"The Bush administration’s proposal to bring leading terrorism suspects before military tribunals met stiff resistance Thursday from key Republicans and top military lawyers who said some provisions would not withstand legal scrutiny or do enough to repair the nation’s tarnished reputation internationally."
It happened so fast. On Wednesday the President launches an aggressive effort to recast the national security/foreign policy conversation. On Thursday, leaders of his own Party and the Pentagon repudiate his new approach. From a governing standpoint, we should be pleased with has happened. From a political standpoint, it shows how extraordinarily out of touch and removed the White House has become from the rest of Washington, and of course, the country. Their political endgame this fall will be ferocious, hard-fought, well-funded and coordinated. But it is hard to spin away, and advertize away, the hard reality of a failed foreign policy and an economic policy that has benefited only a tiny few. The speedy crash of this new initiative should worry Republicans that there is no easy way out of the current mess they've made out of our government.
One interesting thing to watch next week is that the House Republicans, the most terrified group in Washington today, are standing firm with the President's already dead on arrival package. Will we have immigration reform redux, where the House R's take a narrow and base-driven position at odds with good governing and the Senate R's, leaving no room from compromise? Or will the President in this case have to bring all parties together, including the Democrats, and work out a deal to get something passed before the fall?
A common theme in these articles is that a key to political success and to staving off protectionist responses to problems perceived to be caused by globalization and technological change is to find a way to share the gains more equally without sacrificing the political support of the winners. However, Berkeley economist Brad DeLong, writing about the Martin Wolf Financial Times article, says simply redistributing the gains may not be enough:
Brad DeLong: Ben Bernanke said that the world will move forward with globalization only if policy makers "ensure that the benefits of integration are sufficiently widely shared." He is wrong: just making the benefits of integration widely shared isn't enough. After all, the benefits of globalization and increased economic integration are widely shared today--and yet forward progress on further globalization still hangs in the balance for politico-economic and politico-security reasons.
In the United States, at least, the problem is that most beneficiaries from globalization don't really know that they are beneficiaries, or how much they benefit. Feckless congressmen and congresswomen don't understand that the American economy is cushioned from their fiscal policy stupidities by the ability of the U.S. government to sell bonds internationally on a jaw-droppingly unbelievable scale. Home sellers in California don't realize that they got such a good price because of financing from across the Pacific. Walmart shoppers see the "made in China" stickers, but don't understand what a good deal they are getting because the rulers of the PRC are desperate to sell the products that their workers make at always low prices in order to stay as close as possible to full employment.
The task is primarily one of making perceptions agree with reality, and only secondarily one of changing reality.
If Brad is correct (but see Brad Setser for a counterargument to the diverse benefits, concentrated costs claim), the task before the Democratic Party is, I think, two-fold. First, there are both winners and losers from globalization and the groups that are negatively impacted cannot, and should not, be ignored. Policies such as universal health care, portable retirement packages, and other changes that reduce the cost of unemployment are a place to start. Creating the perception that the Democratic Party is strongly devoted to helping those who are hurt by globalization would be a positive step to take.
Second, the Party must do a better job of explaining how workers and their families benefit from open markets so that, as Brad DeLong put it, "perceptions agree with reality." This is not an easy task, but it is essential that Party leaders explain how globalization benefits typical households.
Paul Krugman explains the difficulty in a passage from his textbook on international trade:
[P]olicies that impose large losses in total, but small losses on any individual, may not face any effective opposition. ...[T]ake the example of the sugar import quota. This policy imposes a cost on a typical American family of approximately $25 per year. Should a consumer lobby his or her Congressperson to remove the quota? From the point of view of individual self-interest, surely not. Since one letter has only a marginal effect on the policy, the individual payoff from such a letter is probably literally not worth the paper it is written on, let alone the postage stamp. ... And yet if a million voters were to write demanding an end to the quota, it would surely be repealed, bringing benefits to consumers far exceeding the cost of sending the letters. ...[T]here is a problem of collective action: While it is in the interests of the group as a whole to press for favorable policies, it is not in any individual's interest to do so.
