For many there is this hypothetical America that once existed and to which we must return. That’s the America where you graduated from high school or college, sowed a few a wild oats if you had any in you – although few actually did – and then settled down in the career that would be you life’s work, or in the trade you had finally mastered, working for one employer until you retired. Job-hopping was the mark of a flighty and irresponsible loser – someone who couldn’t stick to the task at hand. Changing careers was even worse – a fellow who ditched being a respected middle manager at Sears to go write a novel or join the French Foreign Legion was just weird. Divorce and remarriage was also a mark of the same sort of fecklessness – Liz Taylor, who seemed to marry a different guy every six months, was the scandal and the crude joke in that hypothetical America of long ago. Normal people – real people – made a commitment and stuck with it. Anything else was Hollywood nonsense and you soldiered on. And, at the end, you retired, with a fat fixed pension. You had paid into that pension plan each week since you were in your twenties, a good chunk each pay-period. The folks you worked for had probably thrown in a matching amount each time too – to prove they considered you a valuable employee who was critically important to the success of the organization – and they had invested that money wisely and prudently. They put that money in low-risk slow-growth securities, not in pork-belly futures or derivatives of derivatives of mortgage-backed securities or credit default swaps, or into funding the day-to-day operations of the company in lean times. That money was safe. Then there was the usual retirement lunch at a nearby low-end restaurant and you were on your own, finally able to sow those wild oats if there were any left, with a solid check coming in each month to cover all your expenses, with a little left over, and with your medical expenses covered too. All this may sound boring, or actually the stuff of existential despair, but this was a life well led.
This was also a cruel joke. It was all hypothetical. As the fifties ended it became obvious that as corporatizations merged and dissolved and remerged in all sorts of different forms, just to survive, or to adapt to crazy technological advances that changed the world and created odd new products and whole new markets, no one’s job was safe. Sooner or later you’d get bounced out of whatever you were doing and find yourself doing something entirely new. Having two or three or four careers became the norm, and those fixed pension plans became irrelevant. Maybe you were one of the few who rode it out, who somehow survived all the transformations, but the company had probably frittered away all the pension funds anyway. Markets are unstable, prone to crashes every eight years or so, and no one is safe messing around in them. Sometimes there was actual fraud too – the company had raided the pension fund to fund some lame idea, breaking all the rules – but that was rare. The wild swings in the markets did the same damage just as effectively.
This hypothetical America that once existed didn’t exist for very long, but at least there was the backstop of Social Security, established in the thirties, and Medicare, set up in the sixties. Each was never intended to cover everyone simply because the world had changed and even middle-class folks were now suddenly on their own – but they would have to do. Social Security doesn’t pay much – often less than enough to barely get by – and Medicare barely pays doctors and hospitals enough to keep them in business – but this is what we now have. Like that now quite quaint fixed pension plan, you did pay into these, through that hefty payroll tax that always shocked you when you looked at your pay stub. Still, you bought these things. What you get starting when you turn sixty-five is not an entitlement. Think of it as an earned benefit. It’s an insurance policy, or pension plan, that you bought, or more to the point, that you were forced to buy. Now it’s all you’ve got.
For many that’s not exactly true. As fixed pension plans have disappeared for pretty much all but government employee unions now, something was developed to take their place. That would be the 401(k) – the special retirement savings account that’s a “defined contribution plan.” You voluntarily chuck in up to seventeen grand a year, deducted from your paycheck before taxes. It’s then taxed when it’s withdrawn. It’s an IRS thing. The IRS gives you a break so you pay the tax when you’re retired and probably in a lower bracket. Some employers match what you put in, but that’s becoming rarer all the times. Still, it is a way to encourage people to set something up for the future, as the corporations certainly are no longer going to do anything for you and what you get from the government system is meager at best. The nice thing is that you can roll-over your 401(k) as you move from job to job, as everyone must these days. The odd thing is that this type of account was thought up in 1978 by Barber Conable – a Republican congressman from a district in upstate New York, Rochester specifically. He was just trying to find a way to help the two biggest employers in town, Kodak and Xerox, find a way to avoid all the tax implications of their own fixed pension plans. It was a local favor and a minor thing – in the revised IRS code at the time it really was subsection (k) of the four-hundred-first paragraph – but others took it and ran with it. It solved a lot of problems. Conable went on to head the World Bank. Those of us who were his constituents at the time always knew he was sharp. We voted for him again and again. That was back when Republicans could sometimes be the good guys.
The problem is the worry this caused. Most folks, by the time they’re forty or so, start to have a pretty big chunk of change in the 401(k) – not Mitt Romney’s impossible one hundred million dollars but still something – and you pretty much manage it yourself, specifying the mix of mutual funds and bonds or whatever, or at least you’re kept informed as to what the mix is, and you get those quarterly statements of its current value too. That’s where the worry comes in. You saw a third or even one half of what was in there simply disappear in the big crash at the end of the Bush administration. The banks got bailed out, and AIG got bailed out, but you didn’t and now you’re probably not back to where you were in the first place – and you don’t want to live on cat food in your retirement.
