argue that we should take those measures today because using the rules of today the slice in 50 years time will be 6.2%, forget it. If the economy even grows at 2% a year that’ll be 6.2% of a pie more than two and a half times as big. As I said, if that’s the case I don’t think the workers of tomorrow will even notice the extra 2%. And if they do, they can change the rules for themselves.

  25. addicted

    Okay, Conservatives need to first figure out whether Social Security benefits are way too small to be useful to the average person, or whether they lead to all lazy people becoming Lamborghini driving Welfare queens on the backs of hard working Job Creators before they are allowed to discuss Social Security at all.

  26. charles 2

    This post is a mixed bag.

    You get things right by recognizing that the 7% real return assumption is ludicrous. I would note however that ludicrous returns is not the only realm of the finance sphere : Piketty showed that the 1980’s retirees in the French retirement system benefitted from a 15% IRR on their cash flow ! The same author assumes that a 2% real interest rate is sustainable but I think he is still off the mark as such a rate still relies on the population growth Ponzi (it is physically obvious that population growth on planet earth has to stop, and sooner rather that later IMHO). Considering how slowly productivity enhancing innovation are created and implemented on an industrial scale, 0.5% to 1% is more appropriate (and reflects the progress of GDP per capita on very long time scales).
    Of course, with such a real rate of interest, only 30%-ish kind of saving rates are enough to make up for a long retirement period with the associated healthcare, and this money should not be used to fund conspicuous consumption, but to fund the automation needed for a stable and greying population and the investment necessary to switch to a sustainable economy. Asian have it right on the thriftiness side of the equation, but I still reserve my judgment on how wisely they invest their high savings…

    I however do not agree with your implicit assumption that there is a “right” for minimum wagers to have kids or to divorce. Marriage and kids are not an human right, you have to earn it.

    1. Blissex

      «You get things right by recognizing that the 7% real return assumption is ludicrous.»

      He did not say «real», but «a modest 7 percent return»

      However guaranteed 7% even nominal risk free (because otherwise the rate of return would have to be risk-adjusted downwards) for decades is a fabulous return.

      Currently the nearly risk free multi-year returns are around nominal 2-3% on on USA and German government debt, and returns of 7% are attracted by not exactly risk free Italian government debt.

      Kevin D. Williamson has the option of becoming immensely wealthy without effort: he just has to create an investment fund advertising that he can offer 5% nominal returns for 40 years guaranteed risk free, see several trillions switched to his investment funds, invest them at whatever investment he has found that has «a modest 7 percent return» and cash in 2% a year as nearly pure profit on trillions.

      «I would note however that ludicrous returns is not the only realm of the finance sphere : [ … ] The same author assumes that a 2% real interest rate is sustainable but I think he is still off the mark as such a rate still relies on the population growth»

      Well, shortening a long story, evidence from a few centuries is that the very best sustainable risk adjusted long term real returns around 2-3%, in other words long term real GDP growth.

      But as you point out GDP growth is made up of growth in both GDP-per-person and number of persons, so unless population is growing things expected risk-free returns should only depend on productivity growth.

      The other vital number about retirement is that even if 2-3% real risk-adjusted returns are available, it takes between 25-30% of lifetime earnings to build up a pension of around 60% of average lifetime yearly income.

      The 12.4% that people who opt in to OASDI indeed results only in a very minimal poverty level insurance payout.

      1. Blissex

        The other trick that I forgot to mention in Kevin D. Williamson’s incoherent fantasy is that the 7% returns need to be net of any fees and expenses.

        Usually private financial investment companies charge around 3% in fees and expenses (some more, very few less). That reduces the expected return quite a lot, to something like half, as eventually 401k suckers will realize. OASDI charges rather less than 1%.

        Never mind that most realistic investment people think that USA capital markets are in the early phase of a 20 year bear market.

        Of course if every mark out there got suckered into turning their safe OASDI premiums into low yielding, high fee 401k style investment accounts the inrush of dumb money would boost asset prices for quite a few years, that is until the marks retired to draw dawn all at the same time their investments to fund their retirement.

        But a lot of investment advisors and fund managers and investors who sold into this enormous pump-and-dump operation would become stupendously wealthy.

        More importantly it would make happy a lot of working and middle class people who cannot stand the humiliation of sharing OASDI with strapping young bucks and welfare queens who bleed them dry with their greedy frauds. The working and middle classes would rather have miserable retirements than to share a dollar of insurance with those dark skinned overlords who laugh at them as they exploit their generosity to give themselves free food-stamp t-bone steaks, free welfare Cadillacs, free CRA mansions, and free Social Security pensions. :-)

        Then when generous idealists like Kevin D. Williamson propose the idea of investing their hard earned dollars individually (that is without being part of an insurance pool with the parasite who exploit them) into high yielding, risk free, cost free, accounts into a luxurious retirement that just looks like a double win: become rich without rewarding those people for their malice! :-)

    2. F. Beard

      Marriage and kids are not an human right, you have to earn it. charles 2

      And how would you prevent either?

