Tag Archives: political economy

“Shouldn’t We Care?”

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A MarketWatch op-ed writer is worried about grown, adult American citizens having more retirement funds in our IRAs than in our 401(k)s.

The shift from 401(k)s to IRAs moves employees’ money to a different regulatory environment. The Employee Retirement Income Security Act of 1974, which covers 401(k) plans, requires plan sponsors to operate as fiduciaries who always act in the best interest of plan participants.
In contrast, the standards of conduct for broker-dealers selling IRA investments are much less protective than the ERISA fiduciary duties of loyalty and prudence, which have consistently been characterized by the courts as “the highest known to the law.”
In addition, in the 401(k) environment, much greater emphasis is placed on the disclosure of fees in an understandable format than is the case for IRAs. And most important, 401(k)s place much more emphasis than IRAs on keeping the funds in the plan until retirement.

Those are, no doubt, useful items and anyone investing for his own retirement should care about them. The problem arises, though, when the system—here employer 401(k)s—uses these to interfere with an employee-investor’s decisions regarding what is supposed to be his own money.

As the opinion writer notes in her piece, withdrawals from either program that are made prematurely or outside of a very few exceptions (there are fewer in 401(k)s than in IRAs), are subject to a 10% tax penalty in addition to Federal and State income tax assessments. Those guardrails and limits are well-known to us Americans, and they’re all we need to make our own decisions regarding our money. If our decisions are ill-informed, that’s on us, or should be.

The opinion-writer closed her piece closed with this:

Shouldn’t we care that only 45% of assets in the private sector are protected by ERISA? And what should we do about it?

No, we should not care. We do not need Big Brother constantly looking over our shoulders, constantly using that perch to interfere with our decisions.

Americans are too dumb to manage our own fiscal affairs? One way to try to push that on us is to keep interfering with our decisions instead of letting us make our own mistakes and—critically importantly—learn from them.

That leads into what we should do about it. TL;DR: nothing. Complete answer: nothing at all. Stay out of our way.

“aren’t subject to Congressional appropriations”

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In the house editorial, The Wall Street Journal editors wrote about the burgeoning tax revenues accruing to the Federal government over the first third of the present fiscal year, the reduction in spending in several government departments and agencies, and the burgeoning spending on welfare entitlement programs.

Then they added this risible claim:

…continuing boom in the giant retirement and healthcare entitlements that aren’t subject to Congressional appropriations.

The editors might want to review their junior high Civics class notes. Here’s our Constitution’s requirement for Federal spending:

Art I, Sect 9: No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law

All spending is subject to Congressional appropriations, and that includes “retirement and healthcare entitlements.” There are no caveats in that Section’s clause, no “except for programs inconvenient to alter or eliminate.”

Cutting spending on entitlements may be politically difficult but that’s not what the editors claimed. If the editors can’t find their notes, they need to listen better to their junior high interns when those kids brief them in preparation for expounding on government spending.

A Couple of Regulatory Environments

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These need to be dealt with along with the EPA’s effort to deregulate energy production. “These” are the FAA’s regulation of rocket launches—the conservative right blames the FAA’s climate impact concerns, but those are not the only ones—and the FCC’s regulation of satellite deployment. Here, Progressive-Democrats are letting their hatred of all things Evil Rich get in the way of intelligent decision making.

The Federal Aviation Administration separately evaluates the environmental impact of rocket launches in the US, which has in the past delayed satellite launches.

And

Maria Cantwell objected because the bill [that would streamline and accelerate FCC satellite approvals] would help Mr Musk’s AI space ambition.

As The Wall Street Journal‘s editors closed their piece,

Permitting difficulties are America’s economic Achilles’ heel. Let’s hope they don’t get in the way of US space innovation.

Middle Man?

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Andy Kessler touted San Jose Mayor and California candidate for Governor, Matt Mahan, as presenting a sufficiently centered (Progressive-)Democrat who opposes Party’s supposedly (they promise!) one-time billionaire tax on those Evil One-Percenters’ wealth, whether liquid or not.

But, Mr Mahan goes on [says Kessler], “I don’t believe that high-net-worth individuals should be able to borrow against appreciated assets endlessly as a way to avoid paying capital gains.” The mayor of the country’s 12th-largest city thinks that rather than impose wealth taxes, California should press Congress to eliminate the step-up in basis at death, so that estates or heirs would pay a tax on the appreciation of a decedent’s assets. (California has no estate tax.) That wouldn’t put “our economy, our engine of innovation and prosperity, at risk.”

Three guesses where that would take our economy. Here’s a hint:

No one wealthy would own capital assets, whether personal or enterprise—they’d lease them. That would thoroughly alter the structure of our private economy, real, financial, business ownership, and it would do so in ways that we won’t know until it starts happening. That’s dangerous.

And that doesn’t get to the ability of parents to leave to their children what those parents spent a lifetime building—at least not in any substantial way. That’s even more dangerous.

This is an example of careless compromise: Mahan’s position doesn’t move things to the extreme left, but it does move things toward the left, rather than making an even split, much less moving things a little bit to the right. That’s a loss, not just for Conservatives, but for all of California’s citizens, wherever they are on the political spectrum.

Universalized Choices of K-12 Schools

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Our public national education system—an inchoate agglomeration of local public school systems—is badly failing our children and through that badly failing our nation both in our economy and in our national security. Parochial schools, charter schools, voucher schools, homeschooling and pod-schooling (a pooling of homeschooler resources), which I’ll term choice schools—all of these do far better at educating our children than do those public schools, whether run by teacher unions or not. The ability to choose among those options is critical to our children’s education. The competition even produces improvements in the public schools. Hence, ESAs, Education Savings Accounts.

A limitation on ESAs is their funding. Formal funding for ESAs functionally caps their availability for students, with the result that vast numbers of students can’t get into one; the ESA program for their area has expended all of its funds before the enrollment lists got to them. The Wall Street Journal‘s editors propose a solution:

To create truly universal programs, states can remove enrollment caps and fund ESAs outside of annual appropriations…. They can boost scholarship amounts….

More money isn’t necessary. More money would help, even if it is government money, provided it’s allocated and spent wisely—but it would be government money.

More money could be made available for ESAs, if only indirectly, though, not by increasing spending but by allocating existing education dollars to the student rather than to the school district. In this way, when a parent moves his child out of the public school and into a choice school, the money would follow the student to that choice school, defraying the cost of attending that alternative school.

Other mechanisms for supporting school choice also are available. These include State governments removing such barriers to choice as caps on the number of charter or voucher schools allowed to exist in a jurisdiction, forcing homeschooling parents into teacher unions, limiting use of under-used or empty public school facilities by choice schools, onerous licensing and accreditation requirements for choice schools—even caps on the number of students allowed into an ESA program.