Baby Boomers are Fleecing their Kids and Grandkids

Laurence Kotlikoff is fast becoming one of my must-read authors. From a recent Bloomberg article:

Over the past five decades, our policy of taking ever larger sums from young savers and giving them to old spenders has more than doubled the ratio of average consumption of oldsters to average consumption of youngsters.

Much of this redistribution has taken place through Social Security, Medicare, and Medicaid. Collectively, these three programs spent $1.2 trillion on the elderly last year [2009]. Their total payment per oldster equaled a whopping $30,000, which is three-quarters of U.S. per-capita income. And, about half of this total constituted Medicare and Medicaid benefits, which are provided to the elderly directly in the form of personal consumption of health-care goods and services.

The bottom line? If we are serious about reversing the decline in national saving, we need to stop expropriating the young for the benefit of the old.

Oh, the betrayal.

Reliable Net Worth Numbers?

It's difficult to analyze the average person's net worth because most of the data comes from informal surveys. In a way, it's like asking people how many times they have sex--chances are, they're going to focus on the good times and give you a higher number.

Anyway, here is one link that leads to a compilation of net worth numbers. CNN's money calculator indicates that most people making $120K a year have a $301K median net worth. When you examine the retirement account numbers below, a $301K net worth seems high, but perhaps not so unusual for a two-income family on either coast who bought their home more than ten years ago.

Bonus: according to EBRI, "More than half (56.4 percent) of those owning at least one IRA had less than $25,000 in them in 2008."

The average IRA account balance in 2008 was $54,864. Because the EBRI IRA database can aggregate multiple accounts held by one individual, the new EBRI analysis also finds the average IRA individual balance (all accounts from the same person combined within the EBRI IRA database) was significantly higher, at $69,498.

The median IRA account balance was considerably less: $15,756 per account and $20,046 per individual. Median levels mark the mid-point (half above and half below) and are less affected by outlier data.

Elsewhere on EBRI, they report that at "year-end 2007, the average account balance in the EBRI/ICI database was $65,454, compared with $61,346 at year-end 2006. 401(k) account balances varied with participant age, tenure, and salary. Individuals with account balances of less than $10,000 were primarily young workers or workers with short job tenures. In contrast, those with account balances in excess of $100,000 were primarily older workers or workers with longer job tenure."

Median 401k balances are harder to come by. According to EBRI and the Investment Company Institute, at the end of 2007, someone in his/her 50s making $60,000 - $80,000 had a median 401k balance of $160,324 and someone in his/her 50s making $80,000 - $100,000 had a median balance of $226,266.

It appears almost all Americans have most of their net worth in their homes.

David Walker, Fiscal Hero

David Walker, former comptroller of the United States, on gerrymandering: out of the 435 House of Representatives' seats, only 60 seats have any real competition. We are not a true representative democracy/republic. We need to consider political districts, campaign finance reform, and open primaries. We may also need to look at term limits.

(Elsewhere, Mr. Walker has recommended electing members of the House of Representatives to four-year terms instead of the current two-year terms to minimize 24/7 re-election efforts. He would also limit the tenure of Representatives and Senators to 12 to 18 years and even suggests electing Presidents to a single 6 or 8-years term.")

Another (paraphrased) gem, on the so-called Social Security trust fund: government uses terms in its own way, outside the Merriam-Webster definitions. For example, take "trust fund"--you can't trust it, and it's not funded.

Bonus: from Walker's book, Comeback America (hardcover, page 121): "we must realize that corporations don't really pay taxes. Rather, they pass along any tax, in the form of higher prices to consumers, lower wages to workers, and/or lower returns to shareholders."

True Patriots Don't Suffer from Blind Allegiance

I love good police officers. Good, honest cops are essential to a civilized, well-functioning society. It's the bad cops I despise--and it continues to astound me when normal people defend bad cops, as if wearing a badge is a license to do harm.

To anyone who has raised issues with corrupt police officers, only to have someone say, "Why are you criticizing the police? Don't you know they risk their lives every single day?"--I offer the following handy response:

I apologize. Any criticism of police officers, even the worst ones, is unpatriotic. Unlike mine workers, loggers, taxi drivers, pilots, construction workers, and farmers--all of whom have higher job fatality and/or injury rates--police officers risk their lives every single day.

In any case, don't assume that respect is a two-way street. Like any abusive relationship, you should not complain publicly, even if someone has done something unethical, wrong, and indecent.

