Last time, in Political Economy: An Old System for a New Day we looked at how much the world has changed since the times when the United States of America was founded and Adam Smith, the Scottish economists published his classic study of political economy, called The Wealth of Nations.
This time (and in the next couple of posts), we’ll be see how the notion of checks and balances from the US Constitution applied to economics is one way of bridging the gap between politics and economics today.
We’ll start by looking at how economics differs from the study of political economy in the 16th through 19th centuries. We’ll see why the field of political economy changed its name to economics at the end of the 19th century. This was throwing out the baby with the bathwater! We now need to go back and rejoin politics with economics. Read on to see why. Continue reading →
No, this isn’t a post about banks. It isn’t a post about personal finance either. It’s a post about the founders of the United States’ concept of “Checks and Balances” within the US Constitution as it could be applied to the field of economics. Continue reading →
The pain in the pension
Pension plans have been hit hard by the current crisis. The stock market is in a volatile up and down race to nowhere; commercial real estate is still in trouble, and there’s a huge crisis in Europe.
Not only that! World War II baby boomers are now retiring. People are living longer. And the Bush administration was quite successful in helping businesses switch from providing their employees with defined benefit plans (i.e, pensions) to defined contribution plans (i.e., 401Ks, 403Bs etc.).
Unfortunately, defined contribution plans haven’t worked out so well. AARPs newsletter is full of articles about older people unable to retire because they have not made enough money in their 401Ks to do so. Many seniors previously had to take money out of their 401(b)s because of an emergency or illness. And many simply lost money trying to learn how to invest, a skill most Americans aren’t taught in our public schools.
Private pension funds are managed by experts in investing and actuarial statistics. 401(k)s, on the other hand offer products created by investment companies and insurance companies to lure people who know nothing about investing into turning over their money to these companies, companies which define workers’ contributions but not what benefits, if any, those employees will ever receive for their contributions.
In “Insurance Company 401k Mutual Funds; The Poor Man’s Derivatives” I wrote about a major insurance company’s defined contribution plan that my employer at the time the offered years ago. The products offered had the same name as real mutual funds, but when I inquired about why I wasn’t earning the same amount that those mutual funds were paying, I was told the truth. My insurance company’s mutual funds in my 403(b) were “knock-offs”. The company person claimed they did not take out fees. Clearly their imitation mutual funds simply weren’t as good as the actual products sold on stock exchanges!
Where’s a government when you need it?
Given the problems of so many seniors, the defects of 401(k) plans, and the current intention in Washington to make cuts to Social Security, wouldn’t you think our national government would be concerned about maintaining private pension plans?
Well, apparently not! Continue reading →