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Old 11-28-2012, 01:15 PM   #41
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My point that the replacement of non contributory DB plans by 401ks has greatly reduced the actual net worth of the middle class as most 401k balances are worth far less the the DB plans they replaced and they are also funded mostly by the employee. If DB plans were not included in the net worth figures and they were more common 30 years ago the fall in real net worth is even worse.
OK, but I don't think it is cause and effect.

Due to global competition and other factors, I think US employers are able to cut total compensation (or slow the growth, however you want to look at it). IMO, if a company is going to cut 'total compensation', cutting 'promises', or converting them to DC plans (even if a lesser value) is the best place to start.

But I think my original comment still holds - was the value of the DB plans measured as 'net worth'? I'd guess that it wasn't. They may have not counted retirement plans either, sometimes those are excluded.

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Old 11-28-2012, 01:16 PM   #42
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Originally Posted by ERD50 View Post
How does that work? It seems that these various studies include a 401K balance as part of 'net worth', but rarely include the present value of a future pension income stream (a 'phantom asset').

-ERD50
That subject is tackled in the link from my above post... Tackled... but I'm not sure it was answered...
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Old 11-28-2012, 02:04 PM   #43
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Old 11-28-2012, 02:20 PM   #44
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As long as the author is clear in the definitions I don't have a problem with that. One good thing about the financial crisis is that it highligthed systemic problems in the economy: income disparity, the cost of health care, education and the reduction in retirement benefits with the change over from non-contributory pension plans to 401ks have all contributed to the falling networth of the middle and working class. The paradox of individual thrift and consumer driven growth is also important.
I think you meant to say "the reduction in retirement benefits with the change over from defined benefit plans to 401k's."
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Old 11-28-2012, 02:31 PM   #45
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As I watch the people in the media trying to frame the political picture, it looks to me as if the answer has to be a return of the lost wealth to the middle class... I cannot see any way in which investment in business can, by itself, create jobs or increased profits, without a consumer base to buy product or services.
I've heard similiar comments in the media. We need the middle class to spend more to boost the economy. Yet, the middle class needs to cut spending and increase savings to boost their net worth.
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Old 11-28-2012, 02:48 PM   #46
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I really have a problem with this 'no way out' comment.

I personally know a couple people who risked life and limb to escape from occupied countries. If evading armed guards, hiking over the Alps with no supplies, digging up root crops from farm fields as you go to avoid starvation, risking arrest on the way, which meant return and probably torture and death - or sailing a home-made boat from Cambodia and making your way to the US and making it to an engineering grade at a MegaCorp is possible, then certainly leaving a 'disadvantaged' area in the US is achievable.

Or, as the Eagles sing: "So often times it happens that we live our lives in chains, And we never even know we have the key".

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Old 11-28-2012, 04:19 PM   #47
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I've heard similiar comments in the media. We need the middle class to spend more to boost the economy. Yet, the middle class needs to cut spending and increase savings to boost their net worth.
Yeah... exactly... I don't have the answer, except to ask why the wealth has decreased for the middle class, and increased in the 1%.
Does it reflect a lack of effort , or does some of the difference have to do with the tax differential changes that occurred over the period.

Was it all due to greed on the part of people who took equity out of their homes? Or those who wanted to get in on the home ownership? Or who thought that they were deserving of a better way of life, and that they could live beyond their means forever?

Here's an excerpt that points out the direction of wealth accumulation. That's the part that I wonder about... and also wonder if it's the way it will continue over the coming 5, 10, or 20 years. Think progressive tax rates.

Quote:
17
for the next highest ten percent. The fourth quintile of the income distribution experienced only a
3 percent growth in income, while the middle quintile and the bottom 40 percent had absolute
declines in mean income. Of the total growth in real income between 1982 and 2009, 39 percent
accrued to the top one percent and over 100 percent to the top quintile. These figures are very
close to those for net worth and non-home wealth.
These results indicate rather dramatically that the growth in the economy during the
period from 1983 to 2010 was concentrated in a surprisingly small part of the population -- the
top 20 percent and particularly the top one percent. The pattern of results is similar for non-home wealth. The average non-home wealth of
the richest one percent climbed by 83 percent, that of the next richest four percent rose by 120
percent, and that of the next richest 15 percent increased by about 90 percent. Altogether, the
non-home wealth of the top quintile gained 95 percent. As in the case of net worth, the fourth
quintile showed a positive gain while the third quintile and bottom 40 percent had absolute
declines. Of the total growth in non-home wealth between 1983 and 2007, 41 percent accrued to
the top one percent and fully 100 percent to the top quintile, while the bottom 80 percent
collectively again accounted for none.

A similar calculation using the SCF income data reveals that the greatest gains in real
income over the period from 1982 to 2009 were made by households in the top one percent of
the income distribution, who saw their incomes grow by 59 percent. Mean incomes increased by
almost half for the next 4 percent, over a quarter for the next highest 5 percent and by 13 percent
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Old 11-28-2012, 04:38 PM   #48
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Yeah... exactly... I don't have the answer, except to ask why the wealth has decreased for the middle class, and increased in the 1%.
Does it reflect a lack of effort , or does some of the difference have to do with the tax differential changes that occurred over the period.

Was it all due to greed on the part of people who took equity out of their homes? Or those who wanted to get in on the home ownership? Or who thought that they were deserving of a better way of life, and that they could live beyond their means forever?

Here's an excerpt that points out the direction of wealth accumulation. That's the part that I wonder about... and also wonder if it's the way it will continue over the coming 5, 10, or 20 years. Think progressive tax rates.


This is just me.... and a small quip at some of the problem.... but there has to be a reason that Apple is the largest cap company in the US (World?).... and I can not see a reason that you HAVE to have any of their products...