This calls for watching CNBC a lot, following the ups and downs of the market. It’s not like that hypothetical America where you never had a clue about what your employer was doing with the funds in the pension plan. That was kept from you, but it was also one less thing to worry about in life. Now what happens in the markets day to day, week to week, is your life. One day, in the near or distant future, you will be secure, or you’ll be living in a cardboard box under a freeway ramp. It would be nice to know which it will be.
This means you’re also following the current negotiations, if they are that, about the fiscal cliff. At the stroke of midnight, as the year ends, as agreed, everyone’s taxes will jump up and automatic drastic cuts in spending kick in, sending the economy into recession, with misery for all. Of course the markets will crash too, and there goes all the retirement money again, up in a puff of smoke.
That’s dismal, and the usual game of chicken is underway. Obama says we keep the tax cut in place for the ninety-eight percent of the country that’s still struggling, and we let the tax rates on the top two percent, which isn’t struggling at all, revert to their former levels, because we need the money and those guys can afford to pitch in. Maybe they should pay the same tax rate as their secretaries and the janitorial staff, as they’ve played tricky games with the system for far too long. Sure, spending cuts are fine, but there’s no point in getting all crazy about it. The Republicans, on the other hand, will not budge – tax cuts for the millionaires and billionaires too, or no deal. Changing rates at the top is off the table, period – just close a few loopholes and everything will be fine – and by the way, there must be massive cuts to Social Security and Medicare, and Obama has to say what those will be, specifically, or they won’t talk with him at all.
It’s a stalemate. Will this crash the markets? Watch CNBC and you’re told anything that hints at increasing taxes on the rich already makes the markets drop like a rock. The markets also dropped like a rock when a minor Democratic congressman hinted there’d be no big cuts to Medicare – as this was pure cause and effect. This has to be fixed or you can kiss your 401(k) goodbye, but Daniel Gross isn’t so sure:
The conventional investing wisdom assumes that a deal – any deal – to avert the fiscal cliff will be good for stocks and the economy at large. That may be true. It may also not be true. In fact, I suspect that at the end of the day the people who are agitating most ardently for a big deal are going to be very disappointed. Compared with a few weeks ago, we are much less likely to have major entitlement reform and more likely to have large tax increases on the rich, with marginal rates rising, taxes on capital gains and dividends rising, and the rich losing some of their cherished deductions. The investor class has been begging for a resolution. The resolution they’re likely to get could be a sharp slap in the face.
Will that be good for stocks in 2013 and beyond? Who knows? In fact, hiking taxes significantly on investors may not influence the markets at all. My colleagues in the politico-financial industrial complex vastly, vastly overvalue the relation of government policy and marginal tax rates to asset prices in the stock market – especially my colleagues on the right side of the aisle.
It’s pretty simple:
If you’re trading stocks based on whether you think taxes will go up on January 1, 2013, or whether it seems more or less likely that Congress and the Obama administration will strike some grand bargain on entitlements and taxes in the next few days – well, you’re not too sharp. And if you’re in turn basing those decisions on what public officials are saying about the prospects of such a deal, then you’re kind of a dope.
Stock trading is a fool’s game to begin with. Very few investors can beat the market. The market is dominated by insane, hyperactive machines that frequently don’t know what they are doing.
That’s not particularly encouraging, but he has a point. There’s a lot of nonsense going around, particularly about hypotheticals.
So, are you worried? It’s just your life that’s on the line, but Time’s Michael Grunwald has a few things to say about all the Republican moaning and groaning about Obama’s suggestions for solving the problem:
It’s really amazing to see political reporters dutifully passing along Republican complaints that President Obama’s opening offer in the fiscal cliff talks is just a recycled version of his old plan, when those same reporters spent the last year dutifully passing along Republican complaints that Obama had no plan. It’s even more amazing to see them pass along Republican outrage that Obama isn’t cutting Medicare enough, in the same matter-of-fact tone they used during the campaign to pass along Republican outrage that Obama was cutting Medicare.
This is getting absurd:
This isn’t just cognitive dissonance. It is irresponsible reporting. Mainstream media outlets don’t want to look partisan, so they ignore the BS hidden in plain sight, the hypocrisy and dishonesty that defines the modern Republican Party. I’m old enough to remember when Republicans insisted that anyone who said they wanted to cut Medicare was a demagogue, because I’m more than three weeks old.
I’ve written a lot about the GOP’s defiance of reality – its denial of climate science, its simultaneous denunciations of Medicare cuts and government health care, its insistence that debt-exploding tax cuts will somehow reduce the debt – so I often get accused of partisanship. But it’s simply a fact that Republicans controlled Washington during the fiscally irresponsible era when President Clinton’s budget surpluses were transformed into the trillion-dollar deficit that President Bush bequeathed to President Obama. (The deficit is now shrinking.) It’s simply a fact that the fiscal cliff was created in response to GOP threats to force the U.S. government to default on its obligations. The press can’t figure out how to weave those facts into the current narrative without sounding like it is taking sides, so it simply pretends that yesterday never happened.
