…Her sales figures are monitored…by the microsecond. By hidden cameras and mics. They listen to her every word; they capture her every movement; that track and stalk her as if she were an animal; or a prisoner; or both. She’s jacked into a headset that literally barks algorithmic, programmed ‘orders’ at her, parroting her own ‘performance’ back to her, telling her how she compares with quotas calculated…down to the second…for all the hundreds of items in the store…which recites ‘influence and manipulation techniques’ to her…to use on unsuspecting customers…that sound suspiciously like psychological warfare. It’s as if the NSA was following you around……and it was stuck in your head…telling you what an inadequate failure you were…psychologically waterboarding you…all day long…every day for the rest of your life.
Mara’s boss sits in the back. Monitoring all twelve, or fifteen, or twenty people that work in the store. On a set of screens. Half camera displays, half spreadsheets; numbers blinking in real-time. Glued to it like a zombie. Chewing slowly with her mouth open. Jacked into a headset. A drone-pilot… piloting a fleet of human drones…pressure-selling disposable mass-made shit…as if it were luxury yachts…through robo-programmed info-warfare…like zombies…to other zombies…who look stunned…like they just got laser blasted, cluster-bombed, shock-and-awed…
Month: April 2015
Borrowing from 401(k) plans and the risks of default
The trouble with saving for retirement is that it’s a long time away. Saving an adequate amount for retirement takes decades of sustained reduction in everyday consumption. Unfortunately, stuff happens on the way to retirement. Savers in the United States may want to buy something, pay off a medical bill, or make renovations to their home. In other words, they may turn to the pile of money they’ve already socked away for their (perhaps not so) “golden years.”
In the past, workers weren’t able to access their retirement savings as it was locked away in defined-benefit programs such as company pensions that paid out a fixed amount each month upon retirement. But with the rise of defined-contribution plans, such as 401(k) plans, savers can now borrow from their personal retirement savings as long as they pay themselves back.
But what factors determine whether savers will take out a loan and how big the loan will be? And what are the consequences of taking out those loans? A new paper by economists at Peking University, the University of Pennsylvania, and The Vanguard Group looks into those questions.
The paper, by Timothy Lu, Olivia Mitchell, Stephen Utkus, and Jean A. Young, looks at how employer policies affects the borrowing behavior of savers in employer-sponsored, defined contribution plans. They look at a five-year period, from July 2004 to June 2009, using data from Vanguard. At first blush they find quite a lot of borrowing going on. At any point in time during those five years, 20 percent of savers in the plan have an outstanding loan. Over the 5-year period, about 40 percent of participants borrowed at one point.
Then they delve into what features of plans cause savers to borrow more from their retirement savings plans. The key feature, according to the paper, is the ability to take out multiple loans from the plan. Some plans only allow a saver to borrow once, but others allow multiples loans over time. Lu, Mitchell, Utkus, and Young find that savers enrolled in plans that allow multiple loans are far more likely to take out loans. In fact, the probability of taking out a loan nearly doubles. More specifically, younger and lower-income savers are more likely to take out loans.
The authors think this is due to workers with the ability to take multiple loans believing that the option is endorsed by their employers. Savers might believe that employers wouldn’t allow for multiple loans unless they thought loans were a good idea.
The total amount of borrowing among those with multiple loans from these retirement savings plans is larger, by about 16 percent, even though the size of each individual loan is smaller. The total loan amount ends up being larger due to a higher number of loans for each saver.
Once these borrowers took out loans, how good were they are repaying loans? About 9 in 10 borrowers repaid loans before they left their job. But for the 1 in 10 that didn’t pay back the loans in time, 86 percent ended up defaulting. The probability of defaulting increased for borrowers with multiple loans, holding the size of the total borrowing constant.
Lu, Mitchell, Utkus, and Young point out that the “leakage” from retirement savings due to these loans and defaults is much smaller ($6 billion) compared to the cash-outs from savers switching jobs ($75 billion). Even still, the case for allowing multiple loans from 401(k) accounts isn’t very strong. Yes, these loans are boosting giving access to credit for borrowers who were constrained. But at the same time, they increase the likelihood of default.
Given the signs of a mounting retirement savings problem in the United States, should policy encourage borrowing from savings for the future?
How Does Ben Bernanke Add Value to Citadel?
Before fees, the performance of Ken Griffin’s Citadel is almost surely above the market’s risk/return line. After fees and since 2007, I doubt it. After fees, investors in Ken Griffin’s Citadel hedge fund appear have lagged the S&P500’s 6%/year nominal return since its peak in 2007. And it is not as though Griffin is selling a greater degree of safety than the S&P500 offers: Citadel came very, very close to blowing up in 2008, and the most I can say is that I do not know what its true beta is.
When Ken Griffin hires Ben Bernanke, what is he buying other than the ability to tell his investors that they are now protected against any kind of blowup that could have been averted by talking more to an ex-Fed chair? And why would Citadel’s investors want to pay for such reassurance?
