Thursday, March 26, 2009

GWB's "Ownership Society"

A recent article on line cites a 2007 Federal Reserve Bank survey that found that the average American approaching retirement had amassed a staggering $60,000 in 401(k) savings. Since that was pre-meltdown, one can only wonder what they are worth today. Perhaps enough for part of a "Golden Year in the Sun". The use of the singular is not a typo.

The article goes on to give insights into the number of firms that are going to reduce or terminate matching contributions to 401(k) and similar defined contribution plans. In short, more and more future retirees are going to be in less that stellar financial shape.

What gave me pause about GWB's "Ownership Society" and the attendant privatization of part of Social Security is that if you are living hand to mouth, as at least 50% of the population is doing, the investment in the future you are able to make is paltry, if any at all. Take Social Security and make part of it subject to the vacillations of the market, and today's paltry can look robust compared to tomorrow's down market.

For example, my Mom worked until she was 70, as it was her major form of entertainment. The last 15 years of that time, she pumped as much as she could into a 401(k). She retired in late Summer of 2000, and six months later began receiving mandatory distributions of her 401(k). Less than 2 years later, due to the market tumble following 9/11, every dollar she was forced to withdraw over the next 2 1/2 years had originally cost her an average of $1.50. She had no idea of what was going on, nor did I, as I was totally unaware that her monthly "pension" included these 401(k) funds until late in the game. My "bad" for not knowing where the money really came from, I guess. Had I known at retirement time, I would have encouraged her to move the funds from a stock based portfolio to lower yield, lower risk investments. But, since these were mandatory distributions, once the market fell, the damage was done. She couldn't halt distributions to wait for the market to rise.

"Ownership Society" is a truly Orwellian term. It refers to something that, for a significant portion of the population, really only exists in the abstract. As Yogi Berra would have said, "You can't own anything until you own it." Like it or not, the lower 50% of the income scale in the US do not earn enough to "own" a lot, and it takes a lot to retire. We didn't even encourage building equity in one's home the past 10 years. Placing the whole monkey on their backs is fine, but just don't make it look like a glorious, slam dunk ticket to a secure future.

But then, for the private firms that would receive this privatized Social Security money to invest, the scale of what they could own as a result would be staggering. And, as we have seen, the US financial industry truly has the everyday working stiff's best interests at heart.

WASF

Al

52 comments:

FDChief said...

The bottom line on this entire debacle is that the point of the past 20 years has been to transfer wealth from the bulk of the population to the top 1% to 10% that have the ear of the congresscritters and the wealthy insiders who serve at the top of most of the executive agencies.

It's worked.

Despite the "populist rage" at things like the AIG bonuses, what odds what ANY of these malefactors of great wealth will lose so much as a nickel? Or that they will spend so much as a night in jail?

Watch. I'll bet that Madoff's family walks away with millions, that the execs that engineered this immense derivative Ponzi scheme will still be beavering away, spinning money from nothing, years from now.

We just won't know about it because there under the bridge we won't have CNBC.

WASF. Indeed.

wourm said...

Can't say how relieved I was when GW's whiz-bang, throw social security into the stock market, plan was scrapped. In light if the market's performance of late, I don't see it rising to the surface again any time soon.

Ya gotta admit, though, that it was one hell of a ballsy plan. Think about it, if they'd had their way half the nation would be down on its knees right now. Rove & Cheney would be in their glory! I can just imagine them wringing their sweaty hands saying, 'Oh, the power! Feel the POWER!"

bigbird said...

It's going to be difficult to write this without sounding snarky, but I'll give it a try.

I agree that privatizing Social Security would have been an unmitigated disaster during this meltdown. Having seen how my parents scraped by on SS (thank god for Medicare) I didn't want to tinker with that safety net.

Had trouble with your mother's 401(k), did you? I've seen all too often that their finances are one of the few things that the elderly have some control over and they won't give a peak to their children. My mother remarried in her seventies after my father passed away. My stepfather set up an A-B trust to take care of my Mom after he passed, but he never told his sons. They had to scramble at his death to set up a trust and got a poor deal with a bank's trust department - too conservative in the mix of investments and his sons got little at his death. It was a sobering lesson.

The problem with an IRA or 401(k) is that you need a long term. The company I went with after leaving AD had both a pension and a predecessor to the 401(k) with employer matching. Very conservative investment choices. One could pull out funds after two years, as many did. I was able to leave it in. Now, this has been compounding, tax deferred, for almost forty years. It is a sizable pot of money. I let out a large gasp when the dot com bubble burst and an even larger gasp during this meltdown, but I don't need to sell securities to exist.

While I think the 401(k)'s are great, the general population shouldn't all need MBAs to manage their retirements. I've seen too many people cash out their 401's when they switch jobs. They're insane!

I look at my own offspring and wonder how they will get to the economic level I reached. I was never a corporate high roller, just a person who lived beneath his means. Yet, when I was working on my own MBA, circa 1970, one of the finance professors was bemoaning how the great upward rise in the stock market after WWII was coming to an end and he didn't know how we would make out like he did.

I was lucky. I retired before my company canceled its pension plan and reduced its 401 match, much less cutbacks in the medical plan. I'm able to use TRICARE as a supplement to my company plan. I'm not yet on Medicare, but it's coming soon, but even then my company plan comes before TRICARE.

IMHO, career military get screwed because they have a tough time building equity in a house. The transaction costs for real estate are terrible. Likewise, whatever they have for a 401 doesn't have the matching component.

Aviator47 said...

Yes, FDChief, the point was truly a redistribution of wealth, just not in the direction for which the term has been historically used.

I think of those in the lower third of the earning distribution, let's say a current $30,000/yr. 6% contribution to a 401(k) style plan means $1,800/yr. That's a lot of out of pocket money at that income level - roughly two to three months housing costs. The fallacy is that 6% has a significant impact on a low earner, while a lesser impact on a high earner.

Bigbird-
Mom simply saw the constant dollars going into her checking account and had no idea of the declining value of the pot from which they were being drawn from. She was 70+ years old, and "pensions were pensions - you get so much every month". Thus, no red star cluster.

You are correct that a person should not have to have a graduate degree in finance to retire. No matter how small a defined benefit pension might be, it allows one to simply adjust to known factors as times improve or decline. It makes the few (pension plan managers) earn their pay looking after the benefit of the many (pension recipients). Logically, it is quite efficient. "Ownership Society" retirement strategy leaves the many to look after their own individual benefit, while the few (investment firms) earn profits on this shifted responsibility, a rather inefficient model.

Unfortunately, the captains of finance cannot stand the idea of money not being totally at their beck and call to generate more money. The restraints upon money invested in defined benefit pension plans are too much for their appetites. Rather, move that money into investment funds for which there are openings for greater risks, greater management profits, and lessened requirement for stewardship by the manager, and the world is better.

Our next door neighbor in WA was widowed a year before we moved here. Her husband was a retired USAF Colonel. All kinds of investment brokers called her to offer their advice (for a % of the pie) on how to "immediately put her husband's estate to work for her" (to include extracting equity from their paid up house for investment purposes). She was so impressed when her assigned benefits counselor from USAA told her (at no cost) that a) there was no need to make any financial decisions other than paying bills for a while, and b) the estate, life insurance and the income she would normally receive could readily support her for as long as she lived, without taking on any new investment headaches or risks. She went with USAA's advice, and is so pleased. Yes, she suffered a modest reduction in income, but, as she puts it, "I'd rather spend my time in joyful pursuits than following the markets."

bigbird said...

My parents had moved to a retirement community. After my father passed, the 'advisers' came out of the woodwork. They were all local. I couldn't stop my mother from purchasing as annuity for the reasons presented to her. While it wasn't a wipeout it was structured to the advantage of the salesman.

As we with military backgrounds know, there is money to be made from retirees. I don't use USAA because of the insane NJ auto insurance market, using instead a similarly organized NJ insurance company which is considered the gold standard within the state. I hold USAA in high regard and would again use them if I moved out of state, which I'm contemplating because of the property taxes.

I keep asking around to see if anyone I know was burned by Madoff. Closest that I have gotten is someone that someone else knows. Even in the synagogue that rents space from our church.

Madoff gives me pause. I'm invested with a major brokerage using an individual that mainly deals with with 401(k) plans from companies, unions and so forth. While I trust him and only use established funds, the entire Madoff affair makes me wonder.

Aviator47 said...

BigBird-

Wasn't particularly making a plug for USAA, but it turns out they were the ones who didn't circle like vultures. Of course, a fair portion of the $$ was already in USAA's hands, but very conservatively so. The impressive thing, in my mind, was that they were willing to let our neighbor have a bit of peace. The agent said that if the husband was comfortable with the investments (he knew he was dying and set it up to make it simple for her - recorded in the USAA records), they had no argument, especially if it would meet her long term needs.

Andy said...

Warning, this is a bit long and rambling because I don't have time to edit and proofread:

Well, I think the American people need to take a good, long, hard look in the mirror. It's easy to blame the fat cats and complain about how the rich are supposedly soaking the rest of us, but I think it's hard to make that argument when that 90% are happy to live beyond our means. Running up credit card debt, taking equity out of a house for cars, shoes and flat-screens cannot be easily blamed on the top 10% of income earners in the US.

The simple fact for me is that when Americans faced a choice, many, even most, chose immediate self-gratification over a more long term view. Call it a flaw in the American character or whatever, but this country is where it is today not because of a small group of fat cats but because Americans, as a whole, have acted stupidly. And for full disclosure, I'm not immune either - I've been much more wise than average, but there were also many times I lost sight of the value of money and choose to gratify my immediate desire over going without in the long-term interest.

The bigger question, in my mind, is to what extent should the government have the power to protect us from our own idiocy. That's not an easy question and there are no hard-and-fast answers. In general, my philosophy is that the government should take measures only to protect systemic failures (which it obviously failed to do over the last 20 years), and provide an adequate, but minimal, social safety net. Obviously, reasonable people can disagree on that score.