I think that the reason is that there is not any desire to save... or LBYM by the very vast majority....
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Old 11-28-2012, 07:32 PM   #49
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I think you meant to say "the reduction in retirement benefits with the change over from defined benefit plans to 401k's."
Back in the day DB plans were often "non-contrinutory pension plans"; the employee paid nothing in, but got a pension calculated from the length of service and final salary. I actually have one of those. Today many of the DB plans that still exist are funded much like 401ks. As an example the MA state employees' pension plan is a DB plan, but it is funded by 11% employee contributions and 5% from the state. That might sound like a lot, but remember MA state employees don't pay the SS portion of FICA and so don't get SS.

I mentioned the non-contributory nature of many old DB plans to highlight the shift in retirement funding from the employer to the employee and the double whammy on household income when coupled with wage stagnation.
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Old 11-28-2012, 08:23 PM   #50
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imoldernu said:

"I cannot see any way in which investment in business can, by itself, create jobs or increased profits, without a consumer base to buy product or services."

The Richmond Fed discusses this:

"In a 2011 paper, Karl E. Case of Wellesley College,
John M. Quigley of the University of California at
Berkeley, and Robert J. Shiller of Yale find a large
wealth effect on consumption from rising house
prices and an equally significant effect from falling
house prices."

http://www.richmondfed.org/publicati...f/eb_12-01.pdf

So according to Shiller, who is a keen observer of housing markets, when house prices move up, so will consumption spending.
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Old 11-28-2012, 08:23 PM   #51
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Yeah... exactly... I don't have the answer, except to ask why the wealth has decreased for the middle class, and increased in the 1%.
.
There's reason for that old saw--The Rich Get Richer and The Poor Get Poorer.
When times get tough, it is a whole lot easier to stay rich than it is to get rich.
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Old 11-28-2012, 09:02 PM   #52
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I cannot see any way in which investment in business can, by itself, create jobs or increased profits, without a consumer base to buy product or services.
Not any way? What about things that create value? Let's take one simple example - VOIP phone systems. That took some investment, and now many of us save money on our phone bills, we can make long distance calls any time (and that might save money from time to time). So now we have more money to spend, and some other business can create a product we can buy with that money that's burning a hole in our pocket.

That's two businesses that created jobs. OK, maybe the first business displaced some jobs, but that has been happening with every technology improvement, and the unemployment rate doesn't just keep going up.


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Classic! I remember seeing him doing that routine (cleaned up) on prime time TV. "We have deserts in America! We don't try to live in them!"

-ERD50
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Old 11-29-2012, 04:56 AM   #53
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Or, as the Eagles sing: "So often times it happens that we live our lives in chains, And we never even know we have the key".
And, as the Eagles also sing:

"I turn on the tube and what do I see
A whole lotta people cryin' "Don't blame me"
They point their crooked little fingers ar everybody else
Spend all their time feelin' sorry for themselves
Victim of this, victim of that
Your momma's too thin; your daddy's too fat

Get over it
Get over it
All this whinin' and cryin' and pitchin' a fit
Get over it, get over it

You say you haven't been the same since you had your little crash
But you might feel better if I gave you some cash
The more I think about it, Old Billy was right
Let's kill all the lawyers, kill 'em tonight
You don't want to work, you want to live like a king
But the big, bad world doesn't owe you a thing"
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Old 11-29-2012, 06:04 AM   #54
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Originally Posted by bld999 View Post
imoldernu said:

"I cannot see any way in which investment in business can, by itself, create jobs or increased profits, without a consumer base to buy product or services."

The Richmond Fed discusses this:

"In a 2011 paper, Karl E. Case of Wellesley College,
John M. Quigley of the University of California at
Berkeley, and Robert J. Shiller of Yale find a large
wealth effect on consumption from rising house
prices and an equally significant effect from falling
house prices."

http://www.richmondfed.org/publicati...f/eb_12-01.pdf

So according to Shiller, who is a keen observer of housing markets, when house prices move up, so will consumption spending.
No song lyrics to back up your words?

Not enough time to read the article right now, but thanks for posting this.

Is it clear that rising house prices cause consumption, or is the rising house price correlated with rising consumption?
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Old 11-29-2012, 08:54 AM   #55
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....Is it clear that rising house prices cause consumption, or is the rising house price correlated with rising consumption?
I would think the latter, but to some degree it is a distinction without a difference. Just because the value of your house is rising you can't spend it (short of doing a cash-out refi but to do that you would need to be confident in you ability to make the higher payments) but you would feel more confident of your financial situation and willing to loosen those LBYM restraints a scosche.
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Old 11-29-2012, 09:26 AM   #56
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Anecdotally, I know several co-workers who did just that. Always increasing their HELOC or cash out refinancing whenever they could to maintain ever increasing lifestyles. Their description of what they were doing was taking advantage of rising equity. Whether the rising values fueled the consumption (as they described) or the other way around is possible to debate, but they seemed to treat it as another source of income.
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Old 11-29-2012, 09:33 AM   #57
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I would think the latter, but to some degree it is a distinction without a difference. Just because the value of your house is rising you can't spend it (short of doing a cash-out refi but to do that you would need to be confident in you ability to make the higher payments) but
you would feel more confident of your financial situation and willing to loosen those LBYM restraints a scosche.
@target2019:

I think pb4uski said it well ^^^ , although most policy people might wish for "opening floodgates" instead of "a scosche". [ Remember Bush 2 imploring us to go out and spend?] The number that is frequently kicked around is that the US economy is ~70% consumer driven.

Once career-age folks are convinced that the housing recovery is solid,
this outlook will wane:

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