The origins of the economic crisis

A good way to understand the origins of the current economic crisis in Australia is to examine the historical behaviour of key macroeconomic aggregates. The previous Federal Government claimed they were responsibly managing the fiscal and monetary parameters and creating a resilient competitive economy. This was a spurious claim they were in fact setting Australia up for crisis. The reality is that the previous government created an economy which was always going to crash badly.

The global nature of the crisis has arisen because over the last 2-3 decades most Western governments including the Australian government succumbed to the neo-liberal myth of budget austerity and introduced policies which allowed the destructive dynamics of the capitalist system to create an economic structure that was ultimately unsustainable. Once this instability began to manifest it was only a matter of time before the system imploded – as we are now seeing.

You can understand my take on this story by looking at the following graphs that I have put together (click on each graph for a larger version). This short blog is a summary of a major study I am conducting on this issue.

The first graph is the so-called “sectoral balances” which plots the Budget Deficit (-), the Current Account balance (- for deficit) and the private domestic balance (difference between Saving and Investment; – for deficit) as a per cent of GDP. The sectoral balances is another way of viewing the national accounts and provides empirical evidence for the influence of fiscal policy over private sector indebtedness. Consider the accounting identity drawn from the national accounts for the three sectoral balances:

(S – I) = (G – T) + (X – M)

The Equation says that total private savings (S) is equal to private investment (I) plus the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents. Thus, when an external deficit (X – M < 0) and public surplus (G – T < 0) coincide, there must be a private deficit. While private spending can persist for a time under these conditions using the net savings of the external sector, the private sector becomes increasingly indebted in the process. The graph shows the sectoral balances for Australia. While the current account deficit has fluctuated with the commodity price cycle, it has continued to deteriorate slightly over the longer term. Accordingly, the dramatic shift from budget deficits to surpluses from the mid-1990s onwards has been mirrored by a corresponding deterioration in private sector indebtedness. The only way the Australian economy could keep growing in the period after 1996 was for the private sector to finance increased spending via increased leverage. As I have explained in other blogs, this is an unsustainable growth strategy. Ultimately the private deficits will become so unstable that bankruptcies and defaults will force a major downturn in aggregate demand. Then the fiscal drag compounds the problem. The solution is simple. The government balance has to be in deficit for the private balance to be in surplus given a relatively stable external balance. In terms of the slightly worsening current account deficit, we can interpret that as signifying an increased desire by foreigners to place their savings in financial assets denominated in Australian dollars. This desire means that that the foreign sector will allow us to enjoy more real goods and services from them relative to the real goods and services we have to export. We note that exports are always a “cost” while imports are “benefits”. As long as there is a foreign desire for our financial assets, the real terms of trade will provide net benefits to Australian residents which manifests as the current account deficit. An external deficit presents no intrinsic problem despite views by the orthodoxy to the contrary. sectoral_balances

In the second graph you can see that real wages have failed to track GDP per hour worked (in the market sector) – that is, labour productivity. Real wages fell under the Hawke Accord era which was a stunt to redistribute national income back to profits in the vein hope that the private sector would increase investment. It was based on flawed logic at the time and by its centralised nature only reinforced the bargaining position of firms by effectively undermining the traditional trade union movement skills – those practised by shop stewards at the coalface. Under the Howard years, some modest growth in real wages occurred overall but nothing like that which would have justified by the growth in productivity. In March 1996, the real wage index was 101.5 while the labour productivity index was 139.0 (Index = 100 at Sept-1978). By September 2008, the real wage index had climbed to 116.7 (that is, around 15 per cent growth in just over 12 years) but the labour productivity index was 179.1.


What happened to the gap between labour productivity and real wages? The gap represents profits and shows that during the neo-liberal years there was a dramatic redistribution of national income towards capital. The Federal government (aided and abetted by the state governments) helped this process in a number of ways: privatisation; outsourcing; pernicious welfare-to-work and industrial relations legislation; the National Competition Policy to name just a few of the ways. The next graph depicts the summary of this gap – the wage share – and shows how far it has fallen over the last two decades.


The question then arises: if the output per unit of labour input (labour productivity) is rising so strongly yet the capacity to purchase (the real wage) is lagging badly behind – how does economic growth which relies on growth in spending sustain itself? This is especially significant in the context of the increasing fiscal drag coming from the public surpluses which squeezed purchasing power in the private sector since around 1997.

