Sunday, December 03, 2006

The Shape of Wealth

I decided to go shopping yesterday, and then watch of the OU-Nebraska Big 12 Championship football game. (For those of you who visit this site from out of the country, that is American football, which is similar to rugby -- not soccer.)

Anyway, I did a little more reading of the Why We Want You to Make Us Richer, er, I mean, Why We Want You to be Rich by Donald Trump and Robert Kiyosaki. In it, on page 46, Mr. Kiyosaki refers to a Changing Demographic of the American populace. He claims the American populace is changing from a rhombus-shaped society (I was planning to upload some images to assist me, but Blogger is not working right for some reason) to an hourglass-shaped society where there are many rich and many poor, but few middle class.

***Update*** Blogger seems to be working again.





I think he has the wrong shape. We are turning more into a triangle-shaped society. There are still relatively few rich, but there are more poor and fewer middle class. Many of the middle class are sinking into the lower classes. But the number of middle class Americans that are rising to the upper classes -- even upper middle classes -- is not increasing at same rate as those falling into the lower classes. In fact, you would be hard-pressed to show that the percentage of middle class Americans that are moving up is increasing at all.




Mr Kiyosaki goes on to say on pages 47-48:

The problem is our nation is filled with people like my poor dad -- a good man, well-educated, hard-working, yet expecting the government to take care of him when he retired.


He then says that all the money that the baby boomers contributed to Social Security has "disappeared into a Ponzi scheme."

What a canard.

I, for one, cannot figure out what is so wrong with creating guarantees for workers who have worked all their lives so that they can live out their last days in relative financial security. Not everyone can become a CEO, top athlete, movie star, a Senator or a big-business owner. Many people are quite content to be your Average Joe; and there is nothing wrong with that. The fact is that very few people are cut out by genetics or training for greatness.

Mr. Kiyosaki is starting to come off in this book as a snooty and pretentious elitist. The fact is that one of the best and most stable retirement guarantees is Social Security. It is not like the President of the United States and his administration can filch the Social Security funds like Enron or Worldcom executives did with their employees retirement funds.

Before you throw eggs at me, I realize you could argue that Congress is spending the Social Security money irresponsibly to lessen the current account deficit. But that is not quite the same as dumping the very stock in a company that you own while at the same time telling your employees to buy the stock with their retirement money. It is this very type of graft that discredits Mr. Kiyosaki's argument to make everyone responsible for their own retirement. What we need, if we are to keep retirement plans private and encourage people to invest their money, is to have laws that strengthen the ability to recover money that is misappropriated.

3 comments:

Bill said...

I, for one, cannot figure out what is so wrong with creating guarantees for workers who have worked all their lives so that they can live out their last days in relative financial security.

1) The "guarantees" are not guaranteed. Congress can decide at any time to alter the terms of the agreement. They did so in 1983 and they'll have to do so again in the future.

2) It's horrendously expensive. Any time you "guarantee" anything, it's ridiculously expensive. Would you rather have a guaranteed $10 or an expected $20 with a variation of +/- $1?

3) The "guarantee" of Social Security deprives workers of making choices with their FICA dollars. If this is a free country, why don't we allow people to make different (that is, better and smarter) choices with money that's ostensibly purchasing their retirement annuity?

The fact is that one of the best and most stable retirement guarantees is Social Security.

That was probably true back before FICA was a whopping 15.3%. But now, even minimum wage workers could retire with $1 million by investing their FICA dollars in an S&P 500 index fund.

It is not like the President of the United States and his administration can filch the Social Security funds

That's where you're absolutely wrong. Like I said above, they did it in 1983 and they'll do it again. Congress is free to raise taxes and lower benefits any time they want, effectively robbing workers of money that was previously "guaranteed".

Teri said...

I've found that most people really aren't cut out to manage things like stocks & bonds. The folks I worked with during the tech run up put money into some basic accounts and never touched it or moved it around, even as the market was starting to drop. Pensions work much better. Social Security is not a perfect solution either. It requires a lot of workers to fund payments. I find it ridiculous that we don't means test for SSI and that there is a cap on the wages subject to SSI (high earners don't pay FICA on all their earnings yet still get to tap into the system.)

We have a system where we've given control of the money system of the country over to a bunch of private banks (which is exactly what the Federal Reserve is.) We've allowed them to decouple the currency from a gold standard and inflate it to nothing, punishing those who save. We also came up with a system that automatically routes retirement savings into the stock market, which is gambling for sure. I don't have any answers (and I sure as heck don't have anything left for retirement), but there has to be a way to do this that doesn't bankrupt the country.

Bill said...

I've found that most people really aren't cut out to manage things like stocks & bonds.

I agree wholeheartedly. Fortunately, companies like Standard & Poor's are. And they do it essentially for free.

Pensions work much better.

Oh, you mean pension plans like Delta's, which was so broke, it's being turned over to the PBGC? Tell that to the recipients who are about to have their "guaranteed" benefits cut by 1/3.

I find it ridiculous that we don't means test for SSI and that there is a cap on the wages subject to SSI (high earners don't pay FICA on all their earnings yet still get to tap into the system.)

I absolutely support a system like this. Except I wouldn't discriminate based on age. There's a name for this sort of program. It's called welfare.

We also came up with a system that automatically routes retirement savings into the stock market, which is gambling for sure.

The data do not support your statement. The stock market is extremely volitile over the short term. But over the long term (retirement savings ~ 40 years), it's a rock-solid investment, returning 10% annually.