Privitize Retirement?

The financial industry is a creature of government regulation, but a lot more statism would be required to make it serve in the interest of the median saver.  Matt Yglesias explains some problems in the 401(k) industry:

• Poor people get absolutely nothing.
• Wealthy people who would have had large savings anyway get a nice tax cut that offers no meaningful incentive effect.
• For people in the middle, the quantity of subsidy you receive is linked to the marginal tax rate you pay—in other words it's inverse to need.
• A small minority of middle class people manage to file the paperwork to save an adequate amount and then select a prudent low-fee broadly diversified fund as their savings vehicle.
• Most middle class savers end up either undersaving, overtrading, investing in excessively high-fee vehicles or some combination of the three.
• A small number of highly compensated folks now have lucrative careers offering bad investment products to a middle class mass market based on their ability to swindle people.

Kevin Drum elaborates:

...it's simply a fact that a great number of 401(k) funds are extremely poorly suited as retirement vehicles and suck up far more in fees than can possibly be justified.
But the news is even worse than that! Last year the Labor Department issued new rules that forced funds to disclose their fees in an easily understood manner. The idea was that if they're going to rip you off, at least now you'll know how much they're ripping you off and maybe switch to a more honest fund. But it didn't do much good:

After the new fee disclosure statements went out, roughly the same percentage—half!—of participants said that they still do not know how much they pay in plan annual fees and expenses, according to a recent survey by LIMRA, an association of insurance and financial services organizations.
....For those 401(k) participants who said they thought they knew how much they paid in fees, most of them were way off base. One out of four participants thought they paid 25% or more in fees, 16% thought they paid between 10% to 24% in fees, and 30% thought they paid between 2% and 9% in fees. Only 28% of participants thought their fees were less than 2%.
That group is the closest to reality. On average fees and expenses range between 1 to 2 percent, depending on the size of the plan (how many employees are covered) and the employees’ allocation choices (index funds versus actively managed funds), says LIMRA.

Basically, this suggests that people have no idea what "fees" even means, which bodes ill for the power of disclosure to have any effect. If you think that 2 percent is really low, then you're getting ripped off even though you do know the fee structure of your fund.
The era of the defined-benefit corporate pension is gone, and it's not coming back. People switch jobs too frequently for it to work anyway. The only real options are either private plans like 401(k)s, which ought to be reformed to make them better, more honest retirement vehicles, or higher Social Security payments. Most likely, both. The former would help the middle class and the latter would help the poor and the working class. The upper middle class and the wealthy can fend for themselves. They're doing pretty well already.

In addition, most people don't save enough anyhow on their own volition, so some kind of forced savings (or taxation) is the only way to keep the majority of elderly out of poverty.  The only way to prevent widespread poverty among the elderly is some kind of paternalism.  But market-based paternalism figures out ways to exploit the vulnerable rather than protect them. 

How Efficient is Charity?

At one time many people actually believed in the divine right of kings.  This was a belief that the king was the best possible person to rule a country because the kind was selected by God.  Today we find it improbable that the first-born son of a monarch would happen to be the best person in a nation at governing it because even if the present king is a great ruler (and few were), the skills of governance are not inherited well.  We no longer expect that political and managerial skill is passed from father to son just as we don't expect that the greatest basketball players' kids will inherit their place on their
professional teams.  But if someone has the skills (or luck) to become rich, does that correlate with the skill to create public goods well?  Why should we even expect the rich to be good at creating public goods.  For example, rich athletes fare poorly at philanthropy.  Many of their foundations serve more as a means to bring in donations and publicity than as a means for helping others.  The Boston Globe found that: 