One has to wonder in what hypothetical America these guys actually live:
I guess it’s finally true that we all are Keynesians now. Republicans don’t even seem to be arguing that more stimulus wouldn’t boost the economy; they’ve suggested that Obama needs to give up “goodies” like extending unemployment insurance (which benefits laid-off workers) and payroll tax cuts (which benefit everyone) to show that he’s negotiating in good faith. At the same time, though, they also want Obama to propose bigger Medicare cuts, even though they spent the last campaign slamming Obama’s Medicare cuts and denying their interest in Medicare cuts. I live in Florida, so I had the pleasure of hearing a radio ad from Allen West, hero of the Tea Party, vowing to protect Medicare. …
I realize that the GOP’s up-is-downism puts news reporters in an awkward position. It would seem tendentious to point out Republican hypocrisy on deficits and Medicare and stimulus every time it comes up, because these days it comes up almost every time a Republican leader opens his mouth. But we’re not supposed to be stenographers. As long as the media let an entire political party invent a new reality every day, it will keep on doing it.
That’s a problem for the press, but the bigger problem may be the Republicans being caught between a hypothetical America that never was, and nothingness.
Time’s Joe Klein has a different take:
Republicans always seem to be outraged. It’s getting boring. They need to step up and make a counter-offer. That’s how people negotiate. In this case, they need to be specific about the spending cuts they want… But it is time to stow the Republican intemperance. It might have seemed “righteous” indignation when the GOP was deluding itself about representing a majority of Americans; now, it just seems puerile and petulant.
Kevin Drum chimes in:
I guess I’m not going to hold my breath waiting for this. The Republican Party seems to be pretty much defined by umbrage and resentment these days. If they give it up, I’m not sure what they have left.
That is the key question. What will they have left? In fact, Republican consultant Mike Murphy wonders if the Republican Party can be saved:
We Republicans cherish the free market. So now might be the right time to start listening to it. Our party has lost the popular vote in five of the past six presidential elections. That is 20 years of “no, thanks” from the American people. Only basketball’s Washington Generals, who are paid to lose to the Harlem Globetrotters, can exceed that losing record, and by only four years (1971–95).
The worst error politicians can make is to spin themselves. It’s time for the GOP to face the hard truth, no matter how painful. The Republican brand is dying, many of our strategists are incompetent, and we still design campaigns to prevail in the America of 25 years ago.
For many there is this hypothetical America that once existed and to which we must return – and these folks are Republicans:
Identifying the problem is easy. The Republican challenge is not about better voter-turnout software; it is about policy. We repel Latinos, the fastest-growing voter group in the country, with our nativist opposition to immigration reform that offers a path to citizenship. We repel younger voters, who are much more secular than their parents, with our opposition to same-sex marriage and our scolding tone on social issues. And we have lost much of our once solid connection to the middle class on kitchen-table economic issues.
A debate will now rage inside the GOP between the purists, who will as always call for more purity, and the pragmatists, who will demand modernization. The media, always culturally alien to intra-Republican struggles, will badly mislabel this contest as one between “moderate” and “right-wing” Republicans. In fact, the epic battle we Republicans face now is a choice between two definitions of conservatism.
You can follow the link and read on your own his musings on what conservatism should be. It’s not living in a hypothetical America that existed long ago. The short form of the old versus the new is this:
One offers steadfast opposition to emerging social trends like multiculturalism and secularization. The alternative is a more secular and modernizing conservatism that eschews most social issues to focus on creating a wide-open opportunity society that promises greater economic freedom and the reform of government institutions like schools that are vital to upward social mobility.
How one gets there from here is the problem. Bloomberg’s Josh Barro says it cannot be done:
The Republican Party is screwed: It’s in for a lot of infighting, but both sides of the party’s internal fight are committed to economic policies that are not saleable to the broader public. For the next few years, we’re going to see a lot of articles like Murphy’s, arguing that the Republican Party can rehabilitate itself by abandoning policies the author never cared about anyway. But unless these articles tell the Republicans to abandon some of their core economic policies, the prescriptions they contain will be wrong.
It’s all about some hypothetical world:
Have you spoken with a wealthy Republican donor in the last few years? By and large, they are outraged about Obamacare, easy money and stimulus spending – that is, at policies aimed at easing middle class families’ economic situations. They are often delusionally convinced that the country faces imminent economic collapse. What they believe will prevent that collapse is tight money, spending cuts and continued tax cuts for the rich. And so long as Republicans pursue those goals, they will be the party of anti-middle class economic policy.
Murphy urges Republicans to talk about “economic freedom.” But Mitt Romney did talk a lot about that, and middle-class voters weren’t impressed, because calls for lower taxes and less regulation are not responsive to their need for more jobs and higher wages.
And they weren’t impressed because they live in the real world, not the hypothetical world – the real world where their 401(k) statements scare the crap out of them and these jerks in Washington seem to be willing to crash the market again, maybe, if you watch CNBC, and insist the backstop for most people, Social Security and Medicare, be cut drastically, to please their wealthy Republican donors, who live in a very odd world indeed. It’s an argument about a wholly hypothetical America. That’s the scariest part.