The Retirement Wealth Inequality Machine

Yves here. I have mixed feelings about this video. On the one hand, Professor Ghilarducci does an impressive job of laying out the severity of the retirement crisis. But the flip side is she pushes the fallacy of having a public-private retirement savings program as a mass solution. We already have an economy which has a financial sector that is so oversized that it is dampening growth. One of the big activity and I hate to use the word, talent drains is the amount of time and energy devoted to the secondary trading of securities, which does absolutely nothing to support growth. It’s asset-shuffling which does not send terribly good signals as to the pricing of capital assets (and in any event, research has repeatedly found that business managers generally assign overly high return targets for projects, leading to chronic underinvestment, particularly in projects with back-ended payoffs).

To put this another way, one person’s financial asset is another person’s financial liability. And as Micheal Hudson has repeatedly pointed out, expecting debt, and by extension, other financial assets to earn above inflation returns simply leads to period busts.

The best way to provide for retirement is to look to MMT-based solutions. The currency issuer can create new spending with the constraint being generating too much inflation. Having the national government play a bigger role in retirement funding also aligns incentives better, since the powers that be would have incentives to find ways to make sure that employers didn’t discriminate against older workers who wanted to continue working (notice Ghilarducci’s discussion of how far the US lags other countries in some important respects), as well as pursuing more bona fide pro growth policies (which can and should include a lot more aggressive action on the environment) as opposed to groaf and looting programs.

– Naked Capitalism

Read the full article here.