The Retirement Heist

[ChrisC]

Chris, I think the productivity improvements made by corp american can be readily comfirmed with gov't data and the US is certainly one of the most productive countries in the world. If that is not self evident to you, I am not going to waste time trying to educate you.

Again, I think Ziggy tried to point this out to you already, but you do not seem to getting the message. We are not trying to pick on the govt workers themselves or take away from what they have been promised, its the system that needs to be fixed going forward, not the workers!!!!!!

DFW, please excuse my ignorance if I confuse your one-sided rant with an unbalanced approach to this all. It is not self-evident to me that American corporations are the most productive in the world or that our private sector employees are at the top of the game -- there's a lot of excess capacity in the private sector too that simply isn't weeded out by supply and demand. And we all know anecdotal espisodes of corporate welfare.

I don't think that you or Ziggy are intentionally picking on government workers, but the rants here suggest that you believe the government workforce is bloated and overcompensated and that this condition is unfair when the private sector is taking on the chin! I merely suggest that that's the way it sounds to me.

 

[eytonxav]

DFW, please excuse my ignorance if I confuse your one-sided rant with an unbalanced approach to this all. It is not self-evident to me that American corporations are the most productive in the world or that our private sector employees are at the top of the game -- there's a lot of excess capacity in the private sector too that simply isn't weeded out by supply and demand. And we all know anecdotal espisodes of corporate welfare.

I don't think that you or Ziggy are intentionally picking on government workers, but the rants here suggest that you believe the government workforce is bloated and overcompensated and that this condition is unfair when the private sector is taking on the chin! I merely suggest that that's the way it sounds to me.

Sorry that this discussion seems to have struck a nerve with you, but I will agree with this part of your diatribe "you believe the government workforce is bloated and overcompensated".

 

[ziggy29]

I don't think that you or Ziggy are intentionally picking on government workers, but the rants here suggest that you believe the government workforce is bloated and overcompensated and that this condition is unfair when the private sector is taking on the chin! I merely suggest that that's the way it sounds to me.

I simply think there has been a rather significant divergence over the last 10-15 years that can't be sustained and can't really continue. I'd much prefer we address that by reversing the slide of the private sector instead of taking down the public sector, but we can't continue down the same road we've been following since the 1990s.

Unfortunately it's hard to make that point without many public sector pensioners and plan participants automatically assuming you are scapegoating *them* or feeling like you are trying to take something away from them. I won't deny that some folks are doing that, but wanting to advocate for the private sector isn't the same thing as wanting to take the public sector down. Hell, I'd love to have at least "held serve" in my real income instead of seeing it drop probably 12% in the last six years -- that would make it a lot easier for me to feel like I could still afford to allow others to hold serve, too. I'd prefer that a LOT more than seeing anyone else's benefits taken away or watered down.

In summary -- I don't know how we get there, but unless the slide of the private sector middle class can be reversed, I don't know how this issue can be defused.

 

[GregLee]

Given the woeful financial ignorance of a large percentage of Americans, how can you be sure that union leaders were "fully aware" the funding was inadequate? They aren't actuaries.

I'm pretty sure. If not actuaries themselves, those union leaders can hire actuaries. Just because the average American is a dope doesn't mean every union leader is. I said above that in Hawaii, the unions were well aware of the government's raiding the pension funds, and I referred to the lawsuit of 2002 which sought (vainly) to prevent that from continuing. Thinking that you did not read this, or simply didn't believe me, I've looked up a couple of news articles chronicling the suit from the police union, Lawsuit to test raid of state pension fund | The Honolulu Advertiser | Hawaii's Newspaper, and the interesting follow up of the Hawaii retirement system itself joining that suit: ERS joins pension fund lawsuit against state | The Honolulu Advertiser | Hawaii's Newspaper.

 

[donheff]

I don't think that you or Ziggy are intentionally picking on government workers,

Right about Ziggy but wrong about DFW witness his riposte:

I will agree with this part of your diatribe "you believe the government workforce is bloated and overcompensated".

 

[W2R]

In summary -- I don't know how we get there, but unless the slide of the private sector middle class can be reversed, I don't know how this issue can be defused.

What about the slide of every sector of the middle class?

"Divide and conquer" is a great strategy for those who might benefit in one way or another from the confusion that results within the bourgeoisie.

