New York Times Columnist Joe Nocera can’t retire, because he doesn’t have any money. But, like a lot of people who are probably in the same position, he did mostly the right things, like putting money in a 401(k).
As I was growing up, I was taught the same “right things”, and I’ve taken the majority of these for granted as being appropriate things to do in a modern society. These include:
- Put your money in a bank, because a bank is safe.
- Max out your 401(k) contributions.
- Save 25% of your income.
- Consider large purchases through careful research.
Underlying all of these are assumptions about how capitalism works, based on ideas like rational actors working methodically to maximize personal value and support their self-interests. This walks alongside assumptions about work ethic: working hard leads to long-term financial success, and the harder you work, the more you’ll succeed. For many of us, these create our base understanding of the world: they are the scaffolds upon which major assumptions are built, and these assumptions color the way we think of democracy and equitable exchanges and fairness.
As these assumptions were being ingrained during my childhood, I remember having a perpetual sense of awe as I discovered various technological advancements. I remember space shuttle launches, and the Lego Technic sets, and learning how modems work. These engineering and technological feats build upon one another, and have always left me with the notion that humans can do anything.
I think, for myself and for a lot of other people, our technical abilities have become conflated with civic abilities, and we’ve made the incorrect leap that because we, as a society, are capable of building fantastic engineering marvels, we are somehow equally as capable of building societal marvels. But the more I understand the extremely short history of our financial system, the more I become convinced that we have no idea what we’re doing. Quite literally, everything we’ve been taught to accept about economics is a crap shoot, and we should all probably start challenging the most basic of financial assumptions. I realize observations like this are challenging, because they make us feel uncomfortable, but let yourself absorb these provocations, and see where your brain heads:
- The cost of an item should reflect all of its externalities. As you walk through the aisles at Whole Foods, you put some locally produced items in your cart. They cost next to nothing, because they’ve been produced at a facility around the corner from the store. You decide to treat yourself. You select a green pepper. It has a label, which lists the pesticide tax and the VAT, as well as the shipping and freight fees. The pepper costs $84. Later that night, when you eat it, you take your time, prepare it simply with salt and pepper, and savor each bite.
- A bank that stores capital should not also invest capital. When you go visit your bank, you can enter a room that has your money in it. It’s all there, the $65,000 you’ve saved, in various forms of precious metal. You pay a series of mandatory fees to have your money stored at the bank, but it’s worth it, because you can see your wealth expanding and depleting. When you make a purchase with your bank card, a little robotic arm pushes coins around. It looks like a video game.
- People shouldn’t retire. As you reach 40, you’ve decided to cut your hours back to four days a week. Then, at 50, you switch to three days of working – you pick Tue/Wed/Thu, so you get a nice solid break for travel. By the time you are 70, you go in to work just one day a week. It’s an accepted norm to scale back to one or two days by the time you are 80.
I’m not naïve enough to think that these ideas should or will happen, or even that people will think them good. But the article cited above ends with a quote from Teresa Ghilarducci, a behavioral economist at The New School who studies retirement and investor behavior. “’The 401(k),’ she concluded, ‘is a failed experiment. It is time to rethink it.’” I think the entire system is an experiment, and many parts of it are failing. Innovation and creativity require a runway for exploration; as we develop new products and services, we’re realizing that comments like “that will never work” are self-defeating and unproductive. I think the same is true in areas of economics and policy. Tom Peters describes an idea as “a fragile thing.” Jonathan Ive explained that ideas “begin as fragile, barely formed thoughts, so easily missed, so easily compromised, so easily just squished.”I can tell you 50 reasons why any of the above scenarios are bad, but I also realize that good ideas come from unexpected places.
Derivatives were awful and didn’t work. They were a financial innovation, and part of innovation is accepting the risk that things will fail. I don’t fault those who invented these financial instruments for trying innovative things. I do fault them for doing it with the resources of those who had no say or ability to weigh the risk. But we need more new thinking around economics and the core assumptions of capitalism, and we need to first realize that new thinking will always come with associated risk, and we need to approach the risk responsibly. This will require that we give more time to ideas before “logically” explaining them away based on our assumptions of economics and policy. We need to start challenging basic assumptions about how financial and policy decisions work, because frankly, they haven’t been working at all.No Comments »