...many nonprofits that help burnish the reputations of pro athletes fall well short of [recommended minimum standards for philanthropic foundations], the Globe review found. Among the 50 nonprofits examined, nearly half spent less than 65 percent of revenues on charitable programs and donations.
For example: New England Patriots receiver Deion Branch formed his own foundation in 2006 — the year after he was named the Super Bowl’s most valuable player — aiming to aid children who, like his son Deiondre, suffer from the effects of meningitis. Branch speaks about the cause with obvious sincerity, but just 28 percent of funds raised went to charitable efforts between 2006 and 2009, before revenues dropped to a level where the foundation was no longer required to submit full financial reports. Half of the money given to charity was directed toward initiatives unrelated to meningitis, such as supplying sports equipment to schools.
A foundation started by New York Yankees third baseman Alex Rodriguez gave only 1 percent of proceeds to charity during its first year of operation in 2006, then stopped submitting mandatory financial reports to the IRS and was stripped of its tax-exempt status. Yet the group’s website still tells visitors the A-Rod Family Foundation is a nonprofit organization.
When Baltimore Ravens receiver Anquan Boldin won a team award for charity and volunteerism in 2010, his nonprofit gave away less than a fifth of the money it raised. A celebrity golf tournament ate up most of the funds.

Beckett’s bowling event does the same. And though the Beckett Bowl is the only event on the foundation’s yearly calendar, the organization has consistently reported to the IRS that executive director Jason Oberle, Beckett’s boyhood friend, devotes an average of 20 hours per week to foundation-related work, on top of his other jobs as a luxury real estate agent and president of a sports marketing firm. For his effort, Oberle collected a $50,000 salary from the Josh Beckett Foundation in 2010 ...
But athletes’ foundations often raise surprisingly little money, overspend on fund-raising events, and direct small percentages of revenue toward their stated goals.
“Athletes’ charities are subject to many pitfalls because most of them are not trained in how to raise and distribute money, and it’s difficult,” said Greg Johnson, executive director of the Sports Philanthropy Project in Boston, which has advised Major League Baseball and other sports organizations on charitable best practices. “A lot of them get into expensive golf tournaments and that kind of crap. They can be self-serving as hell.” ...
More often, athletes’ foundations continue to struggle, even as the players are celebrated for their perceived giving.
Boldin’s nonprofit raised $53,005 at its annual Q-Festival in 2010 — the foundation’s sixth year in existence — but spent $46,879 staging the three-day event, which included a golf tournament at the PGA National Resort & Spa in Palm Beach Gardens, Fla.
Though just 17 percent of the foundation’s proceeds went to charity that year, Boldin, who sponsors and supports a number of charitable activities in the Baltimore community, won the Ravens’ Walter Payton Man of the Year Award, an honor for good works he received again this past season. ...
Some athletes’ self-run nonprofits accomplish so little that their chief function appears to be public relations.
Rodriguez talked openly about his desire to reverse bad publicity in 2006 after being exposed as a member of an underground poker club. He started a foundation and teamed with rapper Jay-Z to host a celebrity poker tournament for charity... The event helped the A-Rod Family Foundation raise $403,862 in 2006, but little found its way to charity, according to IRS records. The foundation gave $5,000 to Jay-Z’s Shawn Carter Scholarship Fund and $90 to a Little League Baseball club in Miami.

 But why should we expect people who happen to be good at sports to be good at philanthropy?  And why would we expect people who are good at making money in business to be good at philanthropy? Sam Walton was a 'self-made' richest man in the world, but neither he nor his wife ever gave much away during their lifetimes.  The six biggest Walmart heirs were still among the richest Americans in 2012 (with more wealth than 42% of Americans combined), and it is even less obvious about what qualifies them to be good at philanthropy.  Even if there were a genetic ability for philanthropy, their parents were bad at it or else they would not still be so rich, and so if anything they have inherited a poor ability to create public goods.  The most famous philanthropic activity of the bunch is the creation of an art museum that has cost nearly a half billion dollars in the Walmart home town of Bentonville Arkansas (population 35,000 when the museum was being built). 

The US government is an insurance company with an army."

The quote in the title originates with Bush treasury official Peter Fisher.  In some ways, the army also serves an insurance function.  It is also ostensibly there to reduce the risk of violence and invasion.  When you look at what government spending is for, most of it is to reduce risk (insurance) and most of the rest of it is to invest in future productivity.  Education and infrastructure are investments and otherwise, the government mainly spends money on health, pensions, defense, and income security (welfare & disability). 
The purpose of government is to fix market failure, and the main fix the median voter wants is to reduce risks. 