It is clear to me what the value proposition is for Peter Orszag at Citigroup: I can think of nobody better able to judge market opportunities in the evolving health-care financing system than Orszag. But what is the value proposition for Bernanke?
…[who] put his academic work on the Great Depression to the best possible use when he saved the financial system in 2008, and then went further than any other central banker to try to bring unemployment down. But now he’s putting that expertise to the best possible financial use by signing on to advise the $25 billion hedge fund Citadel…. If hedge funders are willing to pay him $200,000 just to dispense his wisdom over dinner, they’d be willing to pay him a lot more to do so on a regular basis. It’s yet another example of the revolving door between Wall Street and Washington…. Timothy Geithner has joined the private equity firm Warburg Pincus… Jeremy Stein… Peter Orszag… a metronomic quality to it….
It’s hard to blame him. All he’s going to be doing is telling Citadel what he thinks about the economy, and rubbing shoulders with their clients. So it’s even more about boosting Citadel’s prestige as it is about boosting their bottom line…. At the same time, though, it’s a little disappointing that everyone who goes into public service ends up trading in on that to Wall Street…
Must-Read: Jérémie Cohen-Setton: The Critique of Modern Macro
…fail us when we entered the Great Recession?… Paul Krugman writes that ranting about the need for new models is not helpful…. Tony Yates writes that the 2000 Benhabib and Schmitt-Grohe’s paper on the ‘perils of Taylor rules’ is one example of a paper [but there are hundreds] that embraced both nonlinearity and multiplicity…. Noah Smith writes that the favorite macro models didn’t have any finance in them, with the possible lone exception of the Bernanke-Gertler ‘financial accelerator’ models. That was a big mistake…. Olivier Blanchard writes that we all knew that there were ‘dark corners’—situations in which the economy could badly malfunction. But we thought we were far away from those corners…. Mark Thoma writes that all the tools in the world are useless if we lack the imagination needed to build the right models…. Noah Smith writes that if you have models for everything, you don’t actually have any models at all…. Paul Krugman writes that… theory provided excellent guidance, if only policy makers had been willing to listen…
Must-Read: Brian Buetler: Obamacare Opinion Poll: Repeal Popularity Driven by Old People
…the practical implications of full repeal have made it a dead letter among all but the most reactionary conservatives in the Republican Party…. Bloomberg found that only 35 percent of American adults supports outright repeal…. [and] repeal and ‘repeal and replace’ are nearly coterminous…. Repeal is a fringe position… in that those who do support it reside disproportionately on the periphery of the law itself…. Dell Stone, quoted in the Bloomberg article, is a textbook case. Stone, 83, says she ‘certainly hopes’ the law gets repealed…. Stone’s antipathy to Obamacare stems from somewhere, but not from her interaction with the law itself. At 83, her frustrations with out-of-pocket health care costs are at best only tangentially related to Obamacare. She isn’t shopping for insurance on the federally facilitated Alabama exchange. She’s on Medicare. And she probably isn’t unhappy that the law increased her taxes because it almost certainly didn’t….
Among 18- to 64-year-olds—the people who pay for the law, or are eligible for the law’s benefits, or might become eligible for the law’s benefits at some point in the future—Obamacare is breakeven. Among… old people… 36 percent view the law favorably, while 46 percent view it unfavorably…. We shouldn’t give everyone’s views about Obamacare equal weight. The public sentiment animating the repeal movement is derived from people who have a negligible stake in the law, but who would like to throw millions of people off their new insurance plans…. Presumably we’d have no problem ignoring old people if they objected to child tax credits financed by working-age people. We should ignore them in this instance, too.
Must-Read: Miles Corak: “After Piketty”: 12 Policy Proposals
…encouraging innovation that increases the employability of workers, notably by emphasizing the human dimension of service provision. Public policy should aim to reduce market power in consumer markets, and to re-balance bargaining power between employers and workers…. Return to a more progressive rate structure for the personal income tax, with a top rate of 65 per cent…. The government should offer guaranteed employment at the living wage…. Employers should adopt ethical pay policies…. Increased taxation of investment income….
A fresh examination of the case for an annual wealth tax…. All receipts of inheritance and gifts inter vivos to be taxed…. National Savings… offering a guaranteed positive (and possibly subsidised) real rate of interest on savings…. Institutions to represent the interests of savers and to provide alternative outlets for saving not driven by shareholder interests…. A capital endowment for all, either at adulthood or at a later date…. An EU initiative for a participation income as a basis for social protection, starting with a universal basic income for children.
Must-Read: Eduardo Porter: Big Mac Test Shows Job Market Is Not Working to Distribute Wealth
…declined over the first decade of the millennium widely across the industrialized world. ‘It’s puzzling that we can get away with paying so little for what are really terrible jobs,’ Professor Ashenfelter told me…. The job market–that most critical institution of capitalist societies, the principal vehicle to distribute the nation’s wealth among its people–is not working properly. This raises a fundamental question: If the job market cannot keep hardworking people out of poverty and spread prosperity more broadly, how will it be done? Is public assistance our future?… Something is not working right for a majority of Americans. Maybe it’s time to try something different.