      Totalitarian much?

  27. Ransome

    My parents pretty much did what the article says and my mother is a millionaire and my father a multimillionaire and they both paid SS. It was not their goal to get rich. I just found this out speaking with my mother and getting an oral family history. Their parents were penniless immigrants and all died well off.

    My mother was a schooled graphic artist that worked at minimum wage all her life. My father was a middle class HR bureaucrat. They bought their first house (Levittown-style) for $11k in 1950. They could not sell it when we moved in 1960 for a reasonable price so they rented it out. At some point they bought two more houses and rented them out, living on the rental income. From that point they saved every nickle earned and lived off the rentals. I think at the high point they had 3 singles and 2-three families plus their own home built from scratch. They were forcibly retired in their early 50’s and went to work as part-time guides in a museum for another 30 years at minimum wage. They trimmed the real estate down to 2 single rentals close to their home site. They dabbled in stocks and bonds. The real estate was not market timed but was disposed based on the hassle factor. They just worked their way through life. My mother still cooks in the pots she used when I was a tiny kid. They were not consumption oriented. My father learned about home repairs from Popular Mechanix and built boats and a garage from their plans. They made sure every major asset they owned generated a return and when it didn’t or was a hassle, they got rid of it. You don’t have to be greedy or particularly smart or a miser.

    1. reason

      But you need a middle class income and lots of luck with developments in the housing market. Do you think the process is repeatable today?

      1. Lafayette


        But you need a middle class income and lots of luck with developments in the housing market. Do you think the process is repeatable today?

        Pertinent conjecture and spot-on. I figure the process isn’t repeatable.

        Because, though Ransome’s is a wonderful story about the American virtues of frugality and self-perseverence, it is mostly based upon two non-repeatable historical economic factors: Sufficient postwar growth (particularly in terms of international trade) and relatively low unemployment rates.

        I figure that 20th century paradigm is changing ineluctably and forever. Why?

        Two reasons:
        * Globalisation that has shifted permanent growth to the rest of the world after its Cold War Deep Freeze. And,
        * Because (here we go again) of the Reagan years that sharpened the inequity of an historically unfair income distribution in the US.

        WHAT TO DO?

        Look at Europe for the answers: High taxation, particularly at the upper levels, so as to assure (at the very least) two extremely important Public Services – National Health Services and Primary/Secondary/Tertiary Education.

        Why is Health Care important? Because it assures higher levels of economic productivity. It has also a psychological effect on Consumption that should not be overlooked. (Poor people have different eating habits, substituting carbohydrates for proteins, thus gaining weight and endangering their health.)

        Why is Education key? Because it is the only way for a workforce to assimilate the skills necessary that will assure them productive work.

        As well, finally, as the use of Government Expenditure for continual Infrastructural Renewal that maintains employment levels.


        What have we been doing in America? Simply trickling upwards unfairly income into wealth that a very minor percentage of the population merely sits upon. Like Ransome’s parents, the holders are simply living off their rents.

        MY POINT

        Nice work if you can get it. But wholly lacking in utility that benefits the well-being of the rest of the nation. It does not take millions of dollars to get a Bill Gates or Steve Jobs started. Venture Capital is not our economic salvation as the Right would have us believe.

        Where the conservatives get it wrong: They think in polar terms, meaning that markets behave according to either of two polar opposites. Either Totally Free Markets with its accent upon Individual Enrichment of Totally Un-Free Markets (aka Centrally Planned and managed). The latter are, of course, anathema.

        They wholly miss the fact that in between these two polar opposites are Free Markets that are regulated such that the extremes of Individual Enrichment are contained – whereby incomes are more equitably apportioned such that the collectivity as a whole benefits in terms of enhanced well-being.

        Their dogmatic attachment to unfettered intervention of government in markets is the singular cause of today Great Economic Unfairness in America. If we allow that notion to prevail, we are setting ourselves up for yet another SubPrime Mess – only different.

        History repeats itself, but always differently. It is by learning that we mitigate the consequences.

        1. Lafayette

          Typo: Their dogmatic attachment to unfettered intervention of government in markets is the singular cause of today Great Economic Unfairness in America.

          Should read: Their dogmatic refusal of unfettered intervention of government in markets is the singular cause of today’s Great Economic Unfairness in America.

    2. Blissex

      «My mother was a schooled graphic artist that worked at minimum wage all her life. My father was a middle class HR bureaucrat.»

