Planet 401(k): Tom Friedman’s bleak vision

Elites are debating the shape of our future. It's time for some mainstream reporting to deepen the discussion

It’s pretty clear by now that elite media, in their news columns and opinion pages, have had a big hand in shaping the debate over Social Security and Medicare. Ask any man or woman on the street, and many will say that something must be done about these programs, though they’re not sure what. The press, the politicians, and Washington’s think tank powers have narrowly defined that something as benefit cuts, which the president has embraced in his proposed budget. Whether the public has is another matter.

In the past week, two prominent columnists have added another layer to this meme. It’s a brave new world out there. Americans must help themselves and we’d better get used to it. What this means in social insurance terms is that Social Security may no longer be for everyone, that we can no longer afford such a sturdy pillar, even for those at the bottom of the economic ladder. As for Medicare—the government may have to cut back paying medical bills for the elderly because it is too costly. We’re looking at a kind of new world, based on survival of the financially fittest.

“Government will do less for you. Companies will do less for you. Unions can do less for you. There will be fewer limits, but also fewer guarantees,” wrote Thomas Friedman in his Tuesday New York Times column, “It’s a 401(k) World.” Using the metaphor of 401(k) plans—which have largely replaced good pension arrangements and left workers to chart the course for their retirement nest egg—Friedman argues that all the new exciting technology of the last several years has opened up limitless possibilities for self-help.

What’s exciting is that this platform empowers individuals to access learning, retrain, engage in commerce, seek or advertise a job, invent, invest, and crowd source—all online. But this huge expansion in an individual’s ability to do all these things comes with one big difference: more now rests on you.

Friedman connects all this with new technology and notes that this brave new world is one that “increasingly rewards individual aspiration and persistence and can measure who is contributing and who is not.” Furthermore, he says, the new paradigm is not going to disappear. “We better think how we help every citizen benefit from it.”

A few days before Friedman’s column appeared, Robert Samuelson made similar points in his Washington Post column, “The Twilight of Entitlement.” By entitlement, he says,

I do not mean primarily cuts in specific government benefits, most prominently Social Security, but the demise of a broader mind-set — attitudes and beliefs — that, in one form or another, has gripped Americans since the 1960s.
America’s “expansive notion of entitlement rested on optimistic and, ultimately, unrealistic assumptions,” he argues. Among those assumptions: that economists knew how to moderate the business cycle to guarantee jobs; that big, old line corporations like GM and AT&T dominated the market and could provide secure jobs and generous benefits; that improvements in productivity would lift living standards; and that lifestyle choice would expand individual freedom without adverse social consequences. These are no longer true, he suggests, and the resulting contradictions in our system have caused entitlements to slowly crumble.

To some thinkers, this parade of horribles might call for more social safety nets and help, but instead Samuelson’s message is that

We’re not entitled to many things: not to a dynamic economy; not to secure jobs; not to homeownership; not to ever-more protective government; not to fixed tax burdens; not to a college education. Sooner or later, the programs called “entitlements,” including Social Security, will be trimmed because they’re expensive and some recipients are less deserving than others.

Like Friedman, he says we’d all better get used to the new world order. “People’s expectations may be more grounded. Facing limits is a contentious exercise in making choices.”

But a sustained debate over these kinds of “choices” is precisely what we have not had—at least not in the news outlets that reach millions of Americans.

Most people don’t read Dean Baker’s columns on the blog of the Center for Economic and Policy Research. Or Slate’s Matthew Yglesias, who liked the 401(k) metaphor but pushed back against the vision: “Planet 401(k) is a pretty sucky planet,” he wrote. In a world in which the 401(k) is the backbone of the retirement system:

— Poor people get absolutely nothing.
— Wealthy people who would have had large savings anyway get a nice tax cut that offers no meaningful incentive effect.
— For people in the middle, the quantity of subsidy you receive is linked to the marginal tax rate you pay—in other words, it’s inverse to need.
— A small minority of middle-class people manage to file the paperwork to save an adequate amount and then select a prudent low-fee, broadly diversified fund as their savings vehicle.
— Most middle-class savers end up either undersaving, overtrading, investing in excessively high-fee vehicles or some combination of the three.
— A small number of highly compensated folks now have lucrative careers offering bad investment products to a middle-class mass market based on their ability to swindle people.

Congratulations, America!

Individual choice may be fine for buying shoes and sandwiches, Yglesias suggests, but not for retirement savings.

Baker, meanwhile, notes that wondrous new technology breakthroughs have been a pretty steady feature of history for the last 200 years. And, he argues, the creation of a “401(k) World” has little to do with technology—it is a result of policy choices.

Other countries, some of which are dong much better than the United States by most measures (e.g. Germany, Denmark, Canada), have much more extensive social welfare states, providing not only better retirement security, but national health care coverage, and substantial support for child care.

Friedman, Samuelson, Yglesias, and Baker are columnists, and columnists come with points of view and do what columnists do. (Felix Salmon, of Reuters and CJR’s The Audit, also has some choice words yesterday for Friedman, on the topic of what his 401(k) vision means for working people.)

But there are enough table-setting kinds of articles—about cutting entitlements, lowering expectations, looming poverty in retirement—to warrant serious treatment by the vaunted mainstream media. By this I mean reporting and analysis. It would be great to see the press really tackle issues like retirement security and the adequacy of the safety net , so that at least ordinary folks have a shot at understanding and shaping the ongoing debate about their future.

Such journalism might draw on the insights of Thomas Edsall in The New York Times Economix column. Edsall argued that the conservative political class recognizes the days of shared growth, with the US leading the world economy, are over, and that the wealthy are keenly aware that political threat to their status and comfort could come from rising popular demands for policies of income redistribution. That could come in the form of better Social Security and Medicare benefits, not worse; better childcare programs, more services for the elderly, and national health insurance coverage. Such things are not possible in the 401(k) world, which anticipates that every man is out for himself. But maybe there are other choices?

Other writers, like Michael Lind, writing for Salon, and Josh Barro for Bloomberg News, and even Yglesias are starting to talk about raising Social Security benefits to meet a growing need for retirement income.

Statistics from the Center for Retirement Research show that 53 percent of households are at risk of not having enough money to maintain their living standards in retirement, and a new study by the Employee Benefit Research Institute finds that 57 percent of American workers have less than $25,000 in household savings and investments, excluding their homes. A broad discussion of the adequacy of government retirement benefits is in order.

And all this is fodder for mainstream media journalists to explore how the great American middle class is doing in Thomas Friedman’s 401(k) world, with the idea of helping us all decide whether it’s the world our democracy should choose.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman. Tags: , , , ,