Must-Read: Francesco Saraceno: The Blanchard Touch
…the link between labour market reform and economic performance. But the IMF is not new to these reassessments… has increasingly challenged the orthodoxy that still shapes European policy making… the widely discussed mea culpa in the October 2012 World Economic Outlook, when the IMF staff basically disavowed their own previous estimates of the size of multipliers, and in doing so they certified that austerity could not, and would not work… broke another taboo, i.e. the dichotomy between fairness and efficiency… a presentation by IMF economists showing how austerity and inequality are positively related with political instability… research linking increased inequality with the decline in unionization. Then, of course, the ‘public Investment is a free lunch’ chapter three of the World Economic Outlook, in the fall 2014.
In between, they demolished another building block of the Washington Consensus: free capital movements may sometimes be destabilizing…. The fact that research coming from the center of the empire acknowledges that the world is complex, and interactions among agents goes well beyond the working of efficient markets, is in my opinion quite something. What does this mass… of work tell us? Three things…. First, fiscal policy is back. it really is. The Washington Consensus does not exist anymore, at least in Washington…. Second… the IMF research department proves to be populated of true researchers, who continuously challenge and test their own views, and are not afraid of u-turns if their own research dictates them…. [Third] the ‘new’ IMF should learn to be cautious in its policy prescriptions…. Adopting a more prudent stance in dictating policies would be wise…
What explains rising wealth inequality?
At the University of Chicago, where I went to graduate school, they sell a t-shirt that says “that’s all well and good in practice, but how does it work in theory?” That ode to nerdiness in the ivory tower captures the state of knowledge about rising wealth inequality, both its causes and its consequences. Economic models of the distribution of wealth tend to assume that it is “stationary.” In other words, some people become wealthier and others become poorer, but as a whole it stays pretty much the same. Yet both of those ideas are empirically wrong: Individual mobility within the wealth distribution is low, and the distribution has become much more unequal over the past several decades.
Several recent working papers by Mariacristina De Nardi of the Federal Reserve Bank of Chicago attempt to match theory with reality. The problem theorists of wealth inequality face is, essentially, figuring out why people save. In the models of a stationary distribution, the reason that people save is to guard against future misfortune. But misfortune rarely happens to the rich, which is part of why they keep getting richer, and thus why the wealth distribution is getting more skewed. The other reason why is that people who are already wealthy have the highest savings rates, which is a problem for theories that rely on precautionary savings as a motive.
De Nardi offers some more promising candidates. One is that people want to secure their children’s wellbeing through bequests. Another is that entrepreneurs need capital to finance otherwise-constrained new businesses. This entrepreneurial accumulation mechanism is similar to the one theorized by economist Charles Jones of Stanford University, who models how a highly unequal wealth distribution gets more unequal over time thanks to the statistical properties of entrepreneurial wealth growth.
Third, since there’s a high correlation between parental earnings and children’s subsequent earnings, and higher-income people save much more, high-earning family dynasties can accumulate a large stock of wealth.
What do these findings tell us about the consequences of wealth inequality? Economists typically highlight individual or inter-generational mobility within the wealth distribution as both a reason not to care that the distribution itself is unequal and as an argument that having wealthy parents (or not) doesn’t matter that much for children’s outcomes. In fact, an influential model by the late Gary Becker and Nigel Tomes, both of the University of Chicago , predicts that accumulated wealth reduces income inequality because parents who love all their children equally allocate their bequests to compensate for their stupid children’s likely lower earnings potential in the labor market. According to those two authors, families redistribute from the smart to the dumb, and therefore, by implication, governments don’t have to redistribute from the rich to the poor.
But as Thomas Piketty and numerous other scholars point out, those reasons not to care about wealth inequality are not empirically valid. There’s scant evidence that parents leave larger inheritances to stupid children. Nor is there much evidence that native ability is the major determinant of earnings in the labor market or other life outcomes. The weakness of these explanations gets to a much larger question, one of the most important (and unanswered) ones in economics: Why are some people rich while others are poor? What economists are just finding out (while others have known for awhile now) is, essentially, “because their parents were.”
Must-Read: David Einhorn (2006): Speech at the Value Investing Congress
…try to win lots of small pots… are the day traders of the poker tables. Others play any… two high cards… get outplayed after the flop by the loose aggressive types who eventually wear them down… long-only closet indexers who trade too much. Then there are the rocks…. They fold and they fold and they fold. They are going to wait until they know they have a huge advantage. Then they bet as much as they can. It is very hard to beat a player like this. They can last a long time. Once people figure them out, nobody will play them when they do play. So they don’t get the chance to get enough chips in when they have a large advantage. Could this be what is becoming of Berkshire Hathaway?… My poker style… is close to the patient players waiting for a big advantage…. I try to pick out one or two people at the table I want to play against…. When the situation feels right, I put in a big, aggressive raise with a marginal holding…. To do well in a poker tournament, you have to recognize a few non-traditional opportunities and you need to get people to sometimes fold the better hand…