Tuesday, December 22, 2015

Lose-lose

It's that time of year when we hear the refrain that "the consumer" is not spending enough. Consumer spending is a big chunk of GDP and there are Keynesian multipliers, etc.  But there is also the mantra that Americans are not saving enough for their retirement.  How can both be true?

They cannot. Talk is cheap -- and both choices cannot be judged by third parties. Personal time preferences are all over the place, as are personal consumption-smoothing plans and strategies. Policies designed to tweak personal plans introduce a costly wedge -- whereby some individuals are prompted to game the tweaks, which makes everything worse.

Re the mother of all wedges, in this morning's WSJ, Jeremy Siegel documents "My Sorry Social Security Return." Read the article. He does the math. "So are affluent seniors making out like bandits? Not at all. The bandit is the federal government, which provides benefits that are millions of dollars short of what anyone whose earnings are at or above the tax cap easily could have accumulated on his own."

Forced savings are counter-productive as well as wasteful.  Strictly lose-lose.