On the so-called "privatization" of social security, I did not have a problem with it at all. First, it was a small portion of the benefit - not the whole thing. As someone who just turned 40, my opinion is that the boomers are going to drain social security to the extent that there won't be much left for my generation. My long-term planning does not include social security - if I get it, then great, it will be bonus money. Given that perspective, I liked a little bit of privatization because that money would have been mine, and not the governments. Our venal Congress would not have been able to raid those accounts, as they currently do anytime there is a SS surplus. As it stands, the SS system's solvency is predicated on a bunch of IOU's written by Congress that will come due once the boomers retire en masse.

Finally, I am personally not at all concerned about the stock market decline, despite the fact that the paper value of my family's holding have declined by about $70k. I am not pulling that money out for perhaps another 20 years, so I don't really care where the market is now and, in fact, I'm going to try to put more money in this year because of the decline.

Every financial analyst on TV and elsewhere that I've seen who provides advice for free or pay consistently push two themes:

1. Diversification
2. Time horizon.

The first is obvious and I frankly don't understand why people concentrate their money - particularly their retirement money, so often in a single stock.

The second point is that if you're going to need the money within five years, you probably should not much of it in the stock market. This advice is not new, yet people continue to keep money in stocks, or a single stock, right up to the point of retirement and then get fucked by a downturn. Is that the fault of the fat cats? What is government's obligations to protect people from their own ignorance?

Certainly we need to crack down and crack down hard on predators who sell crap to people. Certainly we need much more transparency and disclosure so people understand what they are buying or investing in - as well as much better enforcement, which is consistently lacking.

What is the alternative to the 401k? What is a better way to guarantee adequate retirement income? The pension system hasn't exactly worked out so well for a lot of people. My father-in-law is a steelworker who worked for LTV steel in Cleveland for 35 years. He was set to retire when LTV went under but the pension only had enough money for a year of retirement and medical benefits. Once that year was up, the program was taken over by the PBGC, which eliminated half his pension income and all of his health benefits. Fortunately for him, someone else bought the mill, he was rehired and is still working today and furiously saving (in a 401k!) so he can hopefully retire for real before he hits 70. Corporate pension programs suffer from the problem that they are solvent so long as the company is in business. Like social security, they take money from current operations to pay for most of the retirement benefits. Also like social security, that works fine when you have a healthy company with more workers and income than retires, but once that ideal situation goes away, they become insolvent.

So what is the solution for retirement and/or long-term saving?

Finally, lets look at who is actually going to pay for this mess. The reality is that currently around 35% of tax filers and about 40% of the American people pay no income tax at the end of the day. Obama's middle-class tax cuts will increase this to about 50%. Despite all the media claims to the contrary, the upper income levels fund the vast majority of our government expenses, excepting entitlements, of course. They are going to pay even more and I don't have a problem with that. The point is that the vast majority of this debt we're incurring is going to be paid off by the rich over a long period of time. That's as it should be.

BTW, Al, I like USAA too. We have quite a bit of our money there, but obviously not all of it.

Aviator47 said...

Andy-

The problem we face today is not really what people/companies are doing with their own money, but what they are doing with other people's money.

A bank doesn't lend its own money. It lends money that others have entrusted to the bank's care. It then shares the profits earned via those loans with it's investors. A fly by night mortgage broker is even further removed from the risk. He facilitates the lending of money by someone who's lending other people's money.

The problem, IHMO, is that the lenders stopped seeing them selves as stewards of the money in their care and became profit generators. Why, because the profit is the only element that is really theirs and to hell with everything else.

And, of course, too many people are buying too much crap with other people's money (credit). But they are enabled by the financial institutions eagerness to lend other people's money.

Funny thing happened last May. A group of my high school classmates came here for a mini-reunion. One of them worked at the same airline as Ardy, my wife. They were both in management, and knew each other by phone and correspondence, but first face to face was here. He was the corporate director of pensions and benefits. Ardy mentioned how fortunate they were that the airline has never played the "Chap 11 Game", and thus their pensions were intact. He said that the CEO had made a point that he considered contributions to the company's pension and retiree health plans "earned wages" and the property of the employees, and thus they were to be robustly funded (85% minimum). In short, there would never be an incentive for the company to file Chap 11 to abandon the pension plans. Such thinking is absent from most US corporations.

You say you support "safety nets". A defined benefit pension plan is just that. Even if it means somewhat lower wages and lower profits, they are feasible. Doesn't need to be huge. But, the temptation to use the money for present needs (borrowing from Soc Sec or wildly underfunded private plans) has to be stopped.

We need to stop being so loose with other people's money.

Al

Andy said...


The problem we face today is not really what people/companies are doing with their own money, but what they are doing with other people's money.


Yes and I submit that is a two way street. There must be regulation and transparency to ensure that those people making money on "other people's money" are doing so honestly. Those who choose to invest need to be able to make good assessment of the risks. That has, obviously, been a huge problem.

On the other hand, buyers must beware. People who choose to take risks and invest without understanding the risks don't deserve much sympathy when things go wrong. The perfect example if that criminal Maddoff. It's a good thing he's in jail, but the people who gave him their money solely on the basis of faith made their own beds. I am sorry they lost everything, but that's what happens when you hand your money over to someone who won't give you the slightest clue as to what he's doing with it. It also shows the importance of diversification.

You say you support "safety nets". A defined benefit pension plan is just that.

No, I think that's what social security is. The vast majority of Americans do not work for large companies that can create and fund pensions that will provide retirement income 40 or 50 years from now. And even that is assuming that an employee stays with such a company long enough (usually their entire career) to get full pension benefits. Want a new job in a different company? Bye bye pension unless there is some kind of union agreement, which is very, very rare.

The pension model has failed in this country. The vast majority of people simply do not stay with one employer for their entire working life and companies are simply not able to guarantee benefits 40 years in the future. I don't think it's possible to declare that the costs are "feasible" lower wages and profits - how can you or I or anyone else know that? Certainly companies facing pension problems today did not adequately appreciate things 30 and 40 years ago, like the rise in health care costs, rates of inflation, nor the fact that "retirement" is now about 20 years instead of five or ten.

My brother is one of those "small business owners" all the pols like to talk about. He owns a construction company that specializes in remodeling offices in high-rise buildings and he employs about 12 people. There are a lot of people like him those employees count for about half of the entire private sector workforce in America. How is my brother and all those like him supposed to offer a pension? Medical benefits are difficult enough, but a pension? Ain't gonna happen.

Maybe your friend's airline is solid today, but there are no guarantees for the future, particularly in the airline industry. What if the airline goes under or get bought out? What happens then to employees who are currently retired vs someone whose only been working there five or ten years? If I get hired tomorrow, is your friend confident enough to guarantee that the airline will exist in 30 years when I retire and will it guarantee a specific level of income from retirement until I die? 85% funded is not 100% funded and I don't think any business can make such guarantees, but I'd be happy for an argument to the contrary.

Personally, here's what I would like to see:

1. Social security adequately funded and guaranteed to provide everyone a minimal amount of retirement income - basically enough to put a roof over your head and ensure you get three square a day.

2. Fix the medical care fiasco. That's a topic for another day, but retirees (along with everyone else) obviously need access to medical care.

3. Anything beyond the basic food, shelter and medical needs should be the responsibility of the individual. If people want to maintain the lifestyle they enjoyed during their working years into retirement then they need to save their own money for that. If they make bad choices, well then they'll get the roof and three square. Whether this "lifestyle" income comes from a pension, 401k, or good old-fashioned bank savings is not important at the end of the day. The more options people have, the better, IMO. I don't think the government has a responsibility to ensure people are able to live a middle-class life-style during retirement, only to keep them off the streets. That's what I mean by a "safety net."

Aviator47 said...

Andy-

I don't think you get it. The mantra of an "Ownership Society" is pure horse-puckey. Those that "owned" 30 years ago, now own much more. Everyone else owns less. Look at the distribution of wealth in our society over that period of time. There is now way the lower 40% of the income distribution can acquire anything of substance, no matter how hard they try. Whippity-Do-Dah-Day for a $40k retirement account at age 65! And, labor force turbulence and high unemployment will cause many to have even less than that by the time they are back on a payroll.

Is the revolution coming? Sooner or later it will, unless the trends change. Look at those brave AIG executives who are leaving the company for fear of their safety. It ain't just bleeding heart liberals screaming for their hides.

I am not proposing a welfare nor a workfare state. But the current trends are not economically nor sociologically sustainable. So we can let catastrophe theory sort it out, or try another approach.

Andy said...

Well Al, it's perfectly possible that I don't get it.

I do agree the rich have gotten richer, but I'm not sure that has been at the expense of the rest of us. The number of people living in poverty has remained essentially flat since the 1960's and the middle class hasn't changed much either. Incomes have grown almost across the board, but you're right that the incomes for the small percentage of truly rich people have comparatively grown a lot more. I don't think it's a zero-sum equation though - IOW, if the super rich had lower incomes I don't think that translates into greater incomes for the rest of us.

So assuming the income gap is a crisis that merits a response, what is the solution? We can raise the tax rate back up to 94%. That's something I don't really have a problem with. It might help our budget problems (though Congress seems to spend beyond its means no matter what), and it might make us feel more equal, but I don't see how it's going to make the rest of us richer.

There is now way the lower 40% of the income distribution can acquire anything of substance, no matter how hard they try.

What is something of "substance?" Serious question.

Whippity-Do-Dah-Day for a $40k retirement account at age 65! And, labor force turbulence and high unemployment will cause many to have even less than that by the time they are back on a payroll.