The problem of collective action can best be overcome when a group is small (so that each individual reaps a significant share of the benefits of favorable policies) and/or well organized (so that members of the group can be mobilized to act in their collective interest). The reason that a policy like the sugar quota can happen is that the sugar producers form a relatively small, well-organized group that is well aware of the size of the implicit subsidy members receive; while sugar consumers are a huge population that does not even perceive itself as an interest group. The problem of collective action, then, can explain why policies that not only seem to produce more costs than benefits but that also seem to hurt far more voters than they help can nonetheless be adopted...
What does this tell us? First, if Democratic Party leaders are organized and united on these issues, they have a better chance of achieving their goals. No surprise there. But more importantly, the benefits should be explained not in broad sweeping terms as is generally the case, but rather in terms of how it benefits smaller groups within the Democratic Party. The message needs to be targeted to specific groups. How does globalization benefit consumers, the poor, small businesses, and so on, and how will those who are harmed be protected? There are good answers to all of these questions, but it will require politicians to learn about and explain the answers to their constituent groups rather than caving into the loud and well-funded voices of special interests.
Bruce Lindsey, Bill Clinton's attorney and the CEO of the William J. Clinton Foundation, wrote to the President and Chief Executive Officer of The Walt Disney Company, parent company of ABC last week, asking him to refrain from airing ABC's upcoming miniseries The Path to 9/11 "until [its] egregious factual errors are corrected." The letter is reprinted below.
Criticism of this miniseries has been all over the blogs. You can read what Simon (an ABC alumnus) had to say here. It'll be interesting to see if uproar on the internet forces changes to The Path to 9/11,just as it did to Snakes on a Plane.
September 1, 2006
As you know, ABC intends to air a two part miniseries, “The Path to 9/11,” which purports to document the events leading up to the terrorist attacks of September 11, 2001. ABC claims that the show is based on the 9/11 Commission Report and, as Steve McPherson, President of ABC Entertainment, has said: “When you take on the responsibility of telling the story behind such an important event, it is absolutely critical that you get it right.”
By ABC’s own standard, ABC has gotten it terribly wrong. The content of this drama is factually and incontrovertibly inaccurate and ABC has a duty to fully correct all errors or pull the drama entirely. It is unconscionable to mislead the American public about one of the most horrendous tragedies our country has ever known.
Despite several requests to view the miniseries, we have not been given the courtesy of seeing it. This is particularly troubling given the reputation of Cyrus Nowrasteh, the drama’s writer/producer. Mr. Nowrasteh has been criticized for inaccurately portraying historical events in the past. In response to previous criticism, he has even said, “I made a conscious effort not to contact any members of the Administration because I didn’t want them to stymie my efforts.” Indeed, while we have not been given the courtesy of a viewing, based upon reports from people who have seen the drama you plan to air, we understand that there are at least three significant factual errors:
-- The drama leads viewers to believe that National Security Advisor Sandy Berger told the CIA that he would not authorize them to take a shot at bin Laden. This is complete fiction and the event portrayed never happened. First of all, the 9/11 Commission Report makes clear that CIA Director George Tenet had been directed by President Clinton and Mr. Berger to get bin Laden (p. 199 & 508-509). Secondly, Roger Cressy, National Security Council senior director for counterterrorism from 1999-2001, has said, on more than one occasion, “Mr. Clinton approved every request made of him by the CIA and the U.S. military involving using force against bin Laden and al-Qaeda.”
In addition, ABC’s own counter-terrorism consultant, Richard Clarke, has said that contrary to the movie:
1) No US military or CIA personnel were on the ground in Afghanistan and saw bin Laden;
2) The head of the Northern Alliance, Masood, was nowhere near the alleged bin Laden camp and did not see bin Laden; and
3) CIA Director Tenet said that he could not recommend a strike on the camp because the information was single-sourced and there would be no way to know if bin Laden was in the target area by the time a cruise missile hit it.