In the past, the dilemma of capitalism was that the firms had to keep real wages growing in line with productivity to ensure that the consumptions goods produced were sold. But in the recent period, capital has found a new way to accomplish this which allowed them to suppress real wages growth and pocket increasing shares of the national income produced as profits. Along the way, this munificence also manifested as the ridiculous executive pay deals that we have read about constantly over the last decade or so.

The trick was found in the rise of “financial engineering” which pushed ever increasing debt onto the household sector. The capitalists found that they could sustain purchasing power and receive a bonus along the way in the form of interest payments. This seemed to be a much better strategy than paying higher real wages. The household sector, already squeezed for liquidity by the move to build increasing federal surpluses were enticed by the lower interest rates and the vehement marketing strategies of the financial engineers. The financial planning industry fell prey to the urgency of capital to push as much debt as possible to as many people as possible to ensure the “profit gap” grew and the output was sold. And greed got the better of the industry as they sought to broaden the debt base. Riskier loans were created and eventually the relationship between capacity to pay and the size of the loan was stretched beyond any reasonable limit. This is the origins of the sub-prime crisis.

The next graphs shows various perspectives on the increasing household indebtedness in Australia. The left hand chart shows the spiralling in the debt to disposable income ratio which stood at 69.1 per cent in March 1996 and by September 2008 had risen to a staggering 156.1 per cent. It was often argued by the Government, the RBA and so-called financial industry experts during the build up period that there was no call for alarm because wealth was growing along with the debt. Well the debt was increasingly purchasing volatile assets other than housing and a fair proportion of the wealth created during that period has gone but the debt remains. The right hand chart shows the servicing burden (interest payments as a percentage of disposable income). This ratio has risen from 5.7 per cent in March 1996 to 15 per cent in September 2008, further squeezing the living standards of the household sector.



The problem with this strategy is that is was unsustainable. Household savings went negative as the government budgets went further into surplus. The next graph shows this clearly.


The only thing maintaining growth was the increasing credit which, of-course, left the nasty overhang – the precarious debt levels. I said years ago that this would eventually unwind as households realised they had to restore some semblance of security to their balance sheets by resuming their saving. Further, this increased precariousness of the household sector meant that small changes in interest rates and labour force status would now plunge them into insolvency much more quickly than ever before. Once defaults started then the triggers for global recession would fire and the malaise would spread quickly throughout the world. I was often criticised by conservatives and neo-liberal types for “crying wolf”. They kept harping on the fact that wealth was rising. Well the wealth has been severely diminished in the crisis but the nominal debt and the servicing commitments remain.

The return to deficits is the first step in recovery. Budget deficits finance private savings and are required if the household balance sheets are to remain healthy. Real wages also have to grow in proportion to labour productivity for spending levels to be maintained with sustainable levels of household debt. The household sector cannot dis-save for extended periods.

In designing the policy framework that will sustain growth in employment and reduce labour underutilisation these tenets have to be central. It also means that the massive executive payouts both in the private and public sector (including universities) have to be stopped and more realistic distributional parameters (more widely sharing the income produced) have to be followed.

Further, the first thing the Federal government should purchase is all the labour that no-one wants. By introducing a Job Guarantee they could offer a minimum wage to all those who wanted work and therefore restore full employment at a fraction of the investment they are proposing to make by way of fiscal stimulus.

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    111 Responses to The origins of the economic crisis

    1. Fed Up says:

      The Precarious State of Family Balance Sheets


      The U.S. economy is five years removed from the Great Recession, and most national indicators point to a
      steadily increasing recovery. The stock market has more than doubled since its low in 2009, housing values
      have slowly increased nationally, foreclosure rates have declined for four years in a row, and unemployment has continued to trend slowly downward from a high of 10 percent during the recession to the current 5.6 percent.1 But these aggregate statistics obscure the financial insecurity that many Americans still face.

      Between 2010 and 2013, most household incomes fell, particularly among families of color and those without
      postsecondary education.2 Over that period, stock ownership decreased for households on all but the top 10
      percent of the income ladder, with a particularly steep decline among those on the bottom half.3 And almost a third of working-age adults reported having no retirement savings or pensions.4

      It is not surprising, then, that recent public opinion polling found American adults pessimistic and anxious about the economy and their own economic stability. They question whether the American Dream is within reach, and many doubt that their children will fare better than they have.5

      This report seeks to develop a clear picture of the current state of household financial security. It begins by
      exploring three components of family balance sheets—income, expenditures, and wealth—and how they have
      changed over the past several decades, and concludes with an examination of how these pieces interrelate and why understanding family finances requires that they be examined holistically.6 Taken together, the data in this study reveal a striking level of financial fragility:

