Your Portfolio of Lies
by Gary North: Roubini,
Marx, and Keynes
I bought a domain name: www.NeverSayRetire.com.
I did this
because I have long been aware of a crisis that will face tens of
millions of Americans. They will not be able to afford to retire.
government has lied to its citizens, All have promised to provide
an old age safety net. These promises will soon be broken.
long accepted these promises at face value. They have not applied
a discount for the high risk of a government default on its IOUs.
They have also not applied a discount for price inflation to compensate
them for a politically inevitable policy.
Yet they are
becoming vaguely aware that the government will in some way wiggle
out of its obligations. Anyway, they say they think this. But they
take no practical steps to hedge their portfolio of lies.
This is why
I conclude that there is enormous self-deception in all adult age
groups in the United States regarding the prospects of retirement.
This self-deception is so comprehensive and so widespread that I
have doubts about people's ability to make assessments and then
make decisions that are consistent with their assessments.
media are beginning to publish articles about how millions of Americans
will not be able to afford to retire. Americans have not saved enough
money, we are told. This is accurate.
are coming about 45 years too late. It was clear to anyone with
an understanding of basic economics back in 1965 that Medicare would
bankrupt the United States government at some point. A few critics
said so at the time, but they were not taken seriously. The program's
expenses have grown relentlessly. They are going to undermine the
solvency of the government. This means that there will be a default
at some point. This default will also undermine Social Security.
also report that more Americans than ever before are saying that
they will not be able to retire. But the actual rate of retirement
indicates that they do not really believe this.
SPEAK LOUDER THAN WORDS
being interviewed are telling the reporters one story, but their
actions tell a different story. They say that they will not be able
to afford to retire, yet the overwhelming majority of people who
are eligible to start collecting full Social Security payments at
age 66 do retire. This percentage has been increasing over the last
decade, but not fast enough. A
Congressional Research Service report dated September 2009 summarizes
the development. Only a third of men eligible for full Social Security
benefits around age 66 are still in the labor force.
March 2009, 52% of men aged 62 to 64 were employed, compared with
42% in 1990 and 47% in 2000. Of men aged 65 to 69, 33% were employed
in March 2009, compared with 26% in 1990 and 30% in 2000. Among
women 62 to 64 years old, 41% were working in March 2009, compared
with 28% in 1990 and 35% in 2000. Among women 65 to 69 years old,
25% were working in March 2009, compared with 17% in 1990 and 20%
What the data
reveal is that two-thirds of American men who reach the age of full
Social Security payments quit working. Three-quarters of women make
were really concerned about their inability to pay for their retirement
years, they would not retire. They would stay on the job. By law,
they cannot be fired merely for being older. Companies are afraid
to fire anyone who reaches retirement age who asks to stay on the
there is a deep-seated schizophrenia in America's older population.
extends to the younger members of society. For over a decade, pollsters
have asked voters if they believe that Social Security will be still
be operational when they reach retirement. Over
half of all people surveyed say they do not think it will be.
Younger workers are even more emphatic that it will not be there.
Yet there are
no signs that this age group is saving enough money to provide retirement.
They say that the government will not be there with a safety-net
program, but they refuse to build a safety net of their own.
fundamentally wrong with the public's ability to assess economic
cause and effect. If we believe their actions, they discount the
bad statistical news and take at face value the government's lies.
Wall Street Journal published an
article on August 21 that dealt with retirement prospects.
began with the story of a woman who got trapped by events. Her mother
became ill the 1990s. She needed long-term medical care. This is
not cheap. So, the daughter stopped making contributions to her
retirement account. Then the "ups and downs" of the stock market
dealt her retirement account another blow, the author writes. She
calls them ups and downs. This is misleading. The stock market is
lower today than in March 2000, and consumer prices are 30% higher.
67-year-old woman went back to work part-time as a data-entry clerk.
She hopes to retire by age 70.
It's a sad
story. But something is left out: numbers. Exactly how much money
did the woman have to pay each month for her mother's care? For
how long? How much had she been contributing to her retirement account
before her mother got sick? In other words, is there evidence that
she, in fact, would have been able to afford to retire, had her
mother not gotten sick? We are not told. We only know that this
is her explanation of what happened.
As for the
stock market, the financial media did not warn people in the spring
of 2000 that a decade-long decline was coming. They did not tell
readers to sell stocks. Since then, they have repeatedly said that
the best way to achieve a secure retirement is to save more money.
They have also said that the best place for this money is the U.S.
stock market. They have been wrong for over 11 years.
The woman says
she will have a hard time retiring if she cannot sell her home.
This indicates that she had regarded her home as her capital for
retirement. She is not alone. She knows this. "Like most older people,
my money is in my home. ... I'm caught between a rock and a hard
But why is
she caught? Because she believed the U.S. government and the mainstream
media. We now live in the aftermath of Alan Greenspan's anti-recession
policies, beginning days after he took over as chairman in October
1987. The stock market fell 22% in one day. The Federal Reserve
responded within 24 hours by flooding the markets with fiat money.
inflated his way out of short-term downturns. This created the housing
bubble that he denied even existed. He got away with this because
the mainstream media applauded.
media did not warn readers in 2005 and 2006 that residential real
estate was a bubble, and that home owners should not put any hope
in their homes' equity as a retirement savings plan. I
warned my readers.
did a lot of other Austrian School analysts.