As Clarke and others will corroborate, President Clinton did in fact approve of a standing plan to use Afghans who worked for the CIA to capture bin Laden. The CIA’s Afghan operatives were never able to carry out the operation and the CIA recommended against inserting Agency personnel to do it. The Department of Defense, when asked by President Clinton to examine the use of US troops to capture bin Laden, also recommended against that option.
-- The drama claims that former Secretary of State Madeleine Albright refused to sanction a missile strike against bin Laden without first alerting the Pakistanis and notified them over the objections of the military. Again, this is false.
-- Using newsreel footage of President Clinton, the drama insinuates that President Clinton was too pre-occupied with the impeachment and the Lewinsky matter to be engaged in pursuing bin Laden. This allegation is absurd and was directly refuted by ABC News consultant Richard Clarke in his book, Against All Enemies: “Clinton made clear that we were to give him our best national security advice without regard to his personal problems. ‘Do you recommend that we strike on the 20th? Fine. Do not give me political advice or personal advice about the timing. That’s my problem. Let me worry about that.’ If we thought this was the best time to hit the Afghan camps, he would order it and take the heat.”
While these are three examples that we are aware of that are utterly baseless, they are clearly indicative of other errors in the substance and bent of the film. Indeed, the overall tone in the advertisements we’ve seen for this drama suggest that President Clinton was inattentive to the threat of terrorism or insufficiently intent upon eliminating the threat from bin Laden. Note that the 9/11 Commission Report says:
-- We believe that both President Clinton and President Bush were genuinely concerned about the danger posed by al Qaeda.” (p. 349)
-- “By May 1998 … clearly, President Clinton’s concern about terrorism had steadily risen.” (p. 102)
-- “President Clinton was deeply concerned about bin Laden. He and his national security advisor, Samuel ‘Sandy’ Berger, ensured they had a special daily pipeline of reports feeding them the latest updates on bin Laden’s reported location.” (p. 175)
-- “President Clinton spoke of terrorism in numerous public statements. In his August 5, 1996, remarks at George Washington University, he called terrorism ‘the enemy of our generation.’” (p. 500)
We challenge anyone to read the 9/11 Commission Report and find any basis for the false allegations noted above or the tenor of the drama, which suggests that the Clinton Administration was inattentive to the threat of a terrorist strike.
Frankly, the bias of the ABC drama is not surprising given the background and political leanings of its writer/producer, Mr. Nowrasteh, which have been well-documented on numerous conservative blogs and talk shows in his promotion of this film. Mr. Nowrasteh’s bias can be seen in an interview he gave to David Horowitz’s conservative magazine Frontpage, during which he said:
"The 9/11 report details the Clinton’s administration’s response – or lack of response – to Al Qaeda and how this emboldened Bin Laden to keep attacking American interests. The worst example is the response to the October, 2000 attack of the U.S.S. Cole in Yemen where 17 American sailors were killed. There simply was no response. Nothing."
But as Sandy Berger told the 9/11 Commission: “[T]o go to war, a president needs to be able to say that his senior intelligence and law enforcement officers have concluded who is responsible.” And as the 9/11 Commission report repeatedly acknowledges, the US did not have clear evidence of bin Laden’s connection to the attack on the USS Cole before the end of the Clinton Administration (p. 192, 193, 195 & executive summary).
While ABC is promoting “The Path to 9/11” as a dramatization of historical fact, in truth it is a fictitious rewriting of history that will be misinterpreted by millions of Americans. Given your stated obligation to “get it right,” we urge you to do so by not airing this drama until the egregious factual errors are corrected, an endeavor we could easily assist you with given the opportunity to view the film.
Bruce R. Lindsey
Chief Executive Officer
William J. Clinton Foundation
Douglas J. Band
Counselor to President Clinton
Office of William Jefferson Clinton
Cc: Ms. Madeleine K. Albright
Mr. Samuel R. Berger
Mr. Richard A. Clarke
Mr. Stephen McPherson
Mr. George J. Mitchell
Mr. John D. Podesta
Mr. David Westin
National Commission on Terrorist Attacks upon the United States
A recent poll conducted by Lake Research Partners for NARAL Pro-Choice America finds that voters are in favor of candidates who will support commonsense pregnancy prevention measures such as medically accurate sex education, making emergency contraception available in emergency rooms for rape and incest survivors, and demanding that pharmacists stop refusing to fill birth-control prescriptions. This is of course no surprise to those in the reproductive rights community, as they have been seeing similar polling results for years. However, in the lead up to the elections, this reluctance among voters to allow politician to continue to chip away at a women’s right to choose is yet another reason to assume that Democrats could regain control of the House in November.