      •• Although income and earnings have increased over the past 30 years, they have changed little in the past
      decade. The typical worker had wage growth of 22 percent between 1979 and 1999 but just 2 percent from
      1999 to 2009.
      •• Substantial fluctuations in family income are the norm. In any given two-year period, nearly half of
      households experience an income gain or drop of more than 25 percent, a rate of volatility that has been
      relatively constant since 1979.
      •• The Great Recession eroded 20 years of consumption growth, pushing spending back to 1990 levels. Over
      the 22 years before the start of the downturn, household expenditures grew by 16 percent. But households
      tightened their purse strings after the start of the recession in 2007, and spending has yet to recover. As a
      result, the net increase in average annual household spending is just 2 percent since 1990.
      •• The majority of American households (55 percent) are savings-limited, meaning they can replace less
      than one month of their income through liquid savings. Low-income families are particularly unprepared for
      emergencies: The typical household at the bottom of the income ladder has the equivalent of less than two
      weeks’ worth of income in checking and savings accounts and cash at home.
      •• Even when pooling all of its resources—including from accounts that are potentially costly to access, such
      as retirement accounts and investments—the typical middle-income household can replace only about four
      months of lost income.
      •• Most families face financial strain across all balance sheet elements: income, expenditures, and wealth. In
      addition to being savings-limited, households face other financial challenges; just under half of families are
      “income-constrained,” reporting household spending greater than or equal to their income; and 8 percent are
      “debt-challenged,” with payments equal to 41 percent or more of their gross monthly income. Fully 70 percent of households face at least one of these problems, with many confronting two or even all three.

      The data tell a powerful story about the state of household economic security and opportunity: Despite the
      national recovery, most families feel vulnerable and stressed, and could not withstand a serious financial
      emergency. This reality must begin to change if the American Dream is to remain alive and well for future

    2. Fed Up says:

      Excluded from the Financial Mainstream:

      How the Economic Recovery is Bypassing Millions of Americans

      “The quality of available jobs helps explain why many people are not benefitting from the recovery. Fully one-quarter (25.1%) of jobs are in low wage occupations, a four percentage-point increase over the prior year. These jobs are disproportionately held by women and workers of color.8 Across the board, average annual pay nationally continued nearly a decade of stagnation and actually fell between 2012 ($50,011) and 2013 ($49,808).”

      And, “Millions of Americans are being excluded from the economic recovery. However, for some, the degree of exclusion is more profound. Not only are these households not reaping benefits of an improving economy, they are living outside the economic mainstream, relegated to using fringe—often high-cost—financial services and products that trap them in a cycle of debt and financial insecurity. One in five households regularly rely on fringe financial services to meet their needs. Nationally, 55.6% of consumers have subprime credit scores, meaning they cannot qualify for credit or financing at prime rates. Outside the financial mainstream, high-cost predatory loans are often the only way to bridge the gap between income and the cost of meeting basic needs.”

    3. Fed Up says:

      Stock Buybacks Are Killing the American Economy

      Profits once flowed to higher wages or increased investment. Now, they enrich a small number of shareholders.

      “President Obama should be lauded for using his State of the Union address to champion policies that would benefit the struggling middle class, ranging from higher wages to child care to paid sick leave. “It’s the right thing to do,” affirmed the president. And it is. But in appealing to Americans’ innate sense of justice and fairness, the president unfortunately missed an opportunity to draw an important connection between rising income inequality and stagnant economic growth.

      As economic power has shifted from workers to owners over the past 40 years, corporate profit’s take of the U.S. economy has doubled—from an average of 6 percent of GDP during America’s post-war economic heyday to more than 12 percent today. Yet despite this extra $1 trillion a year in corporate profits, job growth remains anemic, wages are flat, and our nation can no longer seem to afford even its most basic needs. A $3.6 trillion budget shortfall has left many roads, bridges, dams, and other public infrastructure in disrepair. Federal spending on economically crucial research and development has plummeted 40 percent, from 1.25 percent of GDP in 1977 to only 0.75 percent today. Adjusted for inflation, public university tuition—once mostly covered by the states—has more than doubled over the past 30 years, burying recent graduates under $1.2 trillion in student debt. Many public schools and our police and fire departments are dangerously underfunded.

      Where did all this money go?