      Certainly not a working class family therefore. but a middle class two income one with significant disposable income leading to very fortunate real estate speculation:

      «They bought their first house (Levittown-style) for $11k in 1950. They could not sell it when we moved in 1960 for a reasonable price so they rented it out. At some point they bought two more houses and rented them out, living on the rental income. From that point they saved every nickle earned and lived off the rentals.»

      The story you tell is not that poor families can save a lot of money; the story you tell is that middle class families who speculate in property can become rich rentiers if they buy at ground level prices at the beginning of the biggest asset price boom in history, and never have a significant problem like an extended period of unemployment or illness.

      Sure, and there were quite a few IBM millionaires too who bought a few shares early, and nowadays there are now a few eBay millionaires who bought early too.

      But this is not a strategy that can be universally adopted, because luck like that does not strike very often. For every eBay millionaire there are many more who lost a lot on Webvan.

      The American Dream is to MAKE MONEY FAST effortlessly by being a lucky rentier. It is not for everybody, but only for a few fortunate few.

      I wish sometimes that more people remembered the coin flipping tournament allegory used by Buffett for investors.

      But every Real American wants to believe that they can be luckier than average, and get on ground level for the next eBay.

      1. Lafayette

        Certainly not a working class family therefore. but a middle class two income one with significant disposable income leading to very fortunate real estate speculation

        Not only that, but for every lessor (owner) individual/family living off rental property incomes, it takes a lessee (tenant) individual/family that is paying rent. Which means that tenants are enhancing their owner’s net-worth and not their own.

        The tenants would be better off had they been paying the mortgage of their own property as owners. (Most people obviously understand this simple notion.)

        Mind you, this argument does not decry landlords per se as “evil”. They have rightly their place in the service market for property. What is meant is this: National policy must also assure that those lower down in the class structure be allowed to also build their own equity (by owning property) over a lifetime and not live within rental housing all their lives.

        That was the intention of the Freddy/Fannie GSEs … until Top Management corrupted even that noble cause by means of market manipulations (during the Sub-prime Mess) – all for the sake of generating greedily their own personal bonuses.

  28. Bruce Krasting

    Yves asks the question of how workers could save 10% of their income.

    Those same workers are paying 12.4% into Social Security. If the didn’t do that that they would have the source of the savings needed to put a nest egg together.

    The money is there Yves. It just isn’t used as savings. It is used as a source of financing for the government.

    Yves loves SS. I can’t imagine why. This program will wreck America. That is not something that will happen in 30 years. It will happen in the next decade. I’m amazed she can’t see it coming.

  29. Ransome

    My mother told me she was paid 85 cents / hour in the 1950’s as a secretary-draftsman, she also worked in a cardboard box factory designing packing out of sheets of cardboard to suspend objects for shipping. Remember, she was a woman, and not worth anything. Her grab bag of skills and talents got her the jobs but not wages. People receiving minimum wage are not talentless and the article did not say that.

    My father commuted an hour plus each way to work, unheard of at the time, but he needed the job. Later, he took a room and stayed a couple of days as a break from driving. He worked for a small airline, hiring people in a shack next to the runway. We moved closer to his work after I finished Junior High. He didn’t make much money. His SS was pitiful. He was laid off and could not find a job. So they built a house on the shore and he took a job in a factory running the parts crib. After a few years, the Union went on a protracted strike and that was the end of his “career”. This was a very, very unhappy time for him because he was so used to working every day. My mother finally convinced him to work part time at the museum.

    The rents they lived on required a lot of work as anyone knows being a landlord (tenet dumped a fifty gallon aquarium down the toilet, including the gravel. Renters are special people, especially dumb).

    The article does not say can and will become millionaires. Anyone can repeat my parents performance today. Just don’t listen to people touting gimmicks. I knew a guy that made funnel cakes in the summer at the shore. He worked about six months a year and put is kids through college. I don’t consider my parents lucky, they were conservative Dems and they had a long term worldview. Once you are in the right frame of mind and have specialized experience, opportunities fall from the sky (mom hand lettered diplomas for a fancy private school). The houses my parents bought were bargains that came along over time. Anybody could be them, if they wanted to be more economically secure. They had to weather job hardship, so they had already built a safety net. It meant working 12 plus hours a day and on weekends. It required skill with your hands and showing up when the tenet calls. There is no free lunch but it was the opportunity available that they leverage. Today, my mother would be out of luck because these semi-skilled jobs have been offshored or computerized. It is hard to find pick up jobs like she performed (lay-up of a weekly paper form of Craigslist). I’m all for SS and Medicare because it is the most reliable safety net. There are few people that could handle investments in finance when the system is run by predators. My father could not stand brokers.