Having outlined some of the problems globalization posses, and the possible reasons for these problems in the previous post, how should Democrats respond?
On the technological and globalization side, I've encountered resistance to the "education and retraining" response to the problems arising from innovations in information technology and free trade initiatives. Many middle class families, especially those who have been affected negatively by global change, feel let down by the message from the Clinton years about education and the gains from trade.
But I am not ready to give up on the education message. Education does not guarantee that a job will never be outsourced or replaced by a machine, but it gives an individual the best chance to compete in the global marketplace. There is a clear difference in wages according to educational achievement. The evidence on retraining is mixed, but that shouldn't stop us from trying to do better to help displaced workers, and there are certainly other ways to help as well.
But while education and retraining are important, it's a mistake politically, I think, to try and sell them as the solution to the problems globalization brings to some sectors of the economy, not when so many families who went to college like they were told are still unable to escape outsourcing and other consequences of recent changes in the global distribution of production.
On the public policy side of the inequality debate there is more to talk about. For instance, I believe there has been a shift in market power in wage negotiations from workers to firms due to the decline in unionization, the rise of mega-stores, the forces of globalization, and other factors. I am not a Wal-Mart basher - companies do what our laws and regulations allow them to do. If there is a problem, it is with our policies and regulations, how they are set, and the watchdog agencies that enforce them, not with those playing by the rules that have been established. Democrats can and should address the issue of unfair bargaining power and unfairness in how the rules are set, but this does not require bashing a particular firm.
I believe changes in public policy help to explain stagnating wages, falling health care coverage, changes in safety and environmental regulations, and other workplace changes that enhance the firm's bottom line at the expense of workers. Workers alone have no chance against large, global firms who can use threats such as moving to other countries to hold down worker compensation.
It is up to the Democratic Party to step in and help to balance the distorted scales that are currently distributing the gains unequally. Besides a few politicians bashing Wal-Mart, illegal immigration, and our trading partners, where is the strong voice for working America? There is a lot to be gained by simply convincing working America that the Democratic Party is working for them rather than for competing interests such as big business or large contributors.
There are other areas besides market power imbalances where Democrats could improve public policy and level the playing field. Does tax policy have to favor the rich, or could we do better at using tax policy to help struggling families instead? As we balance the budget, whose needs will be paramount? Does every child, to the extent possible, have an equal opportunity for success in life? There is much that can be done in areas such as child care and work place rules to help working parents balance the needs of work and family in their day to day lives. Democrats should not simply accept that unequal gains is the inevitable consequence of globalization. There is enough for everyone to share, but the rules and political process needs to be directed toward that outcome.
As an economist, I believe in the gains from specialization and trade. Protectionist measures are not the answer, demonizing Wal-Mart will not solve our problems, and blaming immigrants for our problems deflects responsibility for the problems of workers and their families away from the public policy arena where it ought to be directed. The rules of the globalization game matter and help to determine how the benefits from globalization are distributed. For globalization's benefits to be fully realized and shared equitably, it is essential that we do a better job of promoting and enacting policies that support this outcome.
Joe Garcia, NDN's Hispanic Strategy Center Director, is in the New York Times today discussing the ability of Governor Jeb Bush to help Republican candidates this fall.
Mr. Garcia questioned whether Mr. Bush’s influence would really help Mr. Crist. He suggested that Democrats, trying to hamper the governor’s ability to bolster Republican candidates, would tie him to his brother at a time when the president’s popularity has plummeted....“You want Jeb Bush to carry you,” he said, “that’s fine, but his big brother is going to be there with him.”
