But here is the reality check: We haven't yet nudged ourselves out of a retirement trap. Traditional defined benefit plans have all but disappeared in the private sector, but only 40 percent of American families in the bottom half of the income distribution have any form of private savings plan. And even those who have one, their savings total, on average, is just $40,000.Regular readers would not be surprised that I find the retirement trap to be another general equilibrium problem in the U.S. Believe it or not, $40,000 may sound like a lot to some individuals on fixed incomes. Still, this limited amount can mean hard choices have to be made, in general equilibrium conditions.
For instance, consider someone with $40,000 (other than one's home) who has been retired a decade or so. No outstanding debt, but whose future expenses for (older) home, auto and of course health needs, are uncertain. Which home, auto or health cost concerns, might be reasonable without financial repercussions? With a little luck in the long run, perhaps two out of three maintenance costs will prove viable. One problem with maintenance needs is we don't always get to choose. As a result: for those who are married, substantial healthcare expenses may be an option for only one partner. This is just one of the reasons I advocate for new organizational patterns, re knowledge based services formation.
Decades earlier, higher interest rates provided more assistance in terms of lifetime savings. However, the long term decrease in the natural interest rate, is not something the Fed can remedy by attempting to maneuver a higher interest rate on its own, all the while hoping the economy will "fall in line" with the wishful thinking of policy makers. Broader monetary representation is needed in the form of sustained monetary support, before the natural interest rate can finally rise of its own accord. Timothy Taylor recently asked, "Will the causes of falling real interest rates unwind?", and noted:
Notice that the decline in interest rates is global, which suggests that global economic factors are the driving force rather than national-level economic factors or policy decisions.I would add: the fact this circumstance is global, does not remove the onus from central bankers, in terms of their ongoing responsibility. Their overreaction to what is mostly imaginary inflation at national levels, is now beginning to damage tradable sector activity. Arbitrary inflation caps have already reduced GDP worldwide, which only leaves less room for employment and marketplace capacity in non tradable sectors, on fiscal terms.
As fiscal budgets become more limited, non tradable sectors are responding by emphasizing knowledge product as (supposedly) more important than the value of time based product. However, these losses of aggregate time value in the marketplace, are a hidden supply side contributor to insufficient aggregate demand. Knowledge product - as a substitute for compensated time value - affects broad variations in wage structure which limit marketplace formation. In all likelihood, a dearth of matched time investment (i.e. aggregate time investments versus aggregate employment options), contributes to a low natural (Wicksellian) interest rate.
However, changes are also needed in local and global investment patterns. How so? For lack of a better way to express imbalances in wealth holdings, today's methods for global arbitrage in financial structures are actually too efficient. Consequently, the global "game board" is set up so as to make it possible for the most skilled players to accrue much of its wealth. This is another factor for the lack of overall time value, in relation to other forms of resource capacity.
Rather than attempting to redistribute concentrated wealth - which is hardly easy to do under any circumstance, it would be best to move some game boards for financial activity to local levels. And while global financial structures for tradable goods are positive in that they generate a broader marketplace, the same does not hold always true for non tradable wealth, which needs to maintain strong links to nominal income and time value. Hence non tradable sectors are in need of local financial networks, which can generate internal monetary flows for asset and services formation.
By recreating non tradable sector investment at local levels, those who participate through small wage and income structures, could make their investment options really count. Another important consideration, is that internally held financial structures would provide more liquidity, than what has been possible for those whose savings exist mostly as housing stock.