Yes, there are problems with 401k's. People don't contribute enough, they cash them out between jobs, and there are low participation rates. Here's some more on that (ppt file) where an interesting case is made that too much choice is a bad thing. The problems with 401k's seem to more about inherent human psychology than lack of income. Even those with good incomes don't save as much as they should, so I don't think the problem with retirement saving can simply be blamed on people not having enough income. That is an issue that can and should be addressed.

Aviator47 said...

Andy-

From our House of Reps: In 1965, U.S. CEOs at major companies made 24 times a worker's pay-by 2004, CEOs earned 431 times the pay of an average worker. In short, by lunchtime on the first working day of the year, these CEO have beaten the annual earnings of the workforce.

Consider that over the last 10 to 15 years, wages adjusted for inflation for those at or below the median income have fallen, and you might see what I am getting at. Wage disparity has become somewhat obscene.

As to 401(k) cashout, it would be interesting to see how much of that results from low income folks trying to make ends meet (medical bills, for example) or as a result of layoffs. Much more definitive descriptors are needed on this one.

I'm not addressing tax rates, I addressing the societal/cultural trend. Tax rates have exacerbated the problem, of course. Keep in mind, Andy, the whole idea behind "supply Side" or "Trickle Down" economics is to put more and more wealth in the pockets of the highest earners.

Al

Al

FDChief said...

"...and it might make us feel more equal, but I don't see how it's going to make the rest of us richer."


But the mere existence of the wealthy is not the point that Al and I are angry about.

It's the reopening of the grotesque, Gilded Age chasm between the vastly wealthy on one side the the rovelling proles on the other.

When your salary is 24 times someone else's, you're rich.

When your salary is 400+ times someone else's, you're barely the same species. You lose connection with, and empathy for, and concern for, those "little people" who have todo stuff like sweat deductibles and pay mortgages and fight in armies and stuff.

And you get an inordinate level of access to the levers of power. Economic power. Political power.

And, because you could give a rat's ass about stuff like good public schools and public services and public polcies, you could care less if people's jobs go to Mexico or China and people's families lose their houses and people's schools go to shit or people's kids come home in bags from pointless fucking foreign policy adventures.

THAT's the problem.

THAT's why the marginal tax rate needs to goback to 94% for ncomes over 1 million. That's why the social security assessment needs to come out, not of your first hundred K, but the whole magilla. That's why the military-industrial-congressional-media complex needs to be burned to the ground and the ground sowed with salt.

This won't happen. And becuse of that we will slly subside into a post-imperial desuetude populated by a large number of underemployed and unemployed serfs milling about outside the walled haciendas of the wealthy.

We will be 18th Century Spain.

And we will have richly deserved it, for allowing our democracy to be overrun and run down by these malefactors of reat wealth.

Andy said...

Al,

I don't deny that those CEO's are earning way more than ever and probably a lot more than they deserve, I just don't think it's very relevant beyond the populist outrage it fosters. The more important issue, in my mind, is that their compensation is completely divorced from performance, which obviously creates perverse incentives that hurt companies, employees and the larger economy over the long term. That is what needs to be fixed IMO.

FDChief,

I think you make a lot of assumptions about the super rich and wrongly lump all of them together into some kind non-human entity. Many of the greatest names in philanthropy are from this CEO class you seem to hate. On the other hand, there are and always have been criminal and miscreant CEO's. People are people and there are good and bad wherever you go.

I'm also not nearly as concerned about the CEO problem you seem to think is going to turn this country in Spain. There have always been "super rich" in this country, so that is nothing new. There have been times in history when those super rich CEO's were comparatively richer and more powerful than they are today, where workers really were more akin to serfs, and those CEO's could rely on the state to violent keep their workers in line. I see what's going on today as a comparatively minor development and one that not unprecedented or even unusual in American history. Rather, it's a cycle that is probably going to be corrected over the next decade and likely won't approach anything like what occurred 100 years ago.

So your line of argument doesn't make much sense to me. Does there need to be a correction? Certainly. Changes have to be made but I think your doomsday scenario is overwrought and unsubstantiated.

FDChief said...

"...it's a cycle that is probably going to be corrected over the next decade and likely won't approach anything like what occurred 100 years ago.'

Hmmm. MY question would be, why would you or anyone think that?

At the turn of the last century we had a smaller, more homogenous nation, and a nation that - at least the upper and middle classes - was more politically engaged and intelligent. We had an entire journalistic cadre - the muckrakers - whose influence on national politics was immense. We had a ruling class that still had the remnants of the 19th Century tradition of liberalism and "noblesse oblige". We had an economy that was still primarily agricultural and industrial.

When you way that I'm being "overwrought and unsubrstantiated" I will certainly agree that I'm overwrought. I've had my hair on fire about this for the past five years or so. But unsubstantiated?

Gimme a break. Philanthropy isn't policy. John D. Rockefeller and Mark Hanna and the Tammany Crowd gave lots of charity balls and kicked down cash to the "little people" and then went back to ensuring that the federal and state governments were thoroughly in their pockets. Today we have Warren Buffett and some Hollywood billionaires and...what? Where's the 21st Century Andrew Carnagie? Where's the Henry Ford, loathesome fascist as he was but understood the need for a social contract between the workers and the owners. Where's the FDR?

Our current financial masters have all come up under the "greed is good", taxes are for chumps, ree market forever and the Devil take the hindmost school of post-Reagan America. Read the now-infamous letter from the AIG exec to the New York Times, whining and meeching about his poor, poor pitiful self.

There's no "there" there. These people are not the mix of socially and politically liberal elites with the conservative elites you had in 1909. In 2009 the elites are 94% GOP, and we've already seen that the GOP has retreated into Ayn Rand fantasyland.

Nope. We've practically stolen the playbook from Imperial Spain Empower a gormless elite stuffed with inbred privlege. Ensure that the economy is ruthless tilted to ensure the success of the successful, discourage manufacturing and agriculture unless it's in the pocket of the magnates. Build a "rule of law" that slaps the wealthy on the wrist and drives the poor and unconnected into prison and impoverishment. Make sure that the national treasure is spent pursuing futile foreign wars and crony-capitalism at home. Replace information with propaganda and town halls with bullfights and fiestas.

Well, it took the Spanish more than two hundred years to claw back into the second tier of European nations. If we do eventualy decide that "changes must be made" we might make it back to the top tier in another hundred or so.

I doubt it. Our "leaders" are too indebted to the entrepreneurial and rentier classes and our public, as you point out, too poorly-educated, greedy and spendthrift.

We will drift along until our system is to decrepit, when we will see some spectacular mess. This may be it, I don't know. But at that point we wll see if the American people still have the unity and strength to pull back from the abyss.

You and Fabius (over at Fabius Maximus) think we do. I disagree. I hope I'm wrong. But what I see of our political and financial system, I'm not hopeful.

Aviator47 said...

Andy

Census Bureau figures show that from 1967 to 2005, in constant Dollars, wages have performed as follows:

%50th percentile - flat
80th percentile - 41% increase
90th percentile - 71% increase
95th percentile - 68% increase

Half the population are no better off than they were 40 years ago, and 20% is way better off.

In 2007 6.37% of the households earned about 1/3 of all income, and 20% earned less than $19,178.

The rich got richer and the not rich stayed that way.

FDChief said...

Let me pile on with this observation.

This country has always lived up to the famous saying about the law forbidding rich and poor alike to steal bread and sleep under bridges.

But we're taking the invulnerability of the rich to new excess.

Lets take two cases.

In the first case, the crappy economy causes me to lose my job. Faced with a choice of making $7.50/hr working at Jiffy Lube and growing and selling weed, I become a small time dope dealer.

I get caught. I end up in prison for 14 months. I now have a record, and am a felon. I can't vote, or run for office. Because I sold my weed out of my house, the DA has siezed and sold it (along with my car) in civil forfeiture. My wife is out of luck; she and the kids have to sleep on couches and hustle around to make ends meet. Because I sold a little weed, fucking up (or not) a hanful of people's lives, we're all fucked.

On the other hand, Bernie Madow's, Jeff Skilling's, and Kenny Boy Lay's families are doing juuusst fine. The money they lost to forfeiture and/or restitution is a fraction of their wealth. They retain their houses, cars, etc. Once the noise dies down, they don't even have to slink around in shame - they might even get a pardon or three (worked for the Iran=Contra scoundrels, S&L crooks, etc.).

So the law has worked. The criminal classes are kept down, the ruling class continues to rule.

If you think this is good for a democracy, please say so. I'd be surious to hear why.

Andy said...

FDChief,

Yes, I'm speculating about the future. In that regard we are equal.

As far as super-rich philanthropy, there is the Gates Foundation, which Buffet is a major contributor too. That is all irrelevant to my point however, which was to dispute your characterization that the super-rich are barely human today. Comparatively, today's CEO's are better than 100 years ago. Until CEO's can make a phone call and have Blackwater or the National Guard come kill and/or beat the shit out of employees or whomever, then that's an argument I will continue to make. And don't mistake my comments to mean I think CEO's today are angels. As I noted in my previous comment to Al, you get what you pay for and as long as CEO's are rewarded no matter what they do, then CEO's don't have to worry about things like ethics. Again, the problem is not the CEO's, it's the system that rewards them.

We had a more homogeneous nation 100 years ago? Really? The US foreign-born population peaked 100 years ago and African Americans were still an oppressed people back then, something those liberal elites heartily supported. People back then had less education, not more, were more subjected to propaganda, not less, ect. I think you view that turbulent period of US history with very rose-colored glasses.

Al,

Maybe you missed the part earlier where I said this:

The number of people living in poverty has remained essentially flat since the 1960's and the middle class hasn't changed much either. Incomes have grown almost across the board, but you're right that the incomes for the small percentage of truly rich people have comparatively grown a lot more. I don't think it's a zero-sum equation though - IOW, if the super rich had lower incomes I don't think that translates into greater incomes for the rest of us.

