We Need to Resist Tom Friedman’s World
My preoccupation with pension plans and alternative investments forced a delay in responding to Tom Friedman’s ill-conceived column last week entitled “It’s a 401(k) World.” Mr. Friedman posits that we are inevitably headed into an economy and society where the wellbeing of more and more individuals will depend on their own contributions and efforts; hence the reference to 401(k)s. Mr. Friedman believes that this is a wonderful world for anyone who is motivated:
“If you are self-motivated, wow, this world is tailored for you. The boundaries are all gone. But if you’re not self-motivated, this world will be a challenge because the walls, ceilings and floors that protected people are also disappearing.”
Mr. Friedman doesn’t live in any world I know. In the real world, there are a tremendous number of highly driven people who are falling through the cracks despite their extraordinary efforts. They come from every conceivable line of work, and the systematic dismantling of effective government is undermining their economic and social security.
In the world of investments, Mr. Friedman thinks that people merely need to master investment literacy in order to manage their 401(k) and prepare for retirement. He completely misses two important points. For most people, the 401(k) or defined contribution plans, are a wholly inadequate source of retirement security, whether they’re financially literate or not. Moreover, the notion that everyone needs to become a portfolio manager or financial planner is ludicrous. Our society is already too fixated on financial markets and investments.
While Mr. Friedman expresses some fear of a world where everyone is basically on their own, he thinks the 401(k) world is inevitable. I don’t think there’s anything inevitable about it at all. Mr. Friedman sees technology as the major inexorable force creating this individualized world. While technology makes it easier to move in that direction, it is policy and politics that are driving us toward a world where the onus and risks are increasingly borne by the individual and not the community.
The history of the 401(k), which I laid out in “Unintended Consequence [September 24, 2012]” is an excellent example of how our government, with a big push from the money management industry, took a supplemental retirement program for executives and turned it into the primary retirement vehicle for America. The proliferation of inexpensive computers and the Internet certainly helped moved things along. However, the defined contribution movement was intentionally designed to shift retirement risk to individuals and way from corporations. It was also calculated to create a massive retail market for the mutual fund industry. Regrettably, it never had the wherewithal to deliver retirement security to the average individual. Make no mistake, the 401(k) world is a choice, although you’ve probably not had much of a voice in the decisions that have led us to this point.