But we were
ignored. Among the few financial media talking heads who did not
ignore us, we were dismissed as naysayers, doomsters, and people
without vision. Those who ignored us are now living in less expensive
homes. Millions of them owe more on their mortgages that their homes
of course mention none of this. They insist that no one could have
foreseen the popping of the housing bubble. Their victims are in
despair, for good reason.
the lady's complaints is on target. "Everything is more expensive.
I cannot retire, I wish I could." But this price inflation began
in the mid-1960s, when she was a young woman. It did not slow until
about two years ago. How is it that she did not see this coming?
For the same reason that the financial media did not see it coming.
They did not understand Austrian School economics.
Mises warned about secular price inflation from 1912 until his death
in 1973. His disciples followed his lead. He took a stand against
the entire academic community and the entire financial journalism
guild. He was right. They were wrong.
ago, he was asked if he had an inflation hedge. "Yes," he said.
The lady in
the article did not see this coming. Neither did the mainstream
media, the world of academic economists, and politicians. It is
a sad tale, but it was predictable. We Austrians predicted it .
. . and were told that we did not understand economics.
continues: "Many older people are finding themselves in a position
they never expected to be in at retirement age: still working or
in need of a job." This is true. But whose fault is it? The voters.
Their parents voted for politicians who voted for the welfare state.
They imitated their parents. Now the bills are coming due, as they
do in every ponzi scheme. Yet the victims seem surprised. This is
a self-inflicted wound.
covers recent developments: the fall in stock market prices over
the last 30 days, the decline of interest rates since 2008, and
falling housing prices. All of this is true, and it is going to
get much worse.
Then she cites
a statistic. Three-fifths of workers surveyed by a nonprofit organization
devoted to retirement studies said that they plan on working past
age 65. Of these people, 47% said this is because they have no financial
option. They will need health care benefits and income.
If people really
took seriously this threat to their futures, they would be saving
at 10% per annum, minimum. The older ones would be saving at 20%.
They aren't saving at 6%. They show no sign of panic regarding old
age. They may sing songs of woe to reporters. They may tell pollsters
that they see what is coming. There is not much evidence that they
are taking statistically relevant steps to avoid the grim future
which they say they envision.
MORE AND WORK LONGER
read these stories on the plight of the retirees, the author adds
the obligatory warning about failing to act now and save more. This
article is no exception.
in this tight labor market, working into your golden years isn't
easy. And you'll have to make your age and years on the job come
across as assets, not liabilities. In addition, with the current
market upheaval, you'll need a financial plan that puts your savings
on the fast track and takes into account how Social Security and
Medicare benefits could be affected.
But the author
does go beyond this ritual response about saving more money. She
admits the truth: the best plan is to plan not to retire.
many older workers, the easiest option may be to continue with their
current employer. But that will entail making themselves essential.
take on new projects when possible. And it's crucial to stay on
top of the latest technology being used; you don't want to be
perceived as the old guy who doesn't know what's going on.
This is very
good advice. The fact is this: there is no way that most Americans
will be able to save enough money to accumulate enough capital to
sustain them in their old age, from age 66 to 80 for men and 84
for women. They will not have sufficient capital. This assumes that
there will be no mass inflation. That is a low-probability assumption.
employees also can put their experience to use and on display
by volunteering to mentor younger workers either formally
This is also
very good advice. The older worker who can get younger workers up
to speed rapidly is a real asset to any company.
If you are
working on commission, you are in good shape if you can keep selling.
The article interviewed a shoe salesman who is still on the job
at age 70. He stated emphatically: "I have to produce or the company
wouldn't let me work out here." He's wrong. The company would let
him work, but he would eventually starve. The company would not
risk a lawsuit over age discrimination. It would let the pressure
of falling commission income push him into retirement.
OF A SAFETY NET
of all Western nations have promised workers that they will be taken
care of by the state in their old age. That promise cannot be fulfilled.
Statistically, it is impossible to fulfill. This is why families
should be making plans to resume the responsibility of caring for
the aged members, as societies have done throughout history.
For as long
as you are still in the labor force, you have a chance of being
able to afford to care for aged parents. If you are trying to avoid
becoming the aged parent who needs care, think through your present
If you are
in a job where you think the physical requirements will be too much
for you, try to get transferred now. Don't wait for your boss to
come to you to suggest this. You had better gain skills in the new
position. This takes years.
offer phased-retirement programs: reduced hours worked. I recommend
this strategy, with this proviso: you have a side business to retire
into. You plan ahead. You devote more hours to it each week as you
get older. You get it profitable, and then you phase out of your
present salaried position.
this option. It allows them to get rid of dying wood without facing
a lawsuit. They don't want oldsters on the payroll. They want younger
people who have more years of service ahead of them. Another major
incentive for hiring youngsters is this: they will be less likely
to negotiate from expectations of high income. They have been battered
by Bernanke's economy. They are happy just to get a job.
You are sitting
on a portfolio of government lies. I don't know if you really understand
that there is going to be a great default by the government. By
"really understand," I mean this: you are taking steps not to retire.
If you are
still planning to retire, you had better have a lot of money, and
this money had better not be invested in markets that are going
to collapse when the government's promises are finally exposed as
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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