 

[ziggy29]

What about the slide of every sector of the middle class?

"Divide and conquer" is a great strategy for those who might benefit in one way or another from the confusion that results within the bourgeoisie.

The problem is that it feels like there's a disconnect between GDP, corporate profits and what we have endured for the last few years. I just don't know how one can address that in the private sector without more government control than I find desirable, but at the same time if it continues the current "confusion" and disconnect may only grow, and it is indeed a good way to keep one segment of "ordinary folks" too mad at each other to come together and address the root of the problem -- which serves neither interest well in the long term.

I don't claim to be smart enough to have the answers there. But I think I am smart enough to recognize that it will be hard to endure many more years of diverging fates -- AND that ordinary people treating each other as the problem will solve nothing and will just make a lot of bitter people.

 

[FIRE'd@51]

It turns out many employee pension funds were well funded until corporate cost cutters raided them to the benefit of top execs and CIOs many times legally (although immorally) and often illegally.

Hasn't the combination of low interest rates and low equity prices played the major roll in causing pension plans to become underfunded?

 

[ChrisC]

Sorry that this discussion seems to have struck a nerve with you, but I will agree with this part of your diatribe "you believe the government workforce is bloated and overcompensated".

It's not the discussion that has struck a nerve with me, but it's the attitude you appear to convey that underlies your hypothesis that the government workforce is bloated and overcompensated based on the limited, anecdotal case you mention about your wife's public sector colleagues. It's like me suggesting that Steve Jobs was a doofus and a dope based on his championing of the Apple Lisa! We all know of waste and inefficiency in public and private sectors; and big corporations like big government agencies are typically very slow to react to pockets of inefficiency and unproductivity.

Not sure I engaged in a diatribe; I thought I was really responding to the one you initiated.

 

[Gumby]

Chris, I think the productivity improvements made by corp american can be readily comfirmed with gov't data and the US is certainly one of the most productive countries in the world. If that is not self evident to you, I am not going to waste time trying to educate you.

Again, I think Ziggy tried to point this out to you already, but you do not seem to getting the message. We are not trying to pick on the govt workers themselves or take away from what they have been promised, its the system that needs to be fixed going forward, not the workers!!!!!!

Edit: Also, fyi, I have railed several times on this forum about exec compensation abuses and outsourcing.

I think this graph shows that productivity has indeed greatly improved over the past 30 years, but the income gains from that improvement have been captured by capital, not labor. If private sector workers want to find out who stole their cheese, the holders of capital would be a good place to look, not the public sector workers.

Edit to add: This is the most recent graph I could easily find. My feeling is that a more recent one would only show more of the same.

 

[clifp]

I simply think there has been a rather significant divergence over the last 10-15 years that can't be sustained and can't really continue. I'd much prefer we address that by reversing the slide of the private sector instead of taking down the public sector, but we can't continue down the same road we've been following since the 1990s.

Unfortunately it's hard to make that point without many public sector pensioners and plan participants automatically assuming you are scapegoating *them* or feeling like you are trying to take something away from them. I won't deny that some folks are doing that, but wanting to advocate for the private sector isn't the same thing as wanting to take the public sector down. Hell, I'd love to have at least "held serve" in my real income instead of seeing it drop probably 12% in the last six years -- that would make it a lot easier for me to feel like I could still afford to allow others to hold serve, too. I'd prefer that a LOT more than seeing anyone else's benefits taken away or watered down.

In summary -- I don't know how we get there, but unless the slide of the private sector middle class can be reversed, I don't know how this issue can be defused.

I'm not sure how the middle class slide can be reserved or even to some extent if it should. As a nation we borrowed much more than produced over the last decade both individually and through the government.

The people who we borrowed the money from are roughly a billion folks in India and China, who 20 years ago were barely surviving on subsistence level agriculture. They have spent the last 10 year working very hard in factories, call centers etc. at wages that were much too low. But the wages were still high enough to allow these people a taste of western life, meat a few days week, store bought clothing, indoor plumbing, a bicycle, and a luxury item or two like cell phone, or iPod. The Chinese, India worker isn't going back to the farm.

We need to pay these people back, through some combination of higher inflation, higher taxes, lower consumption, lower wages and harder work.
The giant national block party is over, and we need to clean up, it is not all that productive to argue that me and my friends only had 3 beers, so we are going to only dispose of three beer bottles. The guy in the hospital that went through a case, and some shots isn't in a position to help out.
Somebody has to clean up his mess.

