The subject book was published, before the stock-market crash, in 2008. Its subtitle is descriptive of the content: “How pension debts ruined General Motors, stopped the NYC subways, bankrupted San Diego, and loom as the next financial crisis.”
At the very end of the book, the author quotes Lee A. Iacocca as saying, “Corporations, unions, and government – the three of us – were to blame. If further catastrophe is to be avoided, all three parties must mend their ways.” In my mind, the next obvious question is, “How?”
I chose to read this book thinking that it should help reinforce the reasons behind my actions – the path I have been taking since the year 2000 – as I prepare to publish my book #2, chronicling trials, tribulations, and triumphs (?) in dealing with the very issue about which Mr. Lowenstein addresses. Having just finished reading it, I appreciated the insights provided into each of the case studies. After the amount of research and effort he put into documenting and explaining the depths of these problems, however, I was surprised with what he came up with his “Conclusion: The way out.” His proposed solutions are essentially non sequitur.
Here are some thoughts, starting out with a brief background about myself – so that you get a feel for why I think the way I do.
My MBA thesis, which addressed the U.S.-Japan trade relationship, opened the door to my employment at Chrysler in 1984. I am an adult immigrant from Japan, and my dissertation was highly critical of Mr. Iacocca (then Chairman of Chrysler) on his public handling of the trade issues with Japan. Never in a million years did I think that I would be offered a job from the company, let alone being introduced to Mr. Iacocca within six months of employment. My career lasted for 20 years – until I finally mustered the courage to leave in 2004, shaking loose from what is known in the industry as “the golden handcuffs.” I left the company to secure my own financial future rather than rely on pension and Social Security income during retirement.
Let me back up a bit. In 1999, for the first time, I saw the inkling of the threat about my financial future in retirement. My husband and I were already empty nesters, both of us still gainfully employed (at General Motors and Chrysler respectively), 100% debt free with no mortgage, and continuing to save most of our earned income in 401(k) plus other retirement vehicles. I did everything by the book. I was convinced that I was well-prepared for a worry-free retirement – all the while Social Security taxes having been withheld from my paycheck every month as well. Yet, as the world began to change, I began to realize that most of what I had learned in formal schools, both in Japan and in the U.S., did not prepare me for what was to come.
Money is a uniquely human creation. Whether we like it or not, no one can escape from being impacted by it. Seeing that there are those in the world who do control money at the expense of millions of others, it seems criminal that schools purposely avoid teaching the subject of money and investment, keeping the majority in the dark.
In 1999 – 2000, despite my monthly contributions into 401(k), the account value kept going downhill every single month. It was as if my money was being sucked into a black hole. This was about the time when I began paying closer attention to what was happening and noticing some warning signs. My unpleasant conclusion was that I could not rely on pension or Social Security to be there when I will need the income from them the most – in my old age. I felt that I had no choice but to start finding a way to adapt on my own. I was 50 years old.
Enough about me. Let’s get to the point about WHY I vigorously disagree with Mr. Lowenstein’s “Conclusion: The way out.” His solution is “government” and I am utterly puzzled by his assertion. Why?
In every single one of his case studies, covering both private and public sectors, he is describing the colossal failures caused by human nature. Yet, it is as if he refuses to see “human nature” as the root cause of the problem having been created by those in leadership positions. At its core, “human nature” is preservation of one’s best interest above all else. As a result of human nature having been left unchecked among decision makers, millions of baby boomers, including myself, are having to live with the consequences of their decisions today. And they are not even held criminally liable for their actions. Yet, in presenting “government” as the solution to the catastrophic failures of leadership, Mr. Lowenstein says:
- “Business will have to face the fact that if it is unwilling to shoulder the burden, it must allow government to do so.”
- “Unions must recognize that the Treaty of Detroit no longer protects workers as much as it prices them out of the labor market.”
- “Politicians will have to look past the next election, and truly toward the ‘future’ of which they so often speak.”
It is as if the author thinks that, somehow, “government” (which, by the way, is made up of humans) is the panacea to solving the problem as if “government” were devoid of the fallacies of human nature. The author notes that “Congress, if it chose, could reduce or cancel Social Security benefits tomorrow. Pensions are forever.” A blatant example of human nature being at work by those in the government.