      The answer is as simple as it is surprising: Much of it went to stock buybacks—more than $6.9 trillion of them since 2004, according to data compiled by Mustafa Erdem Sakinç of The Academic-Industry Research Network. Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks. Last year alone, U.S. corporations spent about $700 billion, or roughly 4 percent of GDP, to prop up their share prices by repurchasing their own stock.

      In the past, this money flowed through the broader economy in the form of higher wages or increased investments in plants and equipment. But today, these buybacks drain trillions of dollars of windfall profits out of the real economy and into a paper-asset bubble, inflating share prices while producing nothing of tangible value. Corporate managers have always felt pressure to grow earnings per share, or EPS, but where once their only option was the hard work of actually growing earnings by selling better products and services, they can now simply manipulate their EPS by reducing the number of shares outstanding.

      So what’s changed? Before 1982, when John Shad, a former Wall Street CEO in charge of the Securities and Exchange Commission loosened regulations that define stock manipulation, corporate managers avoided stock buybacks out of fear of prosecution. That rule change, combined with a shift toward stock-based compensation for top executives, has essentially created a gigantic game of financial “keep away,” with CEOs and shareholders tossing a $700-billion ball back and forth over the heads of American workers, whose wages as a share of GDP have fallen in almost exact proportion to profit’s rise.

      To be clear: I’ve done stock buybacks too. We all do it. In this era of short-term-focused activist investors, it is nearly impossible to avoid. So at least part of the solution to our current epidemic of business disinvestment must be to discourage this sort of stock manipulation by going back to the pre-1982 rules.

      This practice is not only unfair to the American middle class, but is also demonstrably harmful to both individual companies and the American economy as a whole. In a recent white paper titled “The World’s Dumbest Idea,” GMO asset allocation manager James Montier strongly challenges the 40-year obsession with “shareholder value maximization,” or SVM, documenting the many ways that stock buybacks and excessive dividends have reduced business investment and boosted inequality. Almost all investment carried out by firms is financed by retained earnings, Montier points out, so the diversion of cash flow to stock buybacks has inevitably resulted in lower rates of business investment. Defenders of SVM argue that investors efficiently reallocate the profits they reap from repurchased shares by investing the proceeds into more promising enterprises. But Montier shows that since the 1980s, public corporations have actually bought back more equity than they’ve issued, representing a net negative equity flow. Shareholders aren’t providing capital to the corporate sector, they’re extracting it.

      Meanwhile, the shift toward stock-based compensation helped drive the rise of the 1 percent by inflating the ratio of CEO-to-worker compensation from twenty-to-one in 1965 to about 300-to-one today. Labor’s steadily falling share of GDP has inevitably depressed consumer demand, resulting in slower economic growth. A new study from the Organization for Economic Co-operation and Development finds that rising inequality knocked six points off U.S. GDP growth between 1990 and 2010 alone.

      It is mathematically impossible to make the public- and private-sector investments necessary to sustain America’s global economic competitiveness while flushing away 4 percent of GDP year after year. That is why the federal government must reorient its policies from promoting personal enrichment to promoting national growth. These policies should limit stock buybacks and raise the marginal rate on dividends while providing real incentives to boost investment in R&D, worker training, and business expansion.

      If business leaders hope to maintain broad public support for business, they must acknowledge that the purpose of the corporation is not to enrich the few, but to benefit the many. Once America’s CEOs refocus on growing their companies rather than growing their share prices, shareholder value will take care of itself and all Americans will share in the benefits of a renewed era of economic growth.”

      $6.9 trillion

      54 percent of profits

      World’s Dumbest Idea

    4. Fed Up says:

      The Middle Class May Be Under More Pressure Than You Think

      The Financial Pressures of the Middle Class

      “Using data from the Survey of Consumer Finances, Emmons and Noeth found that the median incomes of thrivers and stragglers were slightly higher in 2013 than in 1989, rising 2 percent and 8 percent, respectively. The middle class, however, experienced a decline in median income of 16 percent over the same period.

      Regarding wealth, thrivers experienced an increase in median wealth of 22 percent over the period 1989-2013. The middle class and stragglers experienced large declines, with the median wealth of the middle class dropping 27 percent and of the stragglers dropping 54 percent over the same period.

      Emmons and Noeth also examined the performance of each group relative to the population as a whole. They found that the median income of the middle class as they defined it grew 21 percent less than the overall median income from 1989 through 2013. The cumulative growth shortfall in wealth for the median demographically defined middle-class family was about 24 percent compared to overall median wealth.”