It also isn't very productive to point to big corporation and CEOs and say these guys should pay. These companies aren't American and WE don't own them. The Coke CEO is Turkish and the Pepsi CEO is Indian these people don't owe us a damn thing, other than next time we go on a binge to cut us off sooner.

 

[W2R]

I think this graph shows that productivity has indeed greatly improved over the past 30 years, but the income gains from that improvement have been captured by capital, not labor. If private sector workers want to find out who stole their cheese, the holders of capital would be a good place to look, not the public sector workers.

Edit to add: This is the most recent graph I could easily find. My feeling is that a more recent one would only show more of the same.

+1 Well said and well illustrated. (emphasis by bolding in the above is mine)

 

[FIRE'd@51]

I think this graph shows that productivity has indeed greatly improved over the past 30 years, but the income gains from that improvement have been captured by capital, not labor. If private sector workers want to find out who stole their cheese, the holders of capital would be a good place to look, not the public sector workers.

I think it's hard to generalize from these types of graphs. My question is who contributed more to the increased productivity? Likely it wasn't the median worker. A large part of the increased productivity occurred from technology. Those skilled in this area (both in the private and public sectors) have seen their incomes rise considerably more than the median.

 

[eytonxav]

Right about Ziggy but wrong about DFW witness his riposte:

Saying I believe the govt workforce is bloated and over compensated is quite a bit different than intentionally picking on gov't workers.

There is a lot to pick on these days and its not just the gov't sector. I don't like and have picked on excessive executive compensation, the outsourcing of jobs, and the laying off of perfectly good workers just because the company will not make next quarters numbers. I don't like the lack of opportunity for the younger generation. I don't like a gov't that is in gridlock due to its inability to work for the common good. I don't like the shenanigans from wallstreet or the wrong doers getting off unscathed. I don't like education and healthcare costs that increase exponentially. I don't like working 60 - 70 hour weeks for pay that doesn't even keep up with inflation, and hearing workers told, if you don't like it there's the door.

This thread seemed to elude that the govt sector pay/benefits is part of the cause for the mess we are in and I do not think its unreasonable to mention that, and and if anyone thinks that such pay and benefits should not be questioned or scrutized, please speak up. While all of these comments are generalizations and may not apply to your situation, I do believe the mess we are in has largely been caused by the politicos and officials, and their legislation that has created these schemes that we hold sacred, has caused whats happening in all sectors private and public, both intentionally and unintentionally.

If any of these comments makes you feel picked on, welcome to the club, because its been going on for a long time on the other side of the fence. We are not in Kansas any more Toto, and we have big mess to clean up that is going to require everyone sharing the pain, thats inevitable.

Now, I apologize if anyone took my comments as intentionally trying to pick on you. I do not want to see any promises made to anyone, public or private, get cut or eliminated. However, the system must be fixed going forward so that it is fiscally viable and sustainable.

 

[samclem]

If private sector workers want to find out who stole their cheese, the holders of capital would be a good place to look, not the public sector workers.

The price of labor and capital are both subject to market forces, obviously there's no "right" price for either one aside from that. Any graphs looking strictly at US pay and productivity and not including worldwide figures is going to miss the point. US labor has been subject to increasing worldwide competition. Yes, US labor is still among the most productive in the world, but only when looked as "production per labor hour." The metric of more importance to businesses is "Production per labor cost" and the US has been slipping in that department relative to our competitors for quite some time (looking for graphs now).

 

[eytonxav]

The price of labor and capital are both subject to market forces, obviously there's no "right" price for either one aside from that. Any graphs looking strictly at US pay and productivity and not including worldwide figures is going to miss the point. US labor has been subject to increasing worldwide competition. Yes, US labor is still among the most productive in the world, but only when looked as "production per labor hour." The metric of more importance to businesses is "Production per labor cost" and the US has been slipping in that department relative to our competitors for quite some time (looking for graphs now).

I agree with that metric, but if we keep slipping on the labor cost side here in the US, the trend will reverse and forgein competition is going to be in trouble, and no one in the US will like how that feels.