NDN have been going on about wages for some time now. We highlight the issue in the 3rd section of today's report - emphasing that flat wages and median income is the thin end of the administration's economic wedge. Today's papers, therefore, make heartening reading. Some revised labor stats seem to be suggesting that wages and benefits are growing strongly, says the Post. The FT is measured: wages are above expectations. Panic over? Not quite. Our current guest contributor Mark Thoma handily links to Paul Krugman's thoughts on the topic, in a discussion on the New York Times website:
So, are workers making out like bandits? Don't be surprised if you start seeing opinion pieces claiming that they are. But here's the thing: We have evidence from three different sources that tells a very different story. First, wages of non-supervisory workers, as measured by the Employment Survey, a survey of employers, are lagging slightly behind inflation. Second, median weekly wages, as measured by the Household Survey, a survey of (duh!) households, are lagging well behind inflation. Third, profits ... are growing much faster than G.D.P., which has to mean that labor costs are growing slowly.
We all want to see the pay packets of ordinary Americans begin to rise faster than inflation, something which hasn't happened under this administration. But don't think its happening just yet.
Bright is the light that shines from America, and yet for many those hopes have dimmed. If you look back on any measure of well being, the last 30 years have seen an America where a few have made a killing, while most people have taken a bath. Technology has forged ahead, and with it our absolute standard of living, but our economic policies have contributed nothing to this. We have lived on the vision of a casino America, where people hoped that the wheel of fortune would spin their way.
NDN have put together a tight package of numbers which hammer home the story that this has been a lost generation. People who work have fallen farther and farther behind. This is a trend that has remained in place largely unaltered, in recession and recovery, in contraction and expansion. There have been only a few brief moments of respite, the longest being under President Clinton, against the a slow and steady erosion of the place of work in American society. In 2004 Howard Dean made "take America back" his battle cry, General Wesley Clark warned us that "good people were losing good jobs, and that is the problem" and Senator John Edwards diagnosed the disease as "a war on work." This is an insight that unifies every elected politician running on a Democratic ticket: finance was prospering, but many ordinary Americans were being left behind.
I work in finance. It might seem strange for someone who is in finance to say this, but it is bluntly the truth: an economy where people can't work, won't work. Finance can grease what Adam Smith called "the great wheel of circulation," it can open the road to taking risks and reaping rewards, it can give the life of liquidity to great ideas that will change the way people live. All that is true, but financial people are fond of the expression "at the end of the day," and, well, at the end of the day, someone had to put in a real day's work. Finance without labor is a steering wheel without an engine, and investment without good government is a stick shift without a clutch.
If the world economy is not advancing, then other nations will catch up to the US, and wages will keep falling. The NDN report documents the sobering reality that for most Americans, there has been a long decline of the place of work in the economy. All of our economic pressures – from the federal budget deficit, to our dependence on oil, to our trade problems, to the immigration controversies that rage across the country – can be traced back to the two fundamental failures: the failure to constantly reinvent the American economy, and the failure to reinvest in an American work force which can be paid higher than the competition, because they have skills and abilities for which there is no competition. The last time it took a World War to create this work force, which transformed America from the cheap factory floor of Europe into the engine of the free world's economy. This time, let us hope, we can regain that edge without such a drastic incentive.
Because sooner or later, financial power moves to where the wealth is, and, as Adam Smith wrote over two centuries ago, the real wealth of a nation is the specialized labor and the capital that it uses to create products. The danger highlighted in this report is clear. On President Bush's watch we've had an economy which has grown, but has left most American's behind. Only by ensuring Wall St and Main St both benefit from our growth can we return to the type of prosperity we enjoyed during the 90s. Bottom line: Wall Street will remain on top only so long as you can get there from Main Street.
In the 1990s the Clinton administration, with the enthusiastic support of economists, strongly supported free trade and globalization initiatives. In this vision of the world, globalization would produce large gains and lift the fortunes of all involved. For those left behind or displaced by globalization, education and retraining would be used to bring these workers into the global workforce so that they too could benefit from global trade. For instance, here is Bill Clinton in support of NAFTA in 1993:
In a few moments, I will sign three agreements that will ... create a North American Free Trade Agreement. In the coming months, I will submit this pact to Congress for approval. It will be a hard fight... And though the fight will be difficult, I deeply believe we will win ... because NAFTA means jobs American jobs, and good-paying American jobs. ...
