U.S. economy

If Auto-Enrollment Isn't Quite Enough, Why Not Make it Better?

Mark Huelsman — Wed, 01 Oct 2008 22:31:00 -0400

If you’re like me, you have no interest in foolishly looking at the dwindling numbers in your retirement plan. Luckily, I’m decades away from retirement and can afford occasional market volatility. My initial concern during this crunch, however, wasn't the fluctuating values in our nest eggs. Instead, my worry was that employers might draw back from automatic enrollment programs, and that new employees might consider opting out of plans more frequently. Not so, according to people smarter than myself. According to a recent Chicago Tribune article, not only has the number of companies automatically enrolling employees in retirement plans doubled, but there shouldn’t be much cause for concern that, despite what looks like prolonged doom and gloom for our economy, companies may find auto-enrollment less attractive.

For behavioral economists (and their many fans), this probably comes as no surprise—default options work. What the article argues and suggests by its title, however, is that automatic enrollment (despite its increasing popularity) is insufficient in creating a robust nest egg at current match rates. Likely true, though the Tribune makes it seem as though auto-enrollment is a static business decision by saying that it “may create a false sense of security and discourage workers from putting more away.” A false sense of security is an issue, of course, but I would argue that a balance of $0.00 in an employer-sponsored plan is far, far riskier.

The real fix lies in automatic escalation—the next generation of automatic enrollment. Instead of automatically enrolling workers at a higher, static contribution rate, auto-escalation would simply add a higher percentage of the employee’s pay into the company plan over time (while still maintaining the opt-out option at any point). This strikes me as a way to solve the problem of insufficient funds without crippling an employer with mandatory higher match rates—though ideally, a company would increase its match rate if possible.

In 2007, according to the Profit Sharing/401k Council of America, 81.9% of eligible workers had balances in their plans—up from 78.9% in 2006. Those 3% may not have sufficient funds for retirement, but it’s certainly better than not contributing. The alternative to automatic enrollment isn't forcing employees to fend for themselves, it's nudging them toward even more beneficial decisions.

The past few weeks and months have taught us the value of savings and responsibility on a personal, corporate, and federal level. Automatic enrollment, by any measure, has been beneficial to America’s workers. The discussion shouldn’t be about how comprehensive it isn't. It should be about how comprehensive it can be.

LIVE TODAY: Susan RICE and Karen KORNBLUH to Discuss the Democratic Platform

Patrick Doherty — Fri, 15 Aug 2008 14:07:00 -0400

Greg Craig, Susan Rice, Barack Obama, Tony Lake, Maj. Gen Scott Gration, Samantha Power/NYT

Scripting America's Priorities:

A Discussion with Authors of the Democratic Party Platform

Click here to Register or Watch

featured speakers

Susan Rice
Senior Foreign Policy Advisor to Barack Obama
Senior Fellow (on leave), Brookings Institution
Former Asst. Secretary of State

Karen Kornbluh
Principal Author, Democratic Party Platform
Policy Director (on leave), Office of Sen. Barack Obama

comments

Steve Coll
President & CEO
New America Foundation

Maya MacGuineas
President, Committee for a Responsible Federal Budget
Director, Fiscal Policy Program, New America Foundation

moderator

Steve Clemons
Director, American Strategy Program, New America Foundation
Publisher, TheWashingtonNote.com

Central Banks Balance Inflation and Growth

Ian McAllister — Mon, 04 Aug 2008 17:33:00 -0400

Central banks in three of the world's largest economies, the U.S., U.K., and the Eurozone, are set to decide this week whether to raise lending rates. All three economies are flirting with recession but central banks fear that lowering rates would stoke inflation. Most analysts expect the three banks will hold rates steady until further signals that inflation is cyclical. Second quarter growth in the U.S. was a sluggish 1.9%, despite the fiscal stimulus package. Meanwhile, June consumer prices rose at the fastest rate in 25 years.

Snapshot asks, in the second half of 2008, will growth or inflation dominate central banks' interest rate policy?