 

[traineeinvestor]

The price of labor and capital are both subject to market forces, obviously there's no "right" price for either one aside from that. Any graphs looking strictly at US pay and productivity and not including worldwide figures is going to miss the point. US labor has been subject to increasing worldwide competition. Yes, US labor is still among the most productive in the world, but only when looked as "production per labor hour." The metric of more importance to businesses is "Production per labor cost" and the US has been slipping in that department relative to our competitors for quite some time (looking for graphs now).

Here is some data: ftp://ftp.bls.gov/pub/suppl/prod4.prodsuppt02.txt

The table shows economic output per employed person for selected countries. While the US numbers have improved significantly (possibly due to technology and simply working longer hours), some other countries have shown much bigger increases and are now more productive than the US (e.g. Czech Republic, South Korea and Taiwan). A number of other countries have reached levels of productivity which are similar to the US (Japan etc). China and India are not in the table, but I would be amazed if productivity per employed person was not also rising sharply in those countries as well.

The table is a good illustration of the increasing global competition which developed nations such as the US and UK have experienced and will continue to experience.

Although the table does not address cost, adjusting for comparative GNP per person (or similar) would give a rough idea of the cost per unit of economic output. Given that most of the countries in the table have lower GNP per person numbers, the likely conclusion is that US economic cost of economic output is on the high side.

 

[traineeinvestor]

The people who we borrowed the money from are roughly a billion folks in India and China, who 20 years ago were barely surviving on subsistence level agriculture. They have spent the last 10 year working very hard in factories, call centers etc. at wages that were much too low. But the wages were still high enough to allow these people a taste of western life, meat a few days week, store bought clothing, indoor plumbing, a bicycle, and a luxury item or two like cell phone, or iPod. The Chinese, India worker isn't going back to the farm.

And they can't - there simply aren't enough "jobs on the farm" to employ more than a very small fraction of the workers who have migrated to the cities in search of a better life (failing which just the means to support themselves) - a combination of productivity increases and population growth.

If the "middle class" is loosely defined as having the economic means to support yourself (and family where applicable) to a reasonable standard and have a meaningful amount of income left over for discretionary spending, then on a global basis the middle class is stronger than it has ever been - declines in developed nations like the US and Western Europe bing offset by the huge numbers joining from developing nations like China and India. Working out what these people want and how to provide it to them is increasingly important to consumer orientated companies. Unfortunately, manufacturing in places which have high production costs, high taxes and regulations which adversely impact competitiveness isn't the answer.

 

[samclem]

I agree with that metric, but if we keep slipping on the labor cost side here in the US, the trend will reverse and forgein competition is going to be in trouble, and no one in the US will like how that feels.

It will be a looooong time before foreign labor rates (going up) meet US rates (going down). And when that happens, the good news is that US pay will stop falling. Of course, US labor rates won't need to fall to parity with foreign rates if other factors make it best for companies to produce items (and maybe put/keep their HQs) in the US. Things like capital costs, strength of contract law, safety/security, government stability, taxes, real estate prices, workforce quality, etc also play a role.

 

[MichaelB]

I think this graph shows that productivity has indeed greatly improved over the past 30 years, but the income gains from that improvement have been captured by capital, not labor. If private sector workers want to find out who stole their cheese, the holders of capital would be a good place to look, not the public sector workers.

Edit to add: This is the most recent graph I could easily find. My feeling is that a more recent one would only show more of the same.

For 20 years (’80 – ’00) yes. If we look at the past 10 years we will see something different. Productivity increasing, little of it captured by capital (S&P is flat) and declining median wage. Total household wealth falling due to loss in housing worth. Yet the GDP is higher. Compensation and profits continue to grow but tax revenues are falling as a % of GDP.

Lack of reinvestment is probably the driving force. The benefits of productivity have been used to invest elsewhere, not in the US. This results in falling demand which leads to a labor surplus which drives down the cost of labor even more. Deficient internal demand and falling labor prices can become a self-sustaining economic trend, especially when burdened by debt.

 

[52andout]

Lack of reinvestment is probably the driving force. The benefits of productivity have been used to invest elsewhere, not in the US. This results in falling demand which leads to a labor surplus which drives down the cost of labor even more. Deficient internal demand and falling labor prices can become a self-sustaining economic trend, especially when burdened by debt.

Most of the factories around me have closed and are outsourcing their production to China, or relocated to Mexico, and call centers are often out of the US.