The only way we can recover the fortunes of the middle class in this country so that people who work harder and smarter can ... is to adapt to the changes which are occurring. ... [We] cannot resist the winds of change that economics and technology and information flow have imposed... Our only realistic option is to embrace these changes and create the jobs of tomorrow.
But the promises made about globalization have not been realized by all, and a growing sense of economic insecurity has been the result. As I looked through this report from the NDN on Bush's economic record, Section 2 caught my attention because it reflects the disappointment many people feel over the unrealized promises made by Democrats about the benefits of globalization. The growing inequality in income illustrated in Section 2 of the report is emerging as a political issue and many people I talk to blame globalization (and often immigration too) for stagnating worker income and the growing income gap.
Other problems, such as the decline health care coverage and growing workplace insecurity, are also attributed to globalization. In order to compete in the global marketplace, the argument goes, firms are forced to shed benefit programs for their workers and to hold wages down. But is globalization really to blame for all these problems?
It would be fair to say that economists are rethinking globalization, in particular, how the gains from trade are shared both within and across countries given the experience of the last few decades. As part of this reexamination, the source of growing inequality is a key issue. More particularly, the debate is about whether the forces of economics arising from technology and globalization are behind the unequal gains we have experienced, or whether it is public policy such as union-busting, a falling minimum wage in real terms, tax cuts, and so on that are to blame. The answer is important because it dictates how public policy ought to respond to the changes we are seeing.
Those who believe growing inequality is due to the forces of economics rather than politics cite technology, in particular skill-based technical change arising from computerization and the spread of information technology, as the cause. Under this explanation, higher skilled workers are compensated for higher productivity and thus the change in the distribution of income, while regrettable, is the consequence of a fair reward for more productive labor. The solution then is to give all workers the skills needed to compete in the global economy. Thus, education is a key component in explaining and the inequality problem, and education is also seen as the best solution.
But other economists disagree strongly with the skill-based explanation for changes in income inequality and believe it arises largely from public policy favoring some groups over others. An email from Paul Krugman explains this position. Here's a shortened version:
I think it's really important to realize that we have only a modest amount of direct evidence that technological change is driving increased income inequality. That is, while there have been a few studies showing some connection between increased use of IT and changes in the wage structure, very little of the conventional wisdom that technology is the culprit is based on those studies. ... The point is that it's all too possible that we're attributing to technology rising inequality that may be largely due to hard-to-quantify political and institutional change.
There are several reasons to think that politics plays a big role. ... So what are the mechanisms? Unions are probably top of the list; I believe that there's a qualitative difference between wage bargaining in an economy with 11 percent of workers unionized, which is what we had in the early 30s, and one with 35 percent unionization, which is what emerged from World War II. That's discontinuous change, partly driven by a change in political regime. And the process went in reverse under Reagan.
An overall climate of public scrutiny may matter too, especially at the top of the scale. And don't forget that some taxes affect the pre-personal-tax distribution of income. Taxes on corporate profits went from a minor inconvenience before FDR, to a major source of revenue under Eisenhower, and back again.
The bottom line is that the view that rising inequality reflect forces beyond the reach of politicians may sound sensible, but it's actually a supposition based on very little evidence, and there's a lot of evidence on the other side.
I should note that these explanations are not mutually excusive, i.e. both technology and public policy could be at work, the question is whether public policy has played a large role in generating inequality. I, like Krugman, believe that it has. I'll post again a little later with a discussion of possible policy responses.
For a quarter-centuryAmericans' spending binge has been fueled by a declining savings rate and increased borrowing. The savings rate of American consumers has fallen from 12% in the early 1980s to -1.7% today. This means that, on average, consumer spending has risen about a half percentage point more than disposable, or after-tax, income per year for a quarter-century.