Associated Press -Fed Likely to Hold Rates Steady Amid Crosscurrents
Market Watch - Dollar Flat as Traders Eye Central Banks
Bloomberg - Rolling Recessions Bring Paralysis to Bernanke, King, Trichet
Forbes - US Q2 GDP Up 1.9% vs 2.4% Expected Rise

ASP In the News | June 30 - July 2

Ian McAllister — Wed, 02 Jul 2008 15:11:00 -0400

MSN Money Central (07/3) quotes Doug Rediker on fears of declining American competitiveness.
Sydney Morning Herald (07/02) cites Steve Clemons on a neoconservative regrouping in Washington.
Miami Herald (07/01) quotes Steve Clemons on the reasons behind North Korea's terrorism delisting.
Emirates Business (07/01) cites Parag Khanna on the Second World's growing ability to shape world events.
The Australian (06/28) features Peter's Bergen's analysis of the growing divisions within Al Qaeda .

U.S. Labor Market Continues to Disappoint

Ian McAllister — Thu, 19 Jun 2008 16:02:00 -0400

The number of workers filing new claims for unemployment benefits fell by 5,000 last week to 381,000, a smaller decrease than analysts had predicted. The four-week average of new claims, a less volatile measure, rose to 375,250 from 372,000, indicating that the U.S. labor market remains weak and far away from a recovery. Coming after last month's half percent spike in unemployment to 5.5%, these figures add further gloom to the current picture of the U.S economy and will put pressure on the Fed hold its target funds rate at 2% when it meets next week.

Snapshot asks, to what degree will falling consumer spending be exacerbated by labor market weakness?

Wall Street Journal - Jobless Claims Fall in Latest Week
Bloomberg - U.S. Initial Jobless Claims Fell to 381,000 Last Week
Reuters - Treasuries extend losses after jobless claims
Associated Press - Stocks trade mixed after dip in jobless claims

COST: Want It 'Made in America?' Fix Health Care

Joanne Kenen — Tue, 13 May 2008 19:58:00 -0400

Representing the economically troubled state of Michigan, home to the auto industry, Democratic Sen. Debbie Stabenow just has to look around her to see how sky-high health care costs have eroded the global competitiveness of U.S. industry. Still, she told a New America-sponsored forum on Capitol Hill the other day, it's "nice to be joined by the data in something that I have been talking about for a long time."

Stabenow, the opening speaker at our forum about employer health costs in a global economy, described how the "most expensive and crazy structure in the world"—aka the U.S. health care system—was damaging the economy, hurting industry, threatening the middle class. "We are literally losing jobs," she said, spending more than our competitors on health but having less to show for it. (Click here for the webcast, here for the study, here for our earlier post.)

Stabenow, a cosponsor of the bipartisan Healthy Americans Act also known as the Wyden-Bennett bill, took issue with lawmakers (presumably including presumptive Republican presidential nominee Sen. John McCain) who say that we have to tackle cost before coverage. "You can't get to cost," Stabenow said, unless you also deal with the uninsured who show up in emergency rooms, who can't get access to decent primary care. The two are related.

"I want to deal with access. I want to deal with cost," she said, adding that she wants America and its trading partners to be in a race to the top, not a race to the bottom. To get to the top, to preserve the middle class and improve the economic wellbeing of our trading partners as well, we need to fix health care.

The challenge is both moral and economic. "This isn't working," she said. "We're spending way too much for the results we're getting. We're losing jobs and fundamentally this is about who we are as Americans. We can do better in the greatest country in the world."

COST: Impact of Health Care Costs on Global Economy and U.S. Jobs

Elizabeth Carpenter — Wed, 07 May 2008 15:33:00 -0400

Throughout the primary season we have heard two things consistently from voters: they are worried about the economy and concerned about affording health care. Today, New America's own Len Nichols and Sarah Axeen analyzed one linkage between these two domestic priorities: the impact of rising health care costs on global competitiveness and U.S. jobs.

As the LA Times' Lisa Girion explains this morning in her report on their work, “Many economists have pooh-poohed the idea that U.S. businesses are hurt by their comparatively high healthcare costs. Instead, they have suggested that companies would pass those costs onto workers by lowering wages or onto consumers by raising prices.” Not likely, according to Nichols and Axeen, who argue that employers face various constraints and labor market realities that make it unlikely for them to be able to shift health care costs into wages in the short run, especially since health care costs have grown so rapidly and unpredictably for decades. Plus, it’s the 21st century and being able to compete globally means low prices. Manufacturers can’t just push the price of health care into goods because of stiff international competition. This is not good news for U.S. manufacturers who spend $2.38 per worker per hour for health benefits compared to their foreign trading partners who spend $0.96.As Jane Sarasohn-Kahn of HealthPopuli posted, “[this all] adds up to one big competitive disadvantage which ultimately results in lost jobs for Americans.”