    This disappearing pledged and re-pledged collateral game of MF Global will be repeated. Billions and billions of savings will be siphoned off. You know what they did to cattle rustlers, we give them million dollar bonuses and special tax treatments. The risks my parents dealt with were their own alone so they were conservative and had the long worldview.

    1. Lafayette

      My father could not stand brokers.

      Most evidently an intelligent man.

      What are ten-thousand equity brokers all tied to the bottom of the ocean? A good start …

      Ditto lawyers, a plague upon the land. Worse yet, ditto lawyers who become politicians and infest Congress.

  30. Ransome

    I forgot to add that the original house they owned is still standing, I drove down the street while traveling for Thanksgiving. It was much more cramped than I remember and the woods in which I played were developed but still standing. There were no houses for sale and Zillow had one make-me-move $500,000 entry. I have no idea what they finally sold the house for but I remember prices during the bubble of $450,000. It is in a wickedly cute colonial town, on the shore, with a village green, which my parents fell in love with. They were determined to make the location work. Location, location, location.

  31. Hugh

    I came late to this, but the thing about propaganda, which this is, is not that it is true but that 1) it plays to a popular prejudice or myth (the poor are poor because it is their own fault, they handle their finances badly or everyone could make it if they only really tried) and 2) its contention should be achieved at some time in the future so that it cannot be immediately refuted by current and past events. That’s it.

    The other part is about the propagandists, like Kevin Williamson, themselves. When we are confronted by arguments with which we do not agree, and we have strong factual reasons for doing so, we assume that their authors are either acting in bad faith and don’t believe what they are saying or that they are acting in good faith and are simply mistaken. But with propaganda there is a third alternative, that its creators are acting in bad faith but still believe what they are writing. Sure, they are aware they are fudging the details, quite possibly getting most of the facts wrong altogether, but that is OK for them because they are presenting a deeper truth, one in which they believe and which only the future can reveal. This is the paradox of the propagandist: they know they are lying but at the same time they believe the lie.

    1. Lafayette


      … the thing about propaganda, which this is, is not that it is true but that 1) it plays to a popular prejudice or myth (the poor are poor because it is their own fault, they handle their finances badly or everyone could make it if they only really tried)

      The above is not entirely untrue. Which bears explanation.

      For as long as we think that a high-school education prepares us of the rigors of life, then the shrewd will manipulate the weak. Only a first-class education that goes beyond readin’, writin’ and ‘rithmatic can prepare our youth – all but lost in Internet Gamelands – for life’s hardships.

      Especially in a country that perpetually emphasizes “success” and equates it with “wealth”. We adulate the rich far too much and, for some, it is too easy to obtain their riches.

      This cannot go on forever and we are currently living through one of the “disruptions” with which such an egocentric and driven society can be afflicted. If we have no solidarity amongst us, ours becomes a Darwinian Economy – with survival of only the fittest. The rest are incarcerated in abject poverty.

      Are we in for a continual repetition of such disruptions? Because if we do not, down at our individual level, change habits (and the heroes/heroines we chose to adulate) then, yes, such is our destiny and that of our children.

      Social Justice is about bringing to one-and-all a base-level of well-being. Each society must decide what are the elements of that well-being and how to obtain it. I suggest that a National Health Service and Free Education (up to a tertiary level) are two of those “base elements” that we should assure each and every citizen.

      There are most certainly more.

      MY POINT

      But sitting on the sidelines spectating the game, whilst applauding the players for their achievement, is simply not good enough any more. It doesn’t work for the majority of Americans who are living border-line lives … and did nothing to deserve such a mean existence.

  32. Ed Bradford

    I can make it up. Not only that, I can ask you a question that you will not answer honestly.

    If you had invested 12.4% of you income for 40 years, could you have found a vehicle that would deliver a better return (ROI) than Social Security?

    Today, I get a 1% ROI. Black people get a negative ROI.
    (Recall, if you die, you lose all with SS! is an annuity.)

    Tell me why Social Security as defined and created an implemented by
    the Federal Government is an excellent investment.

    Also tell me why the current ‘implementation’ is sustainable.
    You cannot produce any numbers to justify. NONE!

  33. informania

    LA-CC says:
    January 3, 2012 at 5:14 pm

    “The poor and middle class are more likely to have debt (student, mortgage, consumer, auto) than a large savings account. I think inflation hurts those with substantial savings accounts (wealthy) than the poor.”

    Quite the genius.. Now answer this:
    1000000-50000=? versus 1000-(30000-1500)=?

    1. informania

      I mean; the debtors do not get hurt by inflation because they have nothing to begin with, they are constantly in the hurt!
      What’s worse? Having nothing or having a little less than you had??

Comments are closed.