The fact that Americans are saving less and less of their after-tax income is only half the profligate consumer story. If someone borrows to buy a car, his savings rate declines because his outlays go up but his disposable income doesn't. So the downward march in the personal savings rate is closely linked to the upward march in total consumer debt (mortgage, credit card, auto, etc.) in relation to disposable income.
Let's go over these facts in a bit more detail. There has been a fair amount of debate regarding the official savings rate. The Bureau of Economic Analysis uses the standard economist's formula for savings - total income less all purchases. This formula essentially says savings is all the money left over after consumers buy their stuff. Various right wing pundits have disagreed with this formula. However, three independent studies by FDIC, Boston College and the Employee Benefit Research Group the all confirm the US has little to no savings to speak of.
While there is no definitive standard for how much a person needs for retirement, many baby boomers appear to have a net worth insufficient to meet basic retirement needs, according to some guidelines.9 In 2004, the median net worth for families headed by baby boomers between the ages of 45 and 54 was $144,700.10 However, these data are somewhat difficult to interpret, as wealth holdings in the United States are skewed toward the top 10 percent of families (see Chart link, next page).
The median family net worth was $1,700 for the lowest 25 percent of U.S. households and $43,600 for those in the 25th to 49th percentile. In contrast, those in the 75th to 89th percentile had median family net worth of $506,800, while the figure for those in the top 10 percent was $1.4 million.
These data do not apply only to baby boomers, however. The third Chart I link to below suggests that although many families have a fairly substantial amount of assets, a large number have few resources with which to supplement retirement income.
Here is the Central Finding from the Employee Benefit Research Group. It found that 63% of people have less than $100,000 saved for retirement. The paltry savings levels reported in the Flow of Funds report backs-up this fact. $100,000 is clearly insufficient to provide for income for a 20-year period, even with social security.
In case you are wondering, there are some great graphs of what is going on. Here's a graph of the US savings rate. Not only have Americans gone on a spending binge for the last 20+ years, we have also gone on a debt acquisition binge to pay for all of this growth. Notice how household debt has also increased over time. Also note how debt as a percentage of assets has increased. Finally, there is total household debt at the macro level relative to the disposable income.
That ratio currently stands at 108%.In other words, there is more total debt outstanding than total income. In addition, looking at the Federal Reserve's Flow of Funds statement indicates that each year for the last seven years US households have put on more debt than assets.Then there is the Federal governments propensity to use deficit financing.
In short, here the US economic model for the last 20+ years: increase the use of debt to encourage consumer spending, even if that means we spend today at the expense of tomorrow.The problem with this policy is at some point one or two things happen. Either debt saturation prevents entities from acquiring more debt to increase consumption, and/or entities have to start paying debt back. There is no magic rule for when there is too much debt - no percentage an economist can state that above said line there is too much and below there is too little. However, given the current levels at both the household and federal level, it is fair to say we are closer to that level than we were even 5 years ago. Consumer spending is currently responsible for 70% of US GDP growth. However, debt is financing an ever-increasing percentage of those purchases at the expense of personal savings. Combine that with record high levels of debt, and it becomes obvious the old model can't work for much longer.
As we look beyond the next recession, we as a country need to develop a new model. The market will take care of some of this for us. People will start to save again simply because they need to. Consumers will look at their levels of debt and start to pay it down.
However, one very important things need to happen. We need to take a page from the Asian economic model and look ahead to the industries that will drive economic growth for the next generation. Then we need to develop those industries with a pro-active Federal policy. Nanotechnology, stem cell research and alternative energy all get my votes, but there are many other worthy causes. Focusing on new economic areas will increase incomes and create jobs and new industries. This is vital if we are to move away from a bubble/debt based model to an increasing income/job producing model.
This change will not be easy. As a country, we have grown use to easy answers to complicated questions. Rather than invest in new industries, we have gone on a consumer spending binge that has resulted n out current predicament. However, the change will be necessary as we move forward.
"Older politicians will have to get beyond their ideological blinders to recognize the opportunity waiting for any candidate or political party that can embrace both halves of the Millennial era civic ethos paradox."