But as you know, here at New America we are about solutions. So here are our thoughts: We need to make the health care system more citizen-based, rather than employer-based. This means we need to think about new insurance market rules that make private markets work for all Americans (not just the healthy and wealthy) and we need to make sure that lower income people have subsidies so insurance is affordable. Bottom line: we must reform our health system in a way that allows U.S. employers to thrive and Americans to keep their jobs.

Want to know more? Join us on Capitol Hill on Friday, where Senator Stabenow (D-MI), the WSJ’s Laurie McGinley, and representatives from the business, labor, and economic communities will discuss this important topic. See you there!

Spend Your Money on Something REALLY Stimulating, America!

Sonia Hamel — Tue, 15 Apr 2008 16:23:00 -0400

April 15, 2008 - US NewsWire Service - A spokesman for the Internal Revenue Service today apologized for the inadvertent release of an unauthorized letter* written to accompany the economic stimulus payments to households across America. The IRS spokesman said that taxpayers should ignore the letter, originally written for review and consideration by the White House. Congressional leaders asked for an investigation into how the letter was released. The document is reproduced below:

Dear U.S. Citizen,

Enclosed is your economic stimulus payment for 2008. The check amount is as follows: $600 for a single person, $1,200 for a married couple, and $300 per child, for families making less than $75,000 ($150,000 for a couple).

Speaking of children, if you have any, you should thank them for loaning you this money. After all, they are the ones who will have to pay it back. If you are blessed with grandchildren, don't forget to thank them too. They'll be paying off the interest.

Internally at the IRS, we had suggested that the President and Congress could have saved us a lot of work if they had just sent the money directly to China. After all, they are hoping for a boost in consumer spending, another Christmas in May. But, purchases of Gameboys and Xboxes, iPods and big screen televisions, won't really help the U.S. economy or the global environment. They will send jobs abroad and increase energy use in the US. But since the President wants you to have the money, we here at the IRS are frankly worried that this rebate will make both the economy and global warming worse for our children and grandchildren - a double whammy.

So, if you actually want to help build a better future, then the IRS wants you to consider the following ways to strengthen the economy and rescue the planet:

1) Invest in a "green" mutual fund that invests in environmentally friendly companies, or in those backing alternative energy. Investments in U.S. clean-tech companies will pay you back as they begin the shift to a lower carbon economy for the U.S. (By the way, did you really think a President from Texas was going to invest your tax dollars in alternative energy sources?)

2) Reduce your energy costs by investing your rebate. Replace an energy inefficient refrigerator. Insulate your house. Replace drafty windows. Get your car tuned and replace that tire with the slow leak. Save it up for a hybrid to replace your current car when it fails. These changes will allow you to see an economic return from your rebate and boost American jobs. It will also reduce greenhouse gases and help reduce the price of energy for everyone. Reducing our use of energy is ultimately patriotic and good sense for your family.

3) Buy organic food this year. Although it is more expensive, it will help domestic (mostly small) farmers. And, if you want to be really energy efficient, buy a share in a local farm. Community-supported farmers plant a variety of crops, selling shares (generally costing about $500) in advance. During the growing season, farmers deliver boxes of assorted fresh organic produce; you get fresh healthy food and the farmer gets help in keeping local land in farm use. Can't get more wholesome than that.

4) Repair your house. Using local skilled labor will boost our economy and, after all with the current real estate market, you're going to be living there for a while.

5) Donate the money to a U.S. oriented charity. Any local charity will spend your money, and stimulate the economy almost as quickly as if you had. This will also give you a tax deduction next year and a warm fuzzy feeling this year.

6) Donate the money to a political campaign of a candidate who supports action on the environment and climate change, in particular.

The media is going to be paying a lot of attention to how you spend this money. One of the arguments for tax cuts is always that people can do a better job of deciding how to spend their money than politicians can. This time, America, let's prove them right.

There's no such letter, obviously -- or at least it hasn't surfaced yet! But the point is very much a real one: Short-term thinking is what's gotten us into these messes, both economic and environmentmental. Taking the long view for a change might actually make a difference!