    5. Fed Up says:

      High Number of Zero-Savers

      47% of households have a 0% personal savings rate

      It says the source is Source: Torsten Sløk, Ph.D., Deutsche Bank Securities, DB Global Markets Research, and FRB Survey of Consumer Finances

    6. Fed Up says:

      Labor Productivity, Household Incomes and Corporate Profits: And the Winner Is?

      “The growth in labor productivity clearly hasn’t translated into higher incomes for median (aka middle class) households. Note that the household income data ends at 2013. The Census Bureau will publish the 2014 data in mid-September. That relatively flat blue line, showing a cumulative growth of 19.2% since 1967, is actually 8.7% off its peak, which occurred in 1999 as the market was entering the final phase of the Tech Bubble.

      So who actually benefited from the upward trend in labor productivity? Let’s look at an overlay of the Labor Productivity Index and a log-scale chart of Corporate Profits. On the recommendation of my friend Bob Bronson of Bronson Capital Markets Research, we’re using the series CPATAX in the FRED repository, which tracks corporate profits is after tax with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj).

      Now let’s examine an overlay all three.

      Growth in Labor Productivity has been a boon to corporate profits, but not to household incomes.

      So much for the theory of trickle-down economics.”

      Last Chart:

    7. Fed Up says:

      Can services prices mean price inflation is understated, not overstated?

      “This chart shows how the cost of cable has exploded over time”

      “This chart, from RBC Capital Markets’ Investment Strategy Playbook for July, is quite something.

      With little pause, the cost of a cable subscription has exploded over the years.

      We know that people are ditching pay TV for cheaper, contract-free streaming options like Netflix.

      And, according to data provided to BI Intelligence, the gap between the number of TV and internet subscribers keeps widening, with more people opting for broadband-only packages.”

      “The cost of cable subscriptions has doubled in the last eight years.”

    8. Fed Up says:

      Is the annual pay raise dead?

      “”Base salary increases are flat. We don’t see the prospect of that changing much at all in the next several years,” said Ken Abosch, who studies compensation issues for Aon Hewitt.

      In other words, the annual raise is dead. It was already on life support last decade, but the Great Recession has finished off the raise. It’s been replaced by “variable compensation” — the bonus. (See the chart from Aon Hewitt below.)

      “The quiet revolution has been the change in compensation mix,” Abosch said. “Through a series of recessions, organizations have pulled back dramatically on fixed costs. And base salaries are often a company’s most significant fixed cost … [They] have a compounding effect, and create a drag on an organization’s ability to change.”

      In a perfect world, variable compensation allows companies to align corporate and worker incentives, and it rewards high performers and hard workers. It also allows companies to pull back on employee costs during hard times without resorting to layoffs.

      In reality, switching from raises to bonuses has mucked up a lot of things. For starters, it’s hard to make long-term financial plans with such short-term financial commitments from your employer. It’s nerve-wracking to take on a 30-year mortgage if your income is $100,000 this year but might be $80,000 next year.

      Workers also complain that the relationship between performance and bonus is often indirect — determined by factors outside their control, such as turnover in other departments or the overall economy.

      In a larger sense, when a substantial portion of a worker’s compensation is unpredictable, one benefit of full-time work fades. The “bonus” employee ends up in the same boat as an independent contractor, not quite knowing what their income will be in the future. The Aon and Towers Watson disagreement about funding of bonus pools speaks to the high degree of uncertainty that variable compensation can bring.”

    9. Fed Up says:

      It’s Getting Harder To Move Beyond A Minimum-Wage Job

      “Minimum-wage jobs are meant to be the first rung on a career ladder, a chance for entry-level workers to prove themselves before earning a promotion or moving on to other, better-paying jobs. But a growing number of Americans are getting stuck on that first rung for years, if they ever move up at all.

      Anthony Kemp is one of them. In 2006, he took a job as a cook at a Kentucky Fried Chicken in Oak Park, Illinois. The job paid the state minimum wage, $6.50 an hour at the time, but Kemp figured he could work his way up.

      “Normally, a good cook would make $14, $15, $17 an hour,” Kemp said. “I thought that of course I’d make a better wage.”

      He never did; nine years later, the only raises Kemp, 44, has seen have been the ones required by state law. He earns $8.25, the state’s current minimum wage.