National Debt is NOT like Personal Debt

Krugman explains that government debt never has to be repaid and we mostly owe it to ourselves.

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew...

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers... So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

Read the full updated post at Medianism.org

US Socialism In WWII

The military is socialist!  Wars are intrinsically socialist activities and the US reached peak socialism during WWII.  The federal government spent about half of total US spending to fund the war as you can see in the graph below, and the government made many additional regulations and interventions.   

For example, according to the History Channel, in 1944:

...as World War II dragged on, President Franklin D. Roosevelt orders his secretary of war to seize properties belonging to the Montgomery Ward company because the company refused to comply with a labor agreement.
In an effort to avert strikes in critical war-support industries, Roosevelt created the National War Labor Board in 1942. The board negotiated settlements between management and workers to avoid shut-downs in production that might cripple the war effort. During the war, the well-known retailer and manufacturer Montgomery Ward had supplied the Allies with everything from tractors to auto parts to workmen's clothing--items deemed as important to the war effort as bullets and ships. However, Montgomery Ward Chairman Sewell Avery refused to comply with the terms of three different collective bargaining agreements... In April 1944, ...Roosevelt called out the Army National Guard to seize the company's main plant in Chicago. Sewell himself had to be carried out of his office by National Guard troops. By December of that year, Roosevelt was fed up with Sewell's obstinacy and disrespect for the government's authority. (...Sewell's favorite insult was to call someone a "New Dealer"--a direct reference to Roosevelt's Depression-era policies.) On December 27, Roosevelt ordered the secretary of war to seize Montgomery Ward's plants and facilities in New York, Michigan, California, Illinois, Colorado and Oregon.
In his announcement that day, Roosevelt emphasized that the government would "not tolerate any interference with war production in this critical hour." He issued a stern warning to labor unions and industry management alike: "strikes in wartime cannot be condoned, whether they are strikes by workers against their employers or strikes by employers against their Government." Sewell took the fight to federal court, but lost.
For much of the 20th century, Montgomery Ward, ...reigned as one of the country's largest department store and mail-order retail chains.

Average Tax Rates Matter Most For Some Decisions

What is 'marginal' is what is avoidable when you make a decision.  If you decide to work one more hour this year, then the marginal tax rate is what is avoidable.  If you decide what career for the next year, your future average tax rate is what is avoidable.  Garett Jones:

It's often wise to pay more attention to marginal tax rates than to average tax rates.  If you can make your first $100 tax free but the 101st dollar is taxed at a marginal rate of 99% you'll probably decide to earn $100 at most.  

But what is marginal?  When it comes to career choices or the state you'll live in or whether to have an extra child the marginal decision is very big, and a rational person will base that decision mostly on the average long run costs and benefits.  In cases like this, the official marginal tax rate won't matter nearly as much as the long run average tax rate.  

This isn't just a theory: It appears to be true for that most economistic of organizations, the multinational corporation.  When multinationals are deciding which country to invest in, they don't pay that much attention to marginal tax rates.  According to Glenn Hubbard, 

...investment location decisions are more closely related to average rather than marginal tax rates. 

When making the go/no-go decision, corporations care more about their long run tax bill.  That's because the marginal decision is the go/no-go decision.  

...when people are deciding whether to become medical doctors or mere professors, lawyers or struggling novelists, entrepreneurs or Xbox champions, these go/no-go decisions will be shaped by the average tax rate that the rich will have to pay for decades to come. 

...That's just a case of applying Hubbard's idea: the marginal tax rate didn't matter when you chose your career, but the average tax rate--after deductions--mattered enormously.  

In the long run we should worry more about average tax rates. 

Interest group politics and pot

It is always interesting to see how interest groups are lobbying.  It turns out that medical marijuana vendors are lobbying against pot legalization because they prefer to have a special license to sell the stuff and full legalization would result in more competition and lower prices for medical marijuana. The beer lobby is also worried that marijuana will be a substitute and not a compliment for beer.  There is academic research that has demonstrated this.
And casino operators have joined the anti-gambling movement to help fund the political battle against a new casino in Maryland because it would increase competition and lower prices. 
Hat tip Yglesias.