Riding Into the Sunset
Fogel's optimism sounds eccentric amid the gloom and doom of the Social Security debate and the more threatening deterioration under way in private pensions and personal savings. Fogel skips over the snarled facts of current politics. He thinks big-picture and long-term. He won the Nobel Prize by producing unorthodox economic history that traced the deeper shifts in demographics and living conditions across generations, even centuries. His thinking is especially provocative because the conclusions collide with both left and right assumptions. Fogel is a secular Democrat, yet he extols the conservative evangelical awakening as a valuable social force. He sounds alternately conservative and liberal on economic issues, yet he thinks government should engineer a vast redistribution of financial wealth, from top to bottom, to insure equitable pensions for all.
Fogel's solution is a new national pension system alongside Social Security--a universal "provident fund" that requires all workers to save a significant portion of their wage incomes every year to provide for their future. He proposes a savings rate of 14.7 percent (though taking Social Security benefits and taxes into account, a lower rate would suffice for a start). The contributions would be mandatory but set aside as true personal savings, not as a government tax. The accumulating nest eggs would belong to the individual workers and become a portable pension that goes with them if they change jobs, but the wealth would be invested for them through a broadly diversified pension fund. Employers would no longer be in charge (though they could still contribute to worker savings to attract employees). The government or independent private institutions would manage the money, investing conservatively in stocks, bonds and other income-generating assets while allowing workers only limited, generalized choices on their investment preferences.
The concept resembles the forced savings plans adopted in some Asian and Latin American countries, but Fogel's favorite prototype is American: TIAA-CREF, the pension system that exists for nearly all college professors (a nonprofit institution founded in 1917 by Andrew Carnegie). Another model could be the government's own Thrift Savings Plan, which manages savings wealth for federal employees. Lifelong healthcare, Fogel adds, could be guaranteed for all by setting aside another 9.8 percent from current incomes. "If you take the typical academic, we all have TIAA-CREF," he explains. "The universities require of us that we invest anywhere from 12.5 to 17.5 percent of our salaries in a pension fund--mandatory--but it's all in my name. I can leave it to whomever I want. It has entered my sense of well-being for many years. The fund has earned about 10 percent a year since the 1960s, so retirement is not a burden to the university."
Obviously, people with low or even moderate incomes could not afford such savings rates, and even diligent savings from their low wages would not be enough to pay for either retirement or healthcare. Fogel has a straightforward solution: Tax the affluent to pay for the needy. A tax rate of 2 or 3 percent, applied progressively to families in the top half of income distribution, could finance the "provident fund" for those who can't pay for themselves. "This is a problem, not of inadequate national resources, but of inequity," he observes.
Fogel's big thinking--a system of compulsory savings, with the federal government taking charge--sounds way too radical for this right-wing era, and probably even most Democrats would shy away from the concept. But keep Fogel's solution in mind as we examine the sorry condition of retirement security. The current political debate is not even focused on the right "crisis," much less on genuine solutions. It is not Social Security that's financially threatened but healthcare and the other two pillars of retirement security--employer-run pension plans and the private savings of families. Many millions of baby boomers realize as they approach the "golden years" that they can't afford to retire at all, much less retire early. They will keep working because they lack the wherewithal to stop. Retiring for them would mean a drastic fall in their standard of living. Fogel's vision of expanding leisure and greater human fulfillment is actually receding at the moment. The time for big ideas is now.