      Stories like Kemp’s are becoming more common. During the strong labor market of the mid-1990s, only 1 in 5 minimum-wage workers was still earning minimum wage a year later.1 Today, that number is nearly 1 in 3, according to my analysis of government survey data.2 There has been a similar rise in the number of people staying in minimum-wage jobs for three years or longer. (For a more detailed explanation of how I conducted this analysis, see the footnote below.)3

      Even those who do get a raise often don’t get much of one: Two-thirds of minimum-wage workers in 2013 were still earning within 10 percent of the minimum wage a year later, up from about half in the 1990s. And two-fifths of Americans earning the minimum wage in 2008 were still in near-minimum-wage jobs five years later, despite the economy steadily improving during much of that time.4”

      There is more in the article.

    10. Fed Up says:

      Inequality in Our Retirement Accounts

      “In the Republican presidential debate Wednesday night, the issue of income inequality came up with surprising frequency. Why that happened is worthy of its own column; for now, let’s explore the issue with some recent data. Specifically, I want to consider inequality in the funding of our collective retirements.

      As a nation, we do a rather mediocre job preparing for the day we stop working. We underfund Social Security, a program originally developed to combat poverty among older Americans. As individuals, we fail to save enough to fund our own secure retirements.

      QuicktakeAmerica’s Retirement Gap

      To go deeper on the topic, let me direct your attention to Charley Ellis, founder of Greenwich Associates and former chairman of the Yale endowment. Ellis wrote the seminal investment book “Winning the Losers Game.” More recently, he co-wrote a sober explanatory book, including reasonable solutions, titled “Falling Short: The Coming Retirement Crisis and What to Do About It.” You can listen to our Masters in Business interview with Ellis here.

      In the meantime, consider this analysis by the Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York. Using the most recent Census Bureau data, their analysis observed that “almost half of U.S. workers didn’t have a company-sponsored retirement plan in 2013, compared with 39 percent in 1999.”

      As Bloomberg News reported, “The lack of plans is fueling a retirement-savings crisis. Few workers save anything outside of employer-sponsored plans. Only 8 percent of taxpayers eligible to set aside money in an IRA or Roth IRA did so in 2010, according to the IRS.” Those statistics are simply awful.

      Forget for a moment the debate as to whether Social Security will be around (it’s easily made solvent). At present, Social Security benefits average $15,700 a year, far below what most people need to replace the median U.S. salary of $53,657.

      Then consider:

      • Half of U.S. workers lack company-sponsored retirement plans.
      • Only 45 percent of businesses with fewer than 100 employees offer 401(k)s.
      • Those who work part time, or switch jobs frequently, or work at a small company, are less likely to have an employer-sponsored retirement plan.

      It’s not just that the U.S. retirement situation is bad — it’s that it’s trending in the wrong direction.

      At the opposite end of the spectrum are the retirement plans of chief executives. As a group, not surprisingly, they are doing exceedingly well. As Bloomberg reported Wednesday, “The retirement savings accumulated by just 100 chief executives are equal to the entire retirement accounts of 41 percent of U.S. families — or more than 116 million people.” The 100 largest chief executive retirement funds are worth an average of $49.3 million per executive, or a combined $4.9 billion. All of these data points come from a new study by the Institute for Policy Studies and the Center for Effective Government.

      Some of the data points are quite astonishing: “Fortune 500 CEOs have $3.2 billion in special tax-deferred compensation accounts that are exempt from the annual contribution limits imposed on ordinary 401(k)s.” The CEOs managed to “save $78 million on their tax bills by putting $197 million more in these tax-deferred accounts than they could have if they were subject to the same rules as other workers. These special accounts grow tax-free until the executives retire and begin to withdraw the funds.”

      Why well-paid executives get a better tax deal than rank-and-file workers is not much of a surprise: They are the ones who can afford the lobbyists who insert these special dispensations into the tax code.

      So while we are debating income inequality, we should also be thinking about retirement inequality.

      Perhaps most vulnerable are the millennials, who came of working age in the midst of the Great Recession. There are 68 million wage-and-salary workers without a company-sponsored retirement plan, according to the Employee Benefit Research Institute. Millennials make up a disproportionate share of workers without a 401(k).

      This is unfortunate: Patrick O’Shaugnessy noted in his book “Millennial Money: How Young Investors Can Build a Fortune,” that as investors, millennials are planning for retirement in 40 to 50 years. Never again in their lifetimes will they have such a long time horizon.

      We have a looming retirement crisis. I have yet to hear a coherent solution from anyone from either party.”

      ***** So while we are debating income inequality, we should also be thinking about retirement inequality. ***** My emphasis.

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