Before you say anything else, remember this: America was founded on blind allegiance to executive authority. The founders clearly envisioned a country where citizens would be unable to use their free speech rights to criticize the government. I question how you were able to graduate high school without learning these basic facts about our country.

Now, the person on the other side has three options: one, say he didn't mean what he actually said, in which case you thank him for his clarification; two, he gets upset and starts calling you names, in which case you win by default; and/or three, he protests your use of sarcasm, in which case he is just protesting style, not substance.

Journalism Lives at SCU Magazine

Sam Scott has written an excellent article in SCU Magazine (Fall 2010) about how one man saved the internet. More HERE.

[W]hat he finds is a gaping hole in the very pipes connecting computers across the Web—a weakness so fundamental that the security of practically everything online seems suddenly at risk. “At first I thought I must be missing something,” Kaminsky says, looking back. “I thought, ‘This can’t work—because if it worked, the Internet would be in so much trouble.’ Then it worked.”

Great story.

On the History of American Religious Tolerance

I found this interesting article on Instapaper.com:

From the earliest arrival of Europeans on America’s shores, religion has often been a cudgel, used to discriminate, suppress and even kill the foreign, the “heretic” and the “unbeliever”—including the “heathen” natives already here. Moreover, while it is true that the vast majority of early-generation Americans were Christian, the pitched battles between various Protestant sects and, more explosively, between Protestants and Catholics, present an unavoidable contradiction to the widely held notion that America is a “Christian nation.”

Read more: http://www.smithsonianmag.com/history-archaeology/Americas-True-History-of-Religious-Tolerance.html

Bonus: interesting article about Roald Dahl.

George Soros: an Amazing Lecture

I recently discovered one of the best lectures ever. It's by George Soros and titled "Capitalism vs. Open Society." You can read the transcript HERE.

On Free Markets and Morals: "The distinguishing feature of the market mechanism is that it is amoral: one person’s dollar is worth exactly the same as another person’s, irrespective of how she came to possess it. That is what makes markets so efficient: participants need not worry about moral considerations. In an efficient market, individual decisions affect market prices only marginally: if one person abstained from participating as either buyer or seller, someone else would take her place with only a marginal difference in the price. Therefore individual market participants bear little responsibility for the outcome. But markets are suitable only for individual choices, not for social decisions..."

On Government Interference: "[T]he main policy implication of market fundamentalism, that government interference in the economy should be kept to a minimum, is not as unsound as the arguments employed to justify it. The market mechanism may be flawed but the political process is even more so. Participants in the political process are even more fallible than market participants because politics revolve around social values whereas markets take the participants’ values as given. As we have seen, social values are highly susceptible to manipulation. Moreover, politics are poisoned by the agency problem [Agents are supposed to represent the interests of their principals, but in fact, they tend to put their own interests ahead of the interests of those whom they are supposed to represent]. To guard against the agency problem, all kinds of safeguards have to be introduced and this makes the behavior of governmental authorities in the economic sphere much more rigid and bureaucratic than the behavior of private participants. On all these grounds, it makes sense to argue that governmental interference in the economy should be kept to a minimum. So market fundamentalism has merely substituted an invalid argument for what could have been a much stronger one. It could have argued that all human constructs are imperfect and social choices involve choosing the lesser evil, and on those grounds government intervention in the economy should be kept to a minimum. That would have been a reasonable position. Instead, it claimed that the failures of government intervention proved that free markets are perfect. That is simply bad logic."

Thank you, Mr. Soros. This lecture was amazing.

Update on 6/3/12: from Sebastian Mallaby's 2010 book, More Money than God:

"By now Soros had melded Karl Popper's ideas with his own knowledge of finance, arriving at a synthesis that he called 'reflexivity.'  As Popper's writings suggested, the details of a listed company were too complex for the human mind to understand, so investors relied on guesses and shortcuts that approximated reality.  But Soros was also conscious that those shortcuts had the power to change reality as well, since bullish guesses would drive a stock price up, allowing the company  to raise capital cheaply and boosting its performance.  Because of this feedback loop, certainty was doubly elusive: To begin with, people are incapable of perceiving reality clearly; but on top of that, reality itself is affected by these unclear perceptions, which themselves shift constantly.  Soros had arrived at a conclusion that was at odds with the efficient-market view...To a disciple of Popper, this [EFM] premise ignored the most elementary limits to cognition." (pp. 85, hardcover edition)

Update on November 9, 2019: I learned Soros supported dissident groups Charta 77 in Czechoslovakia and Solidarity in Poland. Vaclav Havel was one of Charta 77's founders.