Yes, there has been WAGE stagnation (and even declines in some cases) and a lot of that is because minimum wage has fallen behind inflation. Some of that is also because a greater percentage of people's total compensation comes from benefits. Incidentally, that includes my family and yours - each year for the past decade or more the value of benefits has gone up dramatically, mainly due to the huge cost increases of health care. If we didn't have that benefit, we'd have to spend ever-increasing amounts of our wages to get it.

So incomes have modestly increased because benefits have increased and I'm speculating here, but I think if soaring benefit costs could be stabilized then that would allow wages to go up. I also think we need to raise the minimum wage to what it was, index it for inflation, raise the top tax rates, strengthen the social safety net, get health care costs controlled, etc., etc. etc.

Anyway, I'm kind of disappointed that you've yet to offer any solutions to these problems or even much consider causes, despite me having asked several times. I really would like to hear your opinions.

FDChief (part two):

When has the law not favored the politically and economically powerful? Tell me, when did this golden age with perfect justice exist? Or take Yingling's article from a couple of years ago when he said that a Private gets more punishment for losing a rifle than a General gets for losing a war. He's right, but when has that not been the case? The sad reality is that accountability isn't, has never been, and will never be equal or just - all we can do is try to make it a bit better.

So maybe I'm cynical, but I don't see your example as anything new or enlightening. I can say that if you choose to be a dope dealer, knowing the probable consequences to you and your family, and you choose to do it anyway, then you (speaking figuratively) are a fucking idiot. The argument is a strawman anyway, because if you lose your job your choices won't be limited to Jiffy Lube or dope dealing.

Regardless, do I think that such injustice is "good for democracy?" Of course not, but I also realize such injustices are part and parcel of any political system, democracy or otherwise. I also contend that populist outrage against perceived or real injustice can just as easily kill democracy as well as the powerful and monied can.

Fasteddiez said...

Andy said:

".....where workers really were more akin to serfs, and those CEO's could rely on the state to violent keep their workers in line."

Andy, this is where you don't get this. The public right now, is a beaten dog. There are no signs, no pulse, no IW, that anything violent is possible.

Our Brethren overseas are not quite like that (Koreans, French, Germans, Greeks, etc.) take it to the streets and have it out with the Police. The people are the doormats of the world vis-a-vis confrontation.

Did Louis XVI see anything coming his way? Global Guerrillas is already talking on how to build communities able to survive in a post economic meltdown USA.

A little History: when Chrysler was bailed out by the Feds in the seventies, Lee Iacoca drew $1.00 per year. The Japanese industrial giants, even then, did not allow their CEO's to make the same, per Capita, than their US counterparts. Now we have Globalism, which expands the wealth of the Multi-Nationals, in direct proportion of the American models. At least in days gone by, you could not import scabs from Bangalore to take the jobs of the locals. It is a race to the bottom wage-wise. It won't be long before we see a Network Operations Center sprout up in Kabul.

All we need as a nation, is the first broken window, and see if it expands. In the 1890's Homestead
took place.

What I think you don't get is that things are as bad as in the Gilded Age, with all of the indicators pointing to Governmental continuance of the status quo, thus things getting grimmer for the common folk. Roubini thinks Geithner's actions were warranted but was disapointed that the feds could not "MAKE" the toxic banks put their poison on the market. In any case, he thinks nationalization (in order to separate the bad from the goos assets is coming within a year.

I digressed. the other mistake I think you make, is that you think that things will not sink to the level where violence erupts. You do not say so in so many words, just a hunch.

Lastly look at the DeBorchgrave Article posted here before, and the numbers related to tax avoidance and the hiding of riches in other countries' institutions. You want a job for the NSA? Have a leader sign an executive order to hack their way into these places, or put them off line. You want a job for your DA types? Direct them against these "Outre-Mer" Pirate institutions.

Pluto said...

Good to see you again, Andy!

This post caused so many differing thoughts when I read it that I had to walk away and think about my response. When I came back I saw that you guys had already had a very "energetic" conversation.

The Chief, as he frequently does, has put his finger on the weakness of GWB's Ownership Society concept. The weakness is the extraordinary disparity income (or more importantly, assets) between the wealthy and not-at-all-wealthy.

The first thing I need to do in clarifying this argument is to set up some definitions and quote some statistics from the Federal Reserve's 2007 "Survey of Consumer Finances." This document is invaluable in helping understand the true state of the average American.

First let's tackle defining poverty (solely in terms of income). The Fed's consider any family of four with an annual before-tax income of $21,200 as being in poverty and anybody above that as not suffering from poverty.

This definition was first established in 1965 and has only been adjusted upward in response to official inflation numbers (which are artificially low to help control the cost-of-living adjustment for Social Security).

I actually lived near the poverty level for a couple of years so I can speak with some authority when I say that any family of four living in an urban environment (as most of us do these days) that is earning less than $32,000 is either in poverty or so close to it that it makes no difference.

The difference in lifestyle between 32k and 40k is HUGE. You can save and plan a bit on 40k. The difference between 40k and 50k is equally impressive. The difference for each 10k increment decreases quickly so that a person earning 80k and a person earning 120k can talk to each other about money without too many difficulties.

Families earning 30k and families earning 50k are essentially living in different worlds.

When I speak about specific dollar amounts, I'm talking about living in the Minneapolis-St. Paul area. The numbers are completely different for New York, LA, and Birmingham Alabama but the concepts are still valid. Although Minneapolis is a pretty big city, it is still about the middle of the pack in terms of expense so I think my numbers are a reasonable point for discussion.

Now let's take a look at what the 2007 Survey of Consumer Finance says about America:
Income in 2007 (before the crash):
0-19.9%: 12.3k
20-39.9%: 28.8k
40-59.9%: 47.3k
60-79.9%: 75.1k
80-89.9%: 114.0k
90-100%: 206.9k

If you use my 32k number as a guideline, over 40% of America is below the poverty level. Assets (which includes cars, houses, personal possessions, retirement accounts, etc.) are an even starker contrast:

Assets in 2007 (before the crash):
0-19.9%: 8.2k
20-39.9%: 37.1k
40-59.9%: 79.0k
60-79.9%: 175.7k
80-89.9%: 344.1k
90-100%: 1015.9k

Speaking from extensive records and personal experience, 79k in assets isn't a lot. Most of it is home equity, vehicles, furniture, and retirement accounts you hope won't go down. So when GWB was speaking about an "Ownership Society" he was only talking to the top 40% of the American population who already understood the concept.

wourm said...

Regarding the rich, look what happened to Donald Trump. He's worth nowhere near what he was worth 20 years ago. The rich do manage to blow it eventually. Andy's right, it is cyclical.

I will agree that these men have way too much power. Hence my earlier comment re sweaty hands and gloating.

I have to say that many people thought Obama was going to be the revolution that Al proposed. The cool part about democracy (even though American democracy has become bastardized of late) is that people do have a voice. I don't think we're beaten down, I think we've been bamboozled. We're just now seeing it. I think people will look for ways to reform finance.

What can I say, I'm an optimist.

Fasteddiez said...

Mr Andy, Mr Wourm:

Keep you rose colored glasses on and read This!, The man is Simon Johnson chief economist at the IMF in 2007 and 2008.

Here's a quote: "The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary."

"The Obama administration’s fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelt’s trust-busting." Where have I said something like that before!

Yes, Party Hearty! Let's go down to Von's and get a bottle of champagne!

Shot, over! (1)

Pluto said...

Okay, let's talk about the Gilded Age for a bit.

The Gilded Age (roughly 1875-1900) was a period of huge economic expansion in the US. Immigrants were pouring in, the west was shipping massive resources to the east, and wealthy people exploited both of them ruthlessly.

One estimate that I saw suggested that 50 people controlled over 60% of the US economy. It is hard to be certain because accounting deception and double-crossing was the norm.

Andy is right that some of our biggest philanthropists came from this era, that was because the economy in which they worked encouraged them to build wealth to a degree that we would regard today as insane and obscene.

The Chief is right that some of these individuals were astute and foresighted. Most weren't.

The stock market during this era was a mess. These individuals manipulated the market to their own advantage and continually caused irrational crashes and booms that had little to do with the underlying economic reality.

Example: Commodore Vanderbilt discovered through industrial espionage that his opponents were about to buy 51% of his most profitable railroad. His response:
1. Loot the company (which was legal back then)
2. Let his opponents buy it out from under him
3. Spread (true) rumors that the railroad is financially unsound
4. The resulting chaos dumped the company into bankruptcy and idled 5,000+ workers (no unemployment in those days)
5. Bought the company out of bankruptcy at 2 cents on the dollar and lowered the wages of the now-desperate workers while raising fares.

The chaos and destruction these men caused eventually led to Teddy Roosevelt's reforms that broke up the big monopolies.

Fast-forward to the present. Are we suffering from similar behavior in the Finance industry?

I would argue that we are. The biggest difference is that the old Robber Barons couldn't cooperate to save their lives but the modern investment bankers are quite effective at cooperation.

If the government fails to stand up to the new generation of Robber Barons we will suffer the same cycles of boom and bust while they continue to get richer and more powerful.

Another big difference is that we've learned a lot since the Great Depression about building and maintaining a social support network. To be laid off today is very serious. To be fired in the Gilded Age was catastrophic because the worker tended to have no savings and the government didn't see any value in offering assistance.

Fasteddiez said...

Here is another link, I pirated from Global Guerillas.

Welcome to America, the World's Scariest Emerging Market

Humbly submitted for your review: is Desmond Lachman, once deputy director of the International Monetary Fund's Policy and Review Department.

Drink, my children Drink!

Last I heard, The Us of A decides who runs the IMF, and has great big yuks at the expense of all them furriners, many whose skins ain't white.

Shot, over! (2)

Publius said...

Man, what a great thread. You guys are at the top of your game. And I can't stand it anymore. I gotta get me a piece of it.

