core inflation monetary policy commodities social security

Uncounted food and energy inflation hurts retirees
medicare elderly social contract

The nest-egg myth

Nearly half of today's older Americans receive no income from assets such as stocks and savings accounts. We trim, blend, and append two 2011 articles from (1) MarketWatch, Feb 8, on inflation by Irwin Kellner, and (2) Los Angeles Times, Feb 20, on the nest-egg by Susan Jacoby.

by Irwin Kellner and by Susan Jacoby

One of the biggest canards ever to be foisted on the American people is the notion that removing food and energy from the price indexes provides a clearer picture of inflation.

In reality, it’s just the opposite.

The so-called “core” rate of inflation (the headline price indexes minus food and energy) is grossly misleading. It was designed in the 1970s to take our eyes off what’s really happening to prices so the Federal Reserve could maintain an ultra-easy monetary policy.

There are several reasons why excluding food and energy from any discussion of inflation is misleading.

First, since we all consume food and use energy on a daily basis, what happens to prices of these commodities can and does influence other prices. They do this by affecting attitudes toward inflation -- precisely because they are an everyday staple.

To put it another way, what happens to prices of homes, autos, and even clothing is not as important as what happens to food and energy in terms of affecting the expectation of inflation, simply because most people are exposed to these price changes only infrequently.

As I observed in my column of Sept. 28, 2010, prices of many commodities are already rising rapidly.

Not surprisingly, companies are passing these higher costs along by raising their own selling prices. Some are even beginning to stockpile many goods before their prices go up.

The final reason comes from Milton Friedman, who said time and again that inflation is first and foremost a monetary phenomenon -- and money is what today’s Fed is creating at record rates.

To see the entire article, click here .

Supposedly "greedy geezers" are bankrupting the nation with Social Security and Medicare. The myth is that most old people don't need their entitlements -- that they are affluent pickpockets fleecing younger Americans. This image of prosperous geezers and crones is just not accurate.

Because of financial losses in what will surely be known to history as the Crash of 2008, many boomers -- especially older ones with less time to recover -- may enter retirement in a worse financial position than their parents. Households headed by boomers between the ages of 55 and 65 lost about half of their wealth between 2004 and 2009 as a result of the real estate collapse and the shrinkage of 401(k) retirement accounts. Americans at the lower end of the socioeconomic scale were the hardest hit, because for most lower- and middle-income families, their homes were their only assets.

The wealthier half of working Americans with employers that match contributions have tax-sheltered retirement accounts. The average value of these accounts was only about $45,500 before the crash -- hardly a lavish retirement nest egg for boomers expected to live beyond 85 in unprecedented numbers.

The archetype of the greedy geezer is based partly on a misconception. The statistic that 75% of all assets are owned by people over 65 is utterly misleading, because those assets are held in a minority of very rich hands. Nearly half of older Americans receive no income -- none -- from assets such as stocks and savings accounts. Of those who do, half receive less than $2,000 a year.

It has long been assumed that boomer women will be in a better economic position than their mothers, because more of them held paying jobs. But that assumption may be a fallacy, given the disappearance of traditional fixed pensions during the last three decades and the interrupted job history of many working mothers, which reduces Social Security income.

If we are not going to kill Granny, we must support many more boomer Grannies.

The saving of Social Security and Medicare for the boomer generation -- and generations to follow -- will require nothing less than a reworking of the intergenerational contract on which these programs were based.

The post-1935 intergenerational social contract, which depends on the willingness of young workers to pay for the dependent old, may crumble in the next 20 years unless the healthcare needs of young Americans are also addressed.

What's wrong is not that the old have too much access to healthcare but that the young have too little.

To see the entire article, click here .

JJS: The author proposes higher taxes, however, she misses a crucial datum: the rise in productivity. That is, since it takes less labor inputs to produce the same wealth outputs, the cost of living should be falling, not rising. With a cheaper living standard, it gets cheaper to care for the elderly.

The inflation mentioned above is what hides the actual fall in the cost of living. So we’d have to fix monetary policy if we’re ever to let this desirable sort of “deflation” ever shine through. Don’t let the Fed issues those trillions of excess dollars, don’t let the US Government waste so much public revenue on war and corporate welfare, creating so much inflationary debt -- then prices will fall.

The author also proposes socialized medical insurance. Whether or not that’s a legitimate role of government, should we be letting doctors and pill-pushers charge so much? This is not to suggest a cap on what they charge but to suggest that we make them compete. Let the supply of doctors rise. For instance, let licensed doctors from, say, Europe, work here in America without first having to go back to medical school. And charge full-market value for patents on pills, using the revenue raised to help fund a dividend to citizens.

Another major strategy is to make it easier to save. That is, before people get old and are still working (often too much), don’t tax their wages. Further, lower what they must pay for housing by lowering what they must pay for the land underneath housing, and the way to do that is to recover the socially-generated value of land and resources and use those funds, too, to help finance a dividend to citizens.

Combine all these shifts in tax policy and subsidy policy and you have geonomics. It’s a policy that no generation can do without. The problem for funding our care for the elderly is not a matter of too little money but of too little awareness of our commonwealth.


Editor Jeffery J. Smith runs the Forum on Geonomics.

Also see:

Time to bring financial incentives to Washington

Hit the brakes, Ben -- Danger -- inflation ahead

Simple solutions that can change the world

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