Page 2 of 2 Work makes a comeback
By Julian Delasantellis
But its not like the workers' cages weren't gilded with a fair amount of gold.
The big equity market rally that started in 1982 soon put the Dow Jones
Industrial Average back over 1,000, erasing the losses of the grim bear markets
of the 1970s . Self-directed investing in 401(k)s seemed to hearken back to the
frontier self-sufficiency of the American psyche that conquered a continent;
100 years ago, families made soap; now they make their own investment choices.
Who needed those fancy-pants pension fund managers with their hand in your
pocket, especially since the then overwhelmingly accepted Efficient Markets
Hypothesis (EMH) was saying that any average Joe could do just
as well or better with a portfolio of market indexed mutual funds?
True, there were a few bumps in the road, like the six-week bear market that
culminated in the crash of 1987, or the dot-com crash of 2000. Still, stocks
came back from these travails; American 401(k) investors seemed to get the idea
that it was in stocks' destinies always to rally to new highs after setbacks,
especially since that was the very idea that media types and books incessantly
drilled into their heads. By the time of the market top in October, 2007, there
were estimates that Americans were holding up to US$4 trillion in equity market
based 401(k) plans.
Culturally, the defined benefit pension plans that financed much of the
retirement of the Depression/World War II "Greatest Generation" came to be seen
by America's 80 million baby boomers as hopelessly old fashioned and passe,
their father's Oldsmobile. With stocks up high, there was a common, almost
Jungian dream that spread through the baby boomers; it was of retirement not at
age 65, but at age 59 and six months, when statutory tax penalties against
early withdrawals of 401(k) and other retirement plans lifted.
After that, Americans could live the life they see led by the people who sell
Geritol nutritional supplements on the evening network news (because apparently
no one under age 50 still watches the evening network news), active,
jet-setting, athletic, with smooth, tanned faces on supple and toned bodies.
For years, Americans slaved away in their malodorous cubicles under the rule of
crappy monster bosses, their only dream of liberation being that the equity
appreciation in their 401(k)s would allow them to sing Johnny Paycheck's famous Take
this Job and Shove it on the day they became eligible for plan
withdrawals.
And so were the lambs led fat and happy down into the screaming abattoir of the
world financial crisis.
What makes the current market calamities so much more damaging then the ones of
1987 or 2000-1 is that, indeed, it's not 1987 or 2001. Barring a huge reversal
in the market's fortunes, there's not enough time for the current 50%+ losses
in equity markets to be recouped. Now, the average age of America's baby
boomers is in the early/mid 50s, meaning that if they try soon to retire on
what the financial crisis has left in their retirement accounts, rather than
looking at a future of enjoying coq au vin in Provence, they'll be dumpster
diving at McDonalds for a long, long time after the money runs out.
A common pitch in advertisements for American retirement advisory services is
that one must have enough so as to not "outlive your money"; presumably, what
happens then is that you spend your last years lying in your own excrement in a
substandard nursing home populated by those on public assistance. With
lifespans lengthening and retirement incomes shrinking, will baby boomers start
to regret all those wasted hours in that dammed aerobics class?
What about some other traditional support planks of the American retirement?
Well, it's obvious that many Americans can't rely on their house as the ark
that they can float through retirement on. With real-estate prices down now
about 25% from their peak, and still declining about 3% each and every month,
the dream of selling the house and moving to a low-priced, sunbelt nirvana is
very much in question, especially if the homeowner loaded up the property with
first, second mortgages and home-equity lines of credit, hoping that he could
pay off the debt with continued house price appreciation.
I suppose that, if you're infirm and arthritic, there are worse fates than
having to spend your retirement in the winters of Buffalo, New York, or Fargo,
North Dakota, although right now I can't think of one.
But even if the case can be made that the road down the defined
contribution/401(k) path is a dead end, does that mean that those still in
traditional defined benefit plans, primarily workers in older industries such
as automobiles and steel, and public sector workers, are living out their
retirements with days of wine and roses? No, they've got their own problems,
almost as bad as those cringing upon seeing what the stock market did to their
401(k) today.
Even with corporations under legal mandate and fiduciary obligation to fully
fund their defined benefit plans, many of them don't; it is estimated that
private sector defined benefit pensions are underfunded to the tune of about
$400 billion. Labor unions know that if they pushed the companies in court to
fully fund their obligations, the companies could just declare bankruptcy to
have the judge discharge them from their obligations, as Delta and Northwest
Airlines did in 2005. If the companies do declare bankruptcy, their pension
obligations are transferred to the US government's Pension Benefit Guarantee
Corporation (PBGC), which is not mandated to continue your pension payments at
your previous level.
Congress chronically ignores the PBGC's cries that it is underfunded, currently
to the tune of about $11 billion a year. If one or all three of the Big 3
automakers declare bankruptcy and throw their pension obligations to PBGC, the
agency will become massively insolvent within seconds.
Public sector pensions are not covered by the PBGC. If their resources are
falling behind obligations, as they are now, with the stock investments of the
public sector pension managers heading south just like those of the 401(k)s, it
is up to the public authority to make up the shortfall, currently estimated
around $1 trillion. That would have to be done with either higher taxes, cuts
in other government services, or combinations of both.
Good luck asking voters for increased taxes to support public sector
retirements, when their own 401(k)s are being eviscerated.
Is there any form of liberation from the tyranny of evaporating American
old-age support? There is, but it's not pleasant. As camp commander Rudolf Hoss
said in the sign he placed above the gates of Auschwitz, Arbeit Macht Frei
- work makes you free.
Just like the case of the 91-year-old Floridian who had to go back to work
bagging groceries after losing his fortune to Bernie Madoff, younger Americans
are going to have to get used to sharing the public, working space with a lot
more elderly people than ever before. Maybe they'll still be at their old jobs,
blocking career advancement and creating hostility among younger folk, but
you'll see lots more of them in far more menial work - sweeping parks, flipping
burgers, manning school crossings, until they can barely stand anymore.
Will the young people take pity on their elders and vote to increase taxes to
support these people, or will they, like what happens every day with the sight
of homeless people, just turn their heads and look away, and, in doing so, make
the society that much coarser and colder ?
The magazine Architecture Week recently reported on a project called EDAR
(Everyone Deserves a Roof), an attempt by California design students to create
a prefabricated living space for the homeless out of abandoned single shopping
carts. For American baby boomers, who started out in Levittowns, then moved and
are now being foreclosed out of McMansions, will this be where destiny forces
them to seek shelter from the sun in their Golden Years?
This is far from impossible - it essentially did happen, in the 1930s. If the
financial crisis does not abate promptly, it becomes even more likely that it
will again. Anybody that can do simple long division can see that stocks are
down 50%, but very few fully realize what it means.
It means that 50%-plus of the wealth of America, built up over generations and
generations, has been destroyed in the past 17 months. As the pundits should
say now instead of what they said on September 11, when a country is finally
forced to live within its means after decades of excess, nothing will ever be
the same again.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