But I'll be brief. You've all made compelling arguments, and expressed them far better than I could, so I'm not even going to try.

What I am going to say is that I'm going to line up on the side of Al, the Chief, Pluto, Eddie, et al. Not that Andy hasn't made a good case—he has—but that I think he's just a little too sanguine about the direction of the nation. Wourm, too. Sorry, Wourm, but I think the pessimism expressed by the others is warranted; IMO, your optimism is dated, specifically because I'm not so sanguine about the odds that this amazingly resilient can fully pick itself up from this latest body blow.

This one hurts a lot. More than anything in any of our lifetimes. And what's different now is that we're an older and much more jaded nation, set in its ways, and so complacent that we accept our birthright being stolen from us.

Regarding safety nets and "Ownership Society." Praise the heavens we have the safety nets and damn the scoundrels who came up with the market-based Social Security. That was grand theft, piled on top of grand theft.

Andy, I absolutely reject your scolding of people for not having saved enough. Most of our fellow citizens are decent, hardworking folks who unfortunately don't earn enough to sock away a lot for retirement, especially when markets collapse. They don't earn enough because of the demise of unions and the export of high-paying blue-collar jobs overseas. They've also often made bad decisions. I will admit that I have sometimes instinctively wonder, "why in the hell are they in this box," but then I realize that were it not for a few good decisions and a lot of luck, I could be in the same boat.

I'm now drawing Social Security (max); so is my wife. I also have one of the better defined-benefit pensions going: military retirement. That military retirement has been the tie-breaker for me. That, and an incredible piece of luck in selling a house I'd owned for 15 years at the peak in the SF Bay Area. Plus my parents saved a little and passed it on to me.

Not everybody is as fortunate as me. The slugs of cash are one thing and I don't take credit for them. But then there's the military, which I do take credit for. Not everybody can take it and few it seems want to stay for the long haul. I did and I'm being rewarded for it. Not just by the military retirement, but Social Security as well. Everything I know I learned in the military, which led to those high-paying jobs post-retirement that jacked up the Social Security. I've made four smart decisions in my life. First, I joined the Army. Then I reenlisted. Then I took the oath as an officer. And along the way, I married a woman who supported me and put up with my shit.

Four smart decisions. In all my life. That might be all that separates me from people now living under bridges. And that's why I hurt for my fellow citizens. I know how close I am to them.

While I was making my four smart decisions, what I wasn't doing was being nearly so alert as I should have been to what the predators were doing to my country. Oh, sure, I went to war and all that, but neither I nor most of my fellow citizens truly understood what the politicians and money guys were doing to us. I thought I was really hot shit when I crossed the $100K threshold. Little did I know that it was mere chump change in the organized crime syndicate we call America.

Krugman calls for radical changes in the financial sector. Well, sure, but radical changes are needed everywhere. We do need a revolution, but we're not going to get one. We're too docile and too accepting of our fate. We're stupid, too, because we've forgotten the lessons of the past.
Ever read or see "The Time Machine," the H.G.Wells classic? The time traveler to the far distant future encountered two separate societies—in fact two separate species—of humans. The pleasant, inoffensive (and stupid) Eloi lived above ground and frolicked in the sunlight. Meanwhile, the brutish and cunning Morlocks lived beneath the surface, subsisting on eating the Eloi.

The great majority of the people in this nation are the Eloi. The political and moneyed class are the Morlock. Henry Ford, certainly a Morlock, was smart enough to understand that the Eloi working for him had to make enough money to buy his cars, thus the high wages he paid. Several other Morlocks have understood that. Unfortunately, today's Morlocks don't know this. It seems as if they really are intent on killing the goose, even though it will ultimately mean their undoing.

We have to save the Morlocks from themselves. Maybe with ropes and pitchforks. We just might be aable to save ourselves, too.

FDChief said...

Jesus wept, I'm starting to think that I need to start actually writing out all the implications in my comments. But I'll start with this.

"my point however, which was to dispute your characterization that the super-rich are barely human today. Comparatively, today's CEO's are better than 100 years ago. Until CEO's can make a phone call and have Blackwater or the National Guard come kill and/or beat the shit out of employees or whomever, then that's an argument I will continue to make."

My point isn't to try and make the current Masters of the Universe out to be less socially ept that the Robber Barons of the 19th Century. The difference is that the Robber Barons of the day had significant opposition from within their own social class. As far as I can see there has been little real evidence that the was any significant attempt to prevent the Ponzization of the financial sector in the 90's and Oughts, any more than there was an real attempt to rein in the S&L crooks in the 80's.

You're correct in noting that the Barons were more openly hooked into the corrupt political machinery of the time. But, in a sense, that was their weakness, too. When the reformers and good government types started smashing the trust/political machine links in the early 20th Century the connections were pretty obvious. The fix is harder today because the linkage is so much more diffuse. But the results seem to be the same. Why bother shooting down strikers when you can just lean on the UAW and win back everything you need in the way of wage, benefit and pension concessions?

"We had a more homogeneous nation 100 years ago? Really? The US foreign-born population peaked 100 years ago and African Americans were still an oppressed people back then, something those liberal elites heartily supported."

Yes. For the very reason that those disenfranchised groups WERE truly disenfranchised. Senators were mostly appointed. Most people had less understanding of or stake in the polity. The groups that DID came from much the same stock and background. The real divisions were economic, political and regional rather than social or racial.

"People back then had less education, not more, were more subjected to propaganda, not less, ect."

People at the time UNDERSTOOD that the newspapers were biased. Freedom of the press meant that you had the freedom if you had a press. The yellow press was openly partisan - the two sides competed to smear their enemies.

But it meant that the smears DID emerge. We still think that the press is in the business of reporting on what government and business types DO, rather than simply record what they SAY they do. The muckrakers of the 1900's wouldn't get a chance on today's NYT front page, where their anger would be toned down to pique and bracketed with some talking head from Squibb or AIG or the GOP blah-blahing some lie that would be given the same weight as the truth.

I don't think that we're in worse shape than we were in any of the earlier "panics", other than we've had the relative social and financial stability that started in the 1940s. We're like the villagers that no longer believe in the werewolves. And now that the monsters have helped make our economy into something that the IMF would stigmatize, we're still pretending that our economic masters are benevolent types that have our best interests and the interest of the country at heart.

Aviator47 said...

Wourm-

"I have to say that many people thought Obama was going to be the revolution that Al proposed."

Did I "propose" a revolution or express concern that one might be coming? It was the latter.

To live the "American lifestyle" the past 20 or so years required debt. We can offer all the anecdotal "live within my means" stories we want, but our economy has been fueled by debt. Mortgage debt is relatively benign, when responsibly drawn. Lifestyle debt, whether for flamboyance or survival is another story. If the debt is ever increasing (which it has been), no retirement of the principal is being accomplished. While this ever increasing debt service bill provides profits to the "haves", it keeps the net worth of the "have nots" ever falling.

Now, I mentioned "responsibly drawn" mortgages. My neighbor is an attorney who does a fair amount of work for the local branch of a major bank. One day, over coffee, he made an interesting observation about US lending practices. Most Greek banks will not allow the terms of a home loan to go beyond age 70, and a few will accept age 75, if the loan is for less than 50% of the real value of the property. He was quite surprised that US banks will originate 30 year mortgage loans to 65 year old people. His view was that making a loan that so greatly exceeded the life expectancy of the borrower reduced the contract to a virtualy abstract agreement. Rather than a concrete contractual expectation of the borrower making 360 payments to retire the loan, as agreed on the surface, the borrower would make fewer payments, die, and some external factor (heirs, foreclosure, etc) would handle the disposition of the loan and/or property. From his non-US viewpoint, such mortgages are contractual shams as they definitely relied on circumstances other than the signatories to complete the agreement.

Andy-

You expressed "disappointment" that I have not offered a solution. The first step in the problem solving process is the definition of the problem, followed by collection of relevant facts. We haven't even scratched the surface on step one, no less step two.

A devotee of "Catastrophe Theory" would say that the only real solution to a cultural dysfunction such as ours would be to wait for the catastrophe and then the society will "reset" itself. Catastrophe theory does not predict the point of catastrophe. It is sudden and profound. Nor does it predict the conditions thereafter. The trend continues toward the precipice and then there's a dramatic and abrupt displacement, often onto a totally different "plane", completely disconnected from the original. So, while one might say that events will get our attention and things will naturally correct themselves when the "pain and dysfunction" level reaches "Point B", a catastrophe theorist would caution that there is no way to predict if "Point B" is or is not beyond the point of catastrophic fall. And. as a colleague of mine at the University illustrated it, it is not a predictable "curve" or path, but more like the point of "flight or fight" with a cornered dog - two very diametrically opposed responses, unpredictable in when the decision is made, no less the potential outcome. It's not the story of the "straw that broke the camel's back" as much as the "straw that instantly transformed the camel into an electric blender", as the outcomes are often "irrational".

The period from 1965 to present has shown a general increase in the incomes of the population at large, yet that increase has been in the pockets of the top 50%, and even more so in the top 20%. You refer to "better benefits" for all, and that is just not the case. The general population in 1965 had a higher health insurance coverage rate and access to health care than in 2007. They had greater coverage by defined benefit pension plans. Couple that with the increased debt load, and it is not indicative of a better situation for some 50% or so of the population. We can opine all we want about people electing to borrow too much, but the lenders hold responsibility for 1/2 the bargain, and they have promoted and profited (in the short term) by wanton debt. And, as I mentioned previously, they were lending someone else's money while exhibiting very poor stewardship over that money.

The whole social fabric has been toxic.

Al

Andy said...

Fast,

Andy, this is where you don't get this. The public right now, is a beaten dog. There are no signs, no pulse, no IW, that anything violent is possible.

Got any evidence for that? Because it seems to me an equally valid explanation is that people aren't showing signs of violence because things aren't nearly that bad.