Private-sector companies are already doing away with pensions for their employees. This is a natural outcome after what had happened in the automotive, airline, steel and other industries, just to name a few. This is market’s natural reaction to what did not work. Government-subsidized pensions, on the other hand, remain intact no matter what. And tax payers are at the risk of having to foot the bill for the mistakes made by those who cared most about what was in it for them. In every single case that Mr. Lowenstein researched, human nature was at work.
It is local, state, and federal governments that create laws. “Law makers” get paid by creating laws – many of which are unnecessary, or worse, harmful to the general population. Yet, they do what they do because that’s the only way they can justify their existence and paychecks. Human nature is at work.
Law makers are humans. Regardless of how they argue each regulatory proposal and present it to us (the public), at the core, guess whose interest they are most concerned about? Their own, of course! You will see numerous examples of this in Mr. Lowenstein’s book. Human nature is at work.
By the way, human nature being what it is, I have a hypothesis: Congress creates more laws that exempt itself (government employees) from being impacted by them than not. Or worse, they create their own retirement benefits and vote them in unanimously. Human nature is likely to be at work. I hope I’m wrong.
In any case, laws that are created with the best of intentions almost always end up in fiscal disasters with unintended consequences for millions of people. Just to name a few:
- Social Security, signed into law in 1935 after the Great Depression
- Medicare, signed into law in 1965
- Pension Benefit Guaranty Corporation (PBGC), created in 1975
As referenced in my July 2016 blog, “Why are millions, world over, struggling today,” Social Security and Medicare accounted for 41% of federal spending in 2015, up from 36% in 2011. Based on this trajectory, it won’t be long before over 50% of the federal spending will be allocated to Social Security and Medicare – neither of which existed prior to 1935. Think about the magnitude of this madness, which our future generations are having to inherit – unless something drastic is done about it. No politician wants to address Social Security and Medicare, however. Why? If they did, their career would end quickly due to overwhelming oppositions by those who are receiving benefits today. Every one of us, who paid into the system, feels that we are entitled to these benefits. I’m afraid that the status quo will continue until the system collapses of its own weight. Human nature is at work among both the beneficiaries and politicians.
Seeing example after example of human nature at work in “While America Aged,” with horrific consequences to the aging population in terms of pension benefits (or lack thereof), the solution to the problem of pensions is perhaps not so much who can fix it but, rather, HOW human nature can be used to help solve the problem.
Question: How do you control human nature? Answer: Like weather, there is no way to control it. Whether it is good, bad, or indifferent, human nature will ALWAYS remain what it is. So, the real question is, “How do we use human nature, with which everyone is endowed, to everyone’s advantage?”
Again, I disagree with the author if his proposal were for the government to “control” the pensions. As we have seen case after case in Mr. Lowenstein’s book, by nature, this would let those in the government devise ways to protect their own future more than that of the public. If the author were truly interested in figuring out how best government can help fix the problem, I propose that it would be in terms of providing the public with mandatory education on “how to manage money and investing” and, thereafter, let each individual figure out how best to protect their own financial future. After all, most individuals (excluding those in special-needs cases) are all equipped with human nature to see what is in their own best interest. After receiving such education, if students (young and old) choose to ignore their individual responsibility, then they are forfeiting their own future. It’s not the businesses; it’s not the unions; it’s not the government; and it’s certainly not other taxpayers that are causing them harm. It’s the individuals themselves. They will have no one to blame but themselves.
In the year 2000, I recognized that I had no choice but to begin educating myself in terms of how to deal with the new financial reality in retirement. Along the way, I have discovered that educational expenses are tax deductible if you’re already in the profession and furthering your knowledge. So this is what I would recommend based on my experience as an investor. (Disclaimer: I am neither an attorney nor a CPA. You must seek professional guidance before implementing the steps below.)
- Figure out what you love doing the most.
- Figure out how to monetize what you love doing.
- Make money doing it.
- From there, any additional training related to that profession will be tax deductible.
- Keep making more money doing what you love the most!
In my case, I did not know that I would end up enjoying investing in real estate. It was simply something I thought I had to do. I have been learning a lot about it at my own expense. Such large, out-of-pocket, tax-deductible expenses are nothing, however, compared to what the Greatest Generation of Americans gave up during World War II so that we, the baby boomers, could live in a peaceful world. It seems to me that it is our turn to figure out a way to leave the world a better place than how we have found it for the next generation of Americans. I would, therefore, be a proponent of an educational program (or perhaps a voucher program), which helps every individual become financially independent at his or her own discretion. This requires no additional regulatory changes; tax codes are already there to help encourage individuals become financially independent.
Happy investing!
