Public Costs Burden Households

Frying Your Finances Locally

The punk rockers in The Clash thrashed out the question, “Should I stay or should I go?” It is a relevant question.  Can an average person earn enough in our local Shangri-La to make it?  I mean pocketing enough jingle over an average career to retire decently.

To be sure, there’s good money to be made here.  Nonetheless, it is a narrow, sensitive economy.

The Roaring Fork and Grand Valleys are a bit cramped. Most people would go further in a larger economy with 10 or 50 times more job choices. Some people consciously accept the tradeoff of capped careers versus aesthetic rewards. Others bet on a hot real estate market to fund retirement.

Now the economy seems to be bouncing back to its old partying self. Jobs are growing. Home prices are rising. Pay raises are finally more frequent than sightings of bears wearing earbuds.

Yet nearly all top economists fear the New Normal[1]. It is a semi-permanent economic downshift from fourth gear to second. The “why” is no mystery.

Most folks consume far more than they produce over a lifetime. First, without clear targets people generally under-save for retirement. The Federal Reserve reports that the median US household aged 55-64 had piled up savings of only $165,000 by 2013[2].

Second, over-consumption shows up in high public and household debt levels.  Both leave the future without enough money.

An admittedly subjective bare-bones retirement for a couple might be $80,000 in the first year of retirement, then rise with health costs and income taxes. After those two items, there’s $35,000 left for everything else: teepee, television, tires, toothpaste, and Twinkies.  Locking down that retirement as firmly as possible will take about $1,600,000 at age 65[3]. Most people do it much cheaper by taking bigger risks.

It may be a bit hallucinatory, but folks like to think that much of this shortfall will come from third graders…after the juvenile primates emerge from the cocoon of public education…after metamorphosis into marketers, morticians, massage therapists, and meth dealers.

If Social Security and Medicare payments materialize as the law now reads, the youngsters will pop for $900,000. That reduces the oldsters’ costs, including some big taxes[4], and leaves only $400,000 for retiree couples to pay themselves.

Sidebar: those youngsters had no voice in deciding their, er, contribution.  Democracy’s diaper is badly torn.

Even much of the upper middle class will be short of retirement money. Think trailer parks in Arkansas.

It is not just an American bummer. Most of the rest of the rich world is in deep doo-doo, too.

Can the problem be fixed?  Taking more candy from third graders is on the political agenda. Of course.

However, the sustainable solution is to produce more or consume less. Politically, consuming less is a complete loser. It is a reverse Santa Claus. That sled will not fly.

A giant surge forward in poor countries would help the rich world, too. China showed it can be done. The stew is on the stove, but at the moment the burner is cooling, not heating.

Simply shifting to a standard 44 or 48 hour work week would go a long way, though not without  complaints.

The optimal solution, though, is to do more with less. It is how humans hammered the Stone Age into the Internet Age. Science and technology have blown through barriers like Lindsey Vonn blowing through a Super G.  Or interview taboos.

Doctoring has gone from leech therapy to gene therapy. Manufacturing has gone from home spinning wheels to semiconductor fabs.

Yet mastery of organizations eludes us yet. Orgs remain slaves of human nature.

It is fair to argue that ruinously expensive health care, a choked up I-70, second-class education, wasteful bus systems, high housing costs, excessive legal worries are all products of organizations pursuing their natural self-interest.

In this view, even bitter political partisanship is sweet nectar for entire networks of organizations, despite the leadership failures it wreaks on us all. Political parties relish the rancor.

Between a tenth and a third of GDP is likely squandered here[5]. The unharvested cost saving is very big money.

This rich vein of trapped gold is more than enough to make our local paradise affordable for everyday people in everyday jobs – including solid retirements. It is more than enough to replace the sputtering New Normal with a high wattage economy.

Enlightenment mastermind Charles-Louis Montesquieu once observed, “At the birth of societies, the leaders create the institutions, thereafter it is the institutions that form the leaders.[6]” Tell our local leaders that you expect them to prove Montesquieu wrong.

These are human systems. Humans can change them. Lower local living costs mean higher living standards. For everyone.

In the meantime, if your personal money thing is wobbling toward a crash, answer the query of The Clash: “Should I stay or should I go now?”

 

Click HERE for a version of this story published in the Glenwood Post Independent on 19 July 2016.

 

[1]     Mohamed El Erian, Larry Summers, Christine Lagarde, the IMF, World Bank, US Federal Reserve, European Central Bank, even McKinsey Consulting recently

[2]     Fed Reserve, 2013 Survey of Consumer Finance, Table 2, pdf pg 12,

[3]     Half in IRA, half in taxable acct, 2% real earnings ann (in a fixed annuity), health care costs have NO excess cost growth, living expenses before healthcare and taxes remain steady at $35,000 annually.

[4]     The numbers do not tote because Medicare is not taxable income, reducing seniors expenses more than the raw numbers indicate.

[6]     Health care is at 17.5% of GDP.  Saving half, which is entirely possible and maybe more, is 8.75% of GDP.  Social Sec and Mcare at 8% of GDP, pay to people some do not need it, probably in the range of 1%.    Excess legal costs could be worth another 1% of GDP annually.  World class K-12 is worth 5% or more of GDP, see McKinsey, if doable. Better higher ed would save much, say 1% of GDP.  see McKinsey again. Social spending may be done much more effectively. Long term benefits are utterly unknown,  perhaps 2% of GDP savings here. Transportation, likely worth another 0.5% of GDP.   The Small Business Administration puts direct cost of fed regs at 12%  and Varshnay puts direct cost of California  regulation at 9% of California GDP.  How much is excessive is hard to know, and has never been examined systematically, but there is vast potential for savings here, too. 3% percent of GDP seems a realistic possibility.   Overall quick and dirty est is 20% of GDP can be saved.

[6]     Montesquieu – Considerations on the Causes of The Greatness of the Roman and Their Decline.  David Lowenthal translation, pg 25.

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