I digressed. the other mistake I think you make, is that you think that things will not sink to the level where violence erupts. You do not say so in so many words, just a hunch.

I think it's certainly possible things could get that bad, but I don't think it's likely that they will. Having said that, I think it's likely in this current crisis that things are going to get worse before they get better.

Pluto,

Thanks for your comment. I looked up the survey (here's a link) and did a bit of reading. I found some problems with your analysis.

First, "family" in the SCF is not a family of four. Single people, single parents, unmarried couples (with or without children), married couples (ibid), extended families, etc. are all included.

Secondly, in your first table, you've given the median income. So in the 20-40% quintile, half the "families" in the sample earn more than 28.8k and half less. Whether those people are families of four, or singles, or retirees we don't know.

Third, for net worth you also use the median figures (the ones you provide are actually 2004 data, not 2007). However, in the lowest quintile, if you look at the average net worth, it's 79.8k (and for 2007 it's 105.2). This huge disparity between the mean and median is probably because of retirees who aren't earning income (or are earning very little) but have a lot of assets - and it probably includes people like farmers who own a lot of assets (land, machinery), but make little income. It probably even includes my brother who owns the construction business. He hasn't paid himself anything since last spring because he's been forced to horde cash because there's no business credit.

Fourth, those quintiles are divided by percentile of income and not by percentile of population. That means there are not the same number of people in each quintile, so it's impossible to determine how many people are actually poor from those numbers. For example, it's quite likely that single people are overrepresented in the lower quintiles because single people, on average, have less income.

Fifth, what constitutes poverty depends a lot on the size and makeup of a family or household. Octomom taking in 50k a year is probably poverty - a single guy with that is living well.

The point being, those numbers aren't very useful except for trend analysis.

However, for poverty data, you can look at this from the census. There's a lot of data there. The long and short of it can be found here.

Publius,

I was hoping you'd chime in.

I must protest your characterization that I'm being optimistic. Quite the contrary, actually, but I think there's a big difference between suggesting the US will be going through tough times in the coming decade (and maybe longer) and suggesting that America is finished and will inexorably descend into fascism or irrelevance or both. I'd like to think, therefore, that my disagreements are not so much about the nature of the problems we face, but a matter of degree.

Besides, if I was optimistic about the future, I wouldn't be trying to save as much money as I can, nor would I be planning to live in a world where I won't get a dime of social security.

Andy, I absolutely reject your scolding of people for not having saved enough. Most of our fellow citizens are decent, hardworking folks who unfortunately don't earn enough to sock away a lot for retirement, especially when markets collapse.

Well, that is something we'll have to disagree on. I think the reality is that people tend to focus on immediate interests and not the long term. Americans in particular tend to believe that everything will work out in the end. I think a lot of that is human nature and some of it is a "feature" of American culture. Of course you're right there are people who don't make enough to save for retirement, but there are also plenty of people who make plenty and squander it.

And that's where I think I am perfectly correct to criticize the American people for short-sightedness. I don't think America's negative savings rate can be explained away through lack of income. As was noted in earlier comments, incomes have remained basically flat for the bottom 20%, but have increased for everyone else. Where did all that money go? Who knows. What we do know is that it didn't go into savings or retirement accounts. It got spent instead, probably in a pointless effort to keep up with the Jones's.

BTW, it looks like my wife is going to make it to 20 so we'll have that military retirement too provided she keeps me around (and now that I'm in the guard, I may get a few pennies down the road).

Still, we are taking nothing for granted and have been saving 15% of our income a year for a long time (it didn't become certain my wife would make retirement until this past year). That's something we made sacrifices to accomplish. We have military friends who have exactly the same or higher pay than we do yet claim they cannot save money. I'm sure it has nothing to do with the new SUV's parked in the driveway or any of the other shit they've bought.

In short, the hard data that show rising incomes for most Americans along while, at the same time, savings rates declined to the negative. That leads me to certain conclusions, particularly when it matches my anecdotal experience.

Your comment also strikes me as contradictory. One one hand you talk about our decent, hardworking folk, on the other hand you later describe them as stupid, blind Eloi. Which is it? BTW, I loved that movie growing up.

Also, the fact is that 1/2 of the American workforce are employed by small business and not these corporate Morlocks. What about them? My brother employs twelve people, hasn't paid himself in over a year, yet manages to keep his business afloat and pay his employees including medical care - what about him? He's not unusual. Corporate employment simply isn't that big.

Anyway, it's 2am and I have to get to bed. I now see as I edit this that Fast and Al have replied while I was typing - comments on those will have to wait until tomorrow.

Aviator47 said...

Andy-

Also, the fact is that 1/2 of the American workforce are employed by small business and not these corporate Morlocks.

And the mean wage for employees is about $32k/yr, versus $47k for the population at large. While small businesses are a big source of jobs, the wealth is concentrated in the hands of the elite, and that concentration has increased over the years.

Also, take a look at the criteria for being categorized a "Small Business", and you will find that some aren't so small. Perhaps 25 times larger than your brother?

"Small Business" sounds very benign and "next door neighborish" as compared to "big business", but burger joints, the home of low pay, no benefits jobs, for example, are small businesses and employ hundreds of thousands of folks living in or near poverty.

Aviator47 said...

Andy-

Let me add, I am not lambasting small businesses. What concerns me is the continual concentration of the nation's wealth in a few pockets. It is not a culturally sustainable situation.

Al

FDChief said...

Here's Simon Johnson giving a better explanation than I can give for why what's good for (financial) business isn't particularly good for America:

http://www.theatlantic.com/doc/print/200905/imf-advice

The depressing part of Johnson's article is that as a former IMF troubleshooter, he's used to seeing this happen in banana-republick-y sorts of countries and noticing that the elites are usually the ones who birthed the problem and must now be displaced to SOLVE the problem.

"The biggest obstacle to recovery, is almost invariably the politics of countries in crisis."

The Robber Barons were familiar with the OLD system of influence - bag jobs, open graft, physical muscle. Shoot the strikers, bribe the Congressmen. Our system has now developed a system of influence and graft that connects the elites to government that is particularly subtle, and will likely prove particularly difficult to undo, in order to remove the people from access to power for whom "financial system" means "let's play Lotto with other people's money".

Andy said...

Al,

Interesting on the "catastrophe theory." FWIW, I think the American people need a shock every now and again or complacency sets it. My whole thesis is that people have become complacent, assume the future will be bright and fail to prepare for the possibility the future my not be so bright.

"Small Business" sounds very benign and "next door neighborish" as compared to "big business", but burger joints, the home of low pay, no benefits jobs, for example, are small businesses and employ hundreds of thousands of folks living in or near poverty.

Sure, so why don't we take a look at CEO compensation there? It looks like the average compensation is just under 10 times the compensation for the average worker, which seems much more reasonable. Also, many small business are privately owned and the "CEO" is either a sole owner or majority owner. They have a stake in the success of the company. Now contrast that with the incentives for CEO's in the majors, most of which are public companies which, for reasons I don't understand, are perfectly happy giving their executives pay unrelated to performance.

And the mean wage for employees is about $32k/yr, versus $47k for the population at large. While small businesses are a big source of jobs, the wealth is concentrated in the hands of the elite, and that concentration has increased over the years.

Yes, I know concentration of wealth has increased among the top earners. It seems to me you're simply repeating yourself here. I've agreed with you on this point. Why this disparity exists, how important it is and what should be done to address it are things I've tried to partially address.

The period from 1965 to present has shown a general increase in the incomes of the population at large, yet that increase has been in the pockets of the top 50%, and even more so in the top 20%.

Yes, I've already agreed with this generally. As I said before, I think a lot of the stagnation for the bottom 50% is for two reasons. First, the minimum wage has not kept up with inflation, so people on minimum wage are poorer now which drags the average down for lower income earners. And I'll mention, again, that I think the minimum wage should be raised and indexed to inflation to prevent that. The second reason is the increasing costs of benefits:

You refer to "better benefits" for all, and that is just not the case.

Nowhere did I say "better benefits," though looking back my wording was poor. What I was talking about was the cost of benefits, which have outstripped inflation and now account for a larger overall percentage of compensation, despite government paying a much larger portion of health care costs than was the case in the 1960's. My point was that employers have to spend a lot more money now to provide roughly the same benefit that was provided in the 1960's. That is one thing that drives wages down because money that could be spent on wages is instead spent on the increasing costs of providing benefits. This is why a lot of people, given the choice, will take a job with benefits that pays lower wages than a higher-paying job that doesn't have benefits. So wages for a lot of people have stayed the same, but that's not the whole picture.

They had greater coverage by defined benefit pension plans.


This is something I talked about up-thread. Note they are "defined" benefit plans and not "guaranteed" benefit plans. How have they worked out? Not very well at all.

The theory behind company sponsored defined benefit pensions is nice, but the reality is a failure. No one knew, nor could have predicted, the changes that have occurred over the last 40 years. The future costs were grossly underestimated which has rendered most of them insolvent.

If we want to give Americans a defined and guaranteed retirement, then I think only the government will be able to do that.

We can opine all we want about people electing to borrow too much, but the lenders hold responsibility for 1/2 the bargain, and they have promoted and profited (in the short term) by wanton debt. And, as I mentioned previously, they were lending someone else's money while exhibiting very poor stewardship over that money.

I think most responsibility rests with our government which failed to properly regulate, failed to provide oversight, and attempted to socially engineer unviable outcomes. The GoP anti-regulation free marketeers conspired with Dems pushing home ownership at poor people. What we got was little oversight along with strong incentives to make bad loans.

FDChief,

I'm no friend of the financial industry. In my perfect world there would be no such thing as a financial firm that is "too big to fail." If it's that big, then it's too big. I think the whole enterprise needs a thorough house-cleaning, something our President seems unwilling to do. The government needs to take over these firms, sack the management, fix their books and then sell the assets or reestablish them under new management.