Try to find a toy made in the USA in any large toy or department store. It is almost impossible to find a doll not made in China. People want to go to Wallyworld and buy a doll and a cart full of junk, rather than buy one quality item made in the USA. Same goes for clothes- go to any popular store and look at the tags. And cars. Our local dealerships all closed but we have a huge Kia dealer where the Ford and Chevy dealers once were. One of our friends was just laid off from a auto factory which is now making cars in Mexico from parts made in China. Same is true with help desks and call centers. I always ask where I am calling and they will tell you. India is a big one.

I don't know how to change this. I personally don't want to live in a house full of junk made in third world countries so rarely shop. But when I pass all the big box stores on the way to the YMCA the parking lots are full.

What the general trend is we all want good wages for ourselves but don't want to pay someone for goods produced by someone earning a living wage and getting good benefits.


We have met the enemy and we are it.

 

[samclem]

What the general trend is we all want good wages for ourselves but don't want to pay someone for goods produced by someone earning a living wage and getting good benefits.

Most of those workers in China, India, Vietnam, etc are earning more money than their parents ever dreamed of earning. They are earning a living wage and geting good benefits--on a relative basis. The working conditions and pay are not up to US standards, but these folks are happy to have these opportunities. Working conditions used to be terrible in Taiwan and South Korea, now they are much better. China and India will follow suit. It's a huge success story when viewed from a worldwide perspective.
Those Kias being sold near you? Many are made in West Point, Georgia--USA.

 

[52andout]

Most of those workers in China, India, Vietnam, etc are earning more money than their parents ever dreamed of earning. They are earning a living wage and geting good benefits--on a relative basis. The working conditions and pay are not up to US standards, but these folks are happy to have these opportunities. Working conditions used to be terrible in Taiwan and South Korea, now they are much better. China and India will follow suit. It's a huge success story when viewed from a worldwide perspective.
Those Kias being sold near you? Many are made in West Point, Georgia--USA.

you are so correct about the workers in China etc. but how does that help the American worker and the fact they are seeing their pension slip through their fingers? In case you did not notice Social Security and Medicare are on the chopping block. What we always though we were going to get is vaporizing. For those who have state pensions I wish that you will receive what you thought you would.

And those jobs in Georgia. Fantastic for those that were able to land one.

Kia Plant Provides Jobs In Georgia : NPR
"Wages for Kia workers range from $15 to $21 an hour"

It would have been extremely difficult for us to educate our children, pay off our mortgage and have the level of financial independence we have on that salary.

 

[kombat]

After working over 20 years, putting in many extra hours, and CONTRIBUTING 6% OF MY OWN SALARY to my pension, I don't think the 30% pension I will be getting is excessive.

Look at it from the perspective of someone WITHOUT a pension. What percentage of their own income would they have to save and invest in order to get a comparable benefit (an income stream equal to 30% of their final salary, indexed to inflation, guaranteed for life)?

If the answer is "6%," then you're right, and such a pension is not excessive at all. If it's "a little more than 6%," then it gets a little more debateable, but still hardly what any reasonable person would call "excessive."

The truth, of course, is that the regular person would in fact have to save far, far more than 6%. If a regular Joe enjoyed the same salary as a worker with the pension you describe, and saved 6% of his salary in retirement accounts that earned an average of 8% return, plus got regular 3.5% annual salary increases, then at a standard 4% SWR, the resulting nest egg would replace less than 10% of his final salary (and be empty after 30 years, compared to your "guaranteed for life" pension).

So I think a case can be made that a lifetime guaranteed benefit that replaces 30% while costing only 6% contributions is indeed excessive, and far more generous than the vast majority of working Joes can expect to enjoy in retirement.

 

[samclem]

you are so correct about the workers in China etc. but how does that help the American worker and the fact they are seeing their pension slip through their fingers?

And how does looking back at the golden years help those people who are now losing their pensions? We can wring our hands about it, but those days (of a US HS grad regularly pulling down a paycheck big enough to keep a family in the middle class) are gone.

Kia Plant Provides Jobs In Georgia : NPR
"Wages for Kia workers range from $15 to $21 an hour"

The very next line from that report:

And there are plenty of people who want the jobs, says Kia executive Randy Jackson.

That tells me they are paying enough, and certainly all they are going to pay.

The world changed--back to the way it has always been.