May 1, 2013

MATT YGLESIAS SAYS 401KS SUCK. Instead he calls for “a much more forceful, much more statist approach to forced savings, whether that’s quasi-savings in the form of higher taxes and more Social Security benefits or something like a Singapore-style system where ‘private’ savings are pooled into a state-run investment fund.”

The problem is, those approaches suck, too. Social Security is going broke. If you want to see a pooled state-run investment fund, look at CalPers. It’s going broke amid horribly politicized mismanagement. And state-run pension funds are subject to all sorts of politicized investment decisions that have nothing to do with the interests of the pensioners. At least with 401k plans, the politicians aren’t involved — though I sense a political move to change that, too . . . .

Ultimately, there’s no magic solution to retirement savings, though a higher economic growth rate would help a lot. But the solutions being peddled all seem to involve putting more power into the hands of the people who have created the problems we face now.

UPDATE: A cynical take from reader John Koisch:

Do you get the feeling this is all battlefield preparation for Obama to start implementing his limitations on retirement savings? We never heard of this as a problem until Obama took office.

The real problem here is that, just as in Healthcare, my sense is that Bambi is going to turn to his friends, the “experts” to manage these funds on behalf of the state. And we will inevitably come across the 401K version of the IPAB … the group who removes funds from your account because of your 18% return and gives them to the other guy’s account who only got 5%.

The common theme in all of these is the co-opting of the corporate world. What government can’t do well, it borgs from the free-market. And when captains of industry face declining rates of return, they turn to the government to protect their fiefdoms and provide “guaranteed” rates of return. And the little guy and small business is left out of all of this … rubes.

Yes, if you’re not connected you get the shaft.

ANOTHER UPDATE: A reader emails this link: “It takes two words to show Yglesias’ statist approach is massively unwise: Chrysler bondholders.”