FDChief said...

Andy;

Here's Simon's conclusion from the link I posted. I think it sums up your conclusion re: the financial industry (Simon also has a good one-liner that echoes your idea: "If it's too big to fail, it's too big to exist.")

"In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late."


Like I said: I think the difference between the panics of the 1890s and 1900s and today is that in that earlier period we had a more rough-and-tumble society, emergent, angry and hungry labor movements, a turbulent and vituperative press, and an upper class with a substantial minority - the Rooseveltian conservatives - willing to rein in the oligarchs to save the social contract. I think that, while you're right that Americans NEED a shakeup every generation or so, the question is whether the public has what it takes to respond. Jared Diamond, in his book "Collapse", discusses the factors that make some societies rise to deal with crises while others are broken by them. I don't agree with all of his thinking, but I would agree that history seems to show that great empires seem to, at some point, pass from a vigorous youth and maturity to seniscence and desuetude. It overcame the Athenians, the Romans, the Byzantines, the Spanish, the British...I have no idea whether we're there. But I wish I saw - by growing indications that our governing elites are ready to take up Simon's second approach - more indications of the former than the latter...

Fasteddiez said...

Hey Chief:

Not to steal your thunder, but that is one of the links I put up thread.

And I stole them from Global Guerillas.

Publius said...

Here's something everybody might find relevant to this discussion:

http://www.youtube.com/watch?V=jeYscnFpEyA

Don't know about sending the tea bag (that seems a little too cute), but I'm kind of on board with the message. Andy actually provides a clue to a start with his calls for self-sufficiency. It's kind of akin to things I've seen about the difference between domestic dogs and wolves. Dogs' independence and survival instincts have largely been bred out of them; they're according dependent on humans to survive. Wolves are not.

Publius said...

Let's try it again.

http://www.youtube.com/watch?v=jeYscnFpEyA

Aviator47 said...

Andy-

Let me clarify. You said that benefits were an increasing part of pay. I responded in terms of defined benefit pensions going away. Let me clarify:

In 1965, the year at the start of the trend line I offered, defined benefit pensions were the norm, and employers carried the costs of same. By the 80's defined benefit plans were on the decline, and defined contribution (EMPLOYEE CONTRIBUTION) plans began to be the norm. Today, except in some unionized firms, defined benefit plans are the exception. The "retirement benefit" has become an insignificant part of the average worker's pay, and more and more employers are cutting or reducing any matching contributions to defined contribution plans. In short, the burden of retirement costs has been increasingly shifted to the employee. They only "benefit" most employees are receiving from their employer is payroll deduction and bookkeeping services.

I was not addressing the solvency of defined benefit plans, but the employer expense, which employers are now avoiding at all costs. However, the majority of these plans are continuing to pay benefits to their retirees. Bailing on pension obligations is a relatively recent phenomenon.

Similar to the exodus from pension plans, more and more employers are phasing out retiree heath plans.

As to health insurance:

The percentage of all employers offering health insurance in the past eight years peaked in 2000 at 69% and has fallen steadily since, hitting 60% this year (2007), according to an annual survey of employers by the non-partisan Kaiser Family Foundation. Among small firms of three to nine workers, the percentage offering insurance has dropped even more — from 58% in 2001 to 45% this year.

As to costs incurred by covered employees:

Millions of workers -- whether employed by small, medium or large companies -- must now pay an average of $1,001 out of their own pockets before their health insurance coverage begins paying a share of the expenses. That's up 17% from $859 last year.


Sorry, Andy, but wages have been flat and benefits have been eroding.

Al

FDChief said...

Fasteddiez: My bad, and your good, for catching this soonest.

Ugly and depressing, to think of our country as Guatemala with nukes.

wourm said...

Apologies Al.

Didn't mean to insinuate that you'd start a revolution, just that you'd proposed that it might happen.

I'll still stand by my optimism. The economy was the size it was because of the extra money available from a hot housing market. What's happened in the past year and a half has been the results of yanking that money out of the economy. It stings.

Indeed those who were working the shell game, the musical chairs, or whatever you want to call it, ended up with the pennies in their pockets. What's happening at the normal people level is another story. People still need to eat, live, work, etc. The part of the economy that doesn't include real estate or big dollar investment is still moving. And will still move.

Andy said...

FDChief,

Good comment. "Collapse" has been on my reading list for a while, maybe it's time. I read "Guns Germs Steel" a few years ago and really liked that.

Al,

That makes more sense, though I'm not sure defined benefit pensions were the "norm" in the 1960's. In 1969, for example, only 26% of the workforce was enrolled. According to the PBGC, enrollment in such plans peaked in 1980 with 40% of the workforce and dropped to about 20% of the workforce today. Over 50% of current plans are underfunded. Not a good situation.

On wages and benefits, the point I'm trying to make is that rising costs (way above inflation) are a significant cause. Even though wages are flat and some benefits have eroded (modern medical plans actually do cover more today than they used to), the reality is that the cost to employers has not remained flat - it has gone up. Employers pay more every year to provide the exact same wages and benefits because some benefit costs, particularly health care, are outpacing inflation. This is true across the board, even including government. Your retired military benefits, for example, are increasing faster than inflation so, in relative terms, you're costing the government more and more every year. Not your fault, of course, and there's not much you can do about it, but that's the situation facing almost every employer.

One 1970 dollar inflation-adjusted for today is worth about $5.50. For medical care, however, that number is about $11.00. Costs rose in 2008 by almost 7% - more than double inflation. The average premium for employer-provided health insurance for a family of four was $12,700 per year in 2008. A 7% increase puts that at $13,500, and that's still just an average.

Using my brother as an example and assuming he's paying that averaged amount, that's about $10k more he'll have to pay next year to provide the same compensation assuming nothing else increases. That's $10k he can't use to increase salaries, provide a bonus, pay off debt, buy tools, or a host of other things.

Is that the entire explanation for why wages are flat? No, but I think it's pretty obvious that it's a huge piece of the pie. I'm glad you quote those articles on health insurance, because I think they just underscore the point. Small firms simply can't afford such increases year after year.

Publius,

Thank you for mentioning self-sufficiency. That's precisely the right word. I have to admit my biases here. My father was self-employed his whole life either as a general contractor or small businessman. Self-sufficiency is exactly what he taught me and that's probably a big reason why I'm skeptical of benefit promises provided by others that won't be realized until far into the unknowable future.

A lot can happen in 30 or 40 years. I mean, who would have thought 40 years ago the NYT, the nation's premier newspaper, would be on the verge of bankruptcy? Who thinks it's going to come up with the money to fund its pension? Hello PBGC in all likelihood at 50 cents on the dollar.

Sorry, but pensions are just as much a form of gambling as the stock market is. It's a series of bets or assumptions about the future and those bets will define what one receives for retirement, regardless of what was promised. Just ask my father-in-law the steelworker who went from a full pension with medical benefits to 50% of that pension with no medical benefits under PBGC. He "retired" a few years ago yet will still be working a few more years to try to make up the difference.

To me, a pension is no safer than 401k is. At least with a 401k I have more control over my own fate.

I think the only way to make a truly guaranteed defined benefit pension work is to turn it into a government program and make it mandatory for everyone to participate. Just increase the contributions to social security and medicare and call it day.

Aviator47 said...

Andy-

By "norm" I was referring to what was offered, not enrollment rates. The shift away from defined benefit plans resulted from two factors. First was employer cost, and second was the lack of freedom to take risk that the financial wizards had in playing with pension fund money. Yes, there have been some really poor pension fund investment miseries, but still these were made within systems that had risk limitations. Think of how wonderful it would have been if these billions/trillions were as unrestricted as the modern financial geniuses treated other funds!

Does your brother fund the whole family's medical coverage, or just the employee? Fewer and fewer firms fund family coverage. They may subsidize family members, but 100% family coverage usually falls onto the employee.

My concern is that if wages are effectively flat, and the cost of health care continues to rise for the employee through more out of pocket costs of deductibles and or premiums paid, the impact is on the lower 50% regressively. $1,000 in effective deductibles is a much more meaningful sum to a $35k/yr income earner than a $100k earner.


I think the only way to make a truly guaranteed defined benefit pension work is to turn it into a government program and make it mandatory for everyone to participate. Just increase the contributions to social security and medicare and call it day.

Something along this line makes sense. Does not need to be a government plan, but it needs to be $$$ that cannot be risked, and it needs to be 100% funded.

Al

Pluto said...

I'll throw in a quick book suggestion as well: "The Rise and Fall of Great Powers" by Paul Kennedy.

It's pretty dry but is very thorough and the parallels between the behavior of declining powers and our government is remarkable.

Collapse is now on my to-read pile courtesy of your recommendations.

Rick98c said...

This thread brings back the glory of Intel Dump to its fullest. Also reminds me of the endless back and forth with peeps like MSR. No matter how much info you give Andy... facts, figures, reams of data, he never strays from his fervent beliefs. Wourm really made his point when he noted that Donald Trump isn't as rich as he used to be so case closed. HAHAHAHA!! Yeah, I saw him panhandling down on Lake Street last weekend. He is a hurting unit! His driver actually had to get out of the car to ask me for $10,000. Now that is suffering!

almost drafted said...

I think there are a couple of dots to be connected here.

I agree with the points that have been made about the inability of the typical US citizen to understand the transfer of wealth from the middle class to the upper class (it started with Reagan and has been going on ever since) -- and their inability to deal with this situation.

The second is the statement that there was less (or poorer) education in the 19th century than there is today.

I don't believe this is so. While education may have been available to fewer people back then, the quality of education was much better.

From "The Individual, Society, and Education" by Clarence J. Karier:

"During the closing decades of the nineteenth century, both private academies and public high schools evolved at a rapid pace, developing courses and programs based on a combination of traditional practices and current social needs. While classical studies tended to occupy the central core of the curriculum, modern foreigh languates, science, history, English and mathematics occupied an even greater share of the student's time."

I believe the ultimate purpose of education is to teach people how to think. Which curriculum is most likely to achieve this end? The 19th century version or the by-rote pablum mandated by the No Child Left Behind act?

What good does it do to send five times as many kids to secondary school, if 80% of them emerge just as dumb as a box of rocks?

Here's a quote from Sandra Day O'Connor:

"Actually, the Annenberg Foundation took some polls: only a third of Americans can even name the three branches of government, much less say what they do."

We need a national debate about what we expect public education to accomplish. The last such debate took place in the 1850s, in response to the Prussian model of education. Basically, all the Great Powers had to adopt that model to compete in the Industrial Age.

Fat chance. WASF.

Cheers,

JP

P.S., "Collapse" and "Guns, Germs, and Steel" are must reads. You can skip Diamond's "The Three Chimpanzees" -- most of that material is covered in "Guns..."

Andy said...

Al,

I don't remember the specifics of my brother's situation since the last time I talked these issues with him was a year ago. Next time I talk to him though, I'll see how things are going on that front. IIRC, his employees pay part of the premiums, I'm just not sure how much. In case it wasn't clear, the figures I used were national averages - I've forgotten what my brother said the actual costs were, but $12k was in the ballpark.

Rick,

Wourm is technically correct, but at the end of the day it doesn't matter much. It's not uncommon for the very wealthiest to "lose" millions on a market down day, but such losses are not real unless the assets actually get sold at a loss. Even when they are, it's all relative. See this nifty chart, for example.

JP,

You really hit on a serious problem with education, perhaps the most serious problem of all. I don't really like the idea of "no child left behind" but I'm not sure what else can be done when the education system allows students to progress to the next grade or even graduate when they can't even read or perform anywhere near grade level. Part of the problem, I think, rests with the idea that anything that might hurt a student's self-esteem is bad, but this is a problem I don't know all that much about.

Andy said...

Just to give an update, I talked to my brother this morning. Things aren't going well for him. With the slow down in business, the tight credit, etc. he's getting by, but barely. He had to let 1/2 of his workforce go and he says he'll have to withdraw from his group health care plan entirely which costs him $900 a month per employee (and will go up this year because he has fewer employees). Dropping the insurance means that he will lose his as well.

He's planning for a very tough year and he's not expecting things to get better anytime soon. He thinks he'll probably have to lay a few more people off as well. He's doing everything he can to cut costs - looking to move his office and small warehouse somewhere where the rent is cheaper, selling equipment and vehicles he no longer needs, and, not paying himself any money. He's in the process of moving into an apartment to cut his housing costs.

He's done comparatively better than his competitors, several of whom are completely out of business, but that's not saying much. Work is still slowing down significantly every month so that even with several competitors out of business, there are still fierce competition over what few bids are out there. He's been doing this since the late 1970's, so he's seen tough times before. At this point his only goal is to for the business to survive. He thinks he'll make it but takes nothing for granted. His resilience is pretty amazing to me - I pretty sure I don't have the chops to do what he does.

Aviator47 said...

Andy-

Sorry to hear his travails. Times are not pretty for many people.

Please give hin our best wishes.

Al

FDChief said...

."Part of the problem, I think, rests with the idea that anything that might hurt a student's self-esteem is bad, but this is a problem I don't know all that much about."

OK, here's where I can get all subject-matter-experty, as a former HS teacher and holder of the coveted Oregon State Teacher Certification.

Problems with education in this country can be pretty much broken down into three levels:

1. Problems at the individual student level.

People have different capacities for mental skills. Many people have good cognitive ability, are good task organizers, and can access, organize, analyze and synthesize information quickly and accurately.

Many cannot.

Our industrial education system rewards quick workers and disciplined thinkers. People with poor organizational skills, slow cognitive processes and low-level reading and writing abilities will suffer. Also, unfortunately, will "inductive" thinkers, genius-level students in some cases, Einstein-types who would rather woolgather about General Field Theory than get down to work copying "The cat sat on the mat".

Also, remember, for most of human history education was reserved for a tiny minority. In the Western nations we're running up against the biological reality that not all human brains work well in a post-agricultural technic society. Some people were just born to be goat-herders and bakers - but we have a very small demand for goat-herders and bakers now.

Another thing that tracks consistently is that student achievement can be predicted with something like 94% accuracy by looking at family income. Better off parents are usually better educated and start their kids off reading and writing sooner, value intellectual achievement and support educational strengths like good study habits and academic discipline. Better off kids have clean, well-lit, organized, safe homes to come from and foster intellectual discipline. Better off kids tend to care about school status and gain it from academic achievement.

Individual and family differences in educational ability may be the single largest factor in overall educational achievement, but they are also the most intractible and the least amenable to outside effects.

2. Problems at the classroom level.

Some problems at the classroom level are, simply, a problem of people who can't teach. Teaching is more art than science; much of it is a craft, like dancing or music or acting. Many people are very knowledable in their fields but just can't teach because they don't know how, and it's nearly impossible to "teach" teching. You can teach tips, techniques and tricks, but it's like "teaching" painting or acting - what works for you probably won't work for me until I warp it to fit me, and by that time it'll be unrecognizable to you. Most teachers die in the first year or two as they realize that a) they actually hate teaching REAL kids, and b) have no gift for it, and c) get little or no support or assistance from their peers or their administrators.

But mostly the problems are inherant in the model.

Since the descent from the trees or before humans learned by observation and imitation in tiny groups or one-on-one. You followed mom and dad around and learnedhow to dig for grubs. OR Uncle Murdoch apprenticed you to his forge, or showed you how to goad an ox-team.

Suddenly about 2500 years ago we developed the pedagogical model - a group of students listening and talking to Socrates. Since then we're refined it into our industrial paradigm - students in large groups listening, reading or working to meet a published standard.

Not surprisingly, this system works very well for people who work well independantly, are task-centered, and are good at absorbing, analyzing and processing verbal and written data.

For the rest?

Not so much.

I have to run, but I'll be back with part 2 in a bit...

Andy said...

Wow, great stuff Chief thanks! You may want to cross post this comment and your next in the new education thread.

FDChief said...

Education (continued)

2. Problems at the classroom level (continued)

The bottom line is that pretty much EVERYone can be educationally successful - to the degree that their cognitive abilities allow - given unfettered access to a mentor/teacher and no more than another individual or two to learn with. The individual teacher-student relationship allows for nearly unlimited flexibility in adapting the teacher's method to the student, and vice-versa, and the materials to the strenths of both.

As the ratio of students to teacher goes up the probability of student success drops. Once you're over fifteen or twenty students (and less at younger ages) to one teacher you're on the edge. More than 30:1? All that's going on is traffic control.

Think about it this way:

No sane platoon leader would take a platoon (30-40) GIs anywhere by himself. To do the simplest military task the LT has a platoon sergeant, three to four squad leaders and six to eight team leaders - a total of between 10 and 13 subordinate leaders to run a "classroom" of 35-40.

But we expect a schoolteacher to manage a classroom of 30-40 kids, AND ensure that all of them attain the highest levels possible.

Ain't gonna happen.

What does happen is that darwin's laws take effect. The kids that are well organized, can read and write easily and quickly, and are largely capable of managing themselves, generally do pretty well. Fortunately for industrial society, this is about 3/4 of the average classroom.

At the top end the really smart kids, the inductive thinkers, the "outside-the-box" people who become the Steve Jobses and Alexander Graham Bells are bored and irritated. They get in trouble, or drop out, or find alternative ways to get what they need.

At the other, the people who are born to be goatherders are pretty much fucked.

And this is in an "average", middle-class classroom. Add the dysfunctional factors of poverty, family turmoil, etc.?

Fuckstory.

There are some things you can do about these classroom problems.

The most effective would be a dramatic reduction in class size, like to 4-6 students/teacher. This would be expensive on a "major weapons system" level, and will never happen.

Another would be a dramatic change in the way we train and start teachers. An acceptance of the reality that teaching is a craft, like carpentry, and is best learned through a long apprenticeship rather than a "profession" that you learn in the classroom like the law or medicine (and I would add that the law and medicine, with their extensive internships, residencies, associateships, etc., usually have MUCH longer "apprenticships" than do teachers, who typically have less than a year of OJT under a "mentor" who typically doesn't really care - since the student teacher is one MORE thing he or she has to do - and is only involved for the additional pay).

Part 3 to follow

FDChief said...

Education 3

3. Problems at the school and district level.

The most "solvable" problems occur at the highest levels.

Schools are "dysfunctional" when the administrators work harder playing power games in the district and playing executive than concentrating on teaching and learning.

Most schools really NEED two adminstrators: a principal, to organize the coordination between the district and the staff, handle staff issues and deal with matters above the classroom level, and an assistant principal, to fill in when the principal is on the crapper and to act as the "bad guy" for the students who go wrong.

The rest are just wastrels without a purpose, a distraction and a waste of good oxygen, and, like any soldier will tell you, when you have staff officers without something to occupy themselves, they'll find something irritating for YOU to do...

So a hell of a lot of problems could be solved just by slashing about half or more entire levels of administration and converting the jobs into teacher positions...

Anonymous said...

wourm said...
"Regarding the rich, look what happened to Donald Trump. He's worth nowhere near what he was worth 20 years ago. The rich do manage to blow it eventually. Andy's right, it is cyclical. "

How much is Trump worth? Millions? Tens of Millions? And that's after having screwed up things repeatedly; most of us who had repeated business failures would be earning minimum wage dishing out fries. If we weren't in prison.

Last I heard, the percentage of people in the extreme economic elite who were born there was at least 40%. Recent studies have shown that the USA has less intergenerational income mobility than Western Europe.

-Barry