In this Tech Central Station essay, Arnold Kling of EconLog does a good job of explaining four myths about Social Security: The Pension Myth, the Transition Cost Myth, the Baby Boomer Myth, and the Medicare Myth.
Jonathan Clements has written The Wall Street Journal’s ($) Getting Going personal finance column since October 1994. In this week’s column, he reflects on ten years of providing personal finance advice, and his views are quite interesting and somewhat surprising for a columnist of a newspaper that advocates investment:
The fact is, over the decade I have written this column, my optimism has taken a beating. Yes, I still believe it is possible for ordinary investors to make decent money on Wall Street. But it has become increasingly clear to me that the odds are stacked against us.
First, Mr. Clements notes that gains in stock prices are almost certainly going to slow over the next several decades:
[T]he collapse in stock prices has made me look harder at historic market returns — and I don’t like what I see. According to Chicago’s Ibbotson Associates, the Standard & Poor’s 500-stock index has clocked an impressive 10.4% a year since 1925.
A significant part of that gain, however, came from both rich dividend yields and rising price/earnings multiples. Today, with dividend yields so low and P/E ratios so high, long-run returns will almost certainly be lower — even assuming robust economic growth.
The nosebleed valuations are especially worrisome given the aging of the U.S., Europe and Japan. In 30 years, 20% of the U.S. population will be age 65 or older, up from 12% today. With fewer workers per retiree and massive government spending needed for Social Security and Medicare, we are going to face some grim financial choices.
Thanks to their younger population, developing nations should post faster economic growth. That is why I am a big fan of emerging-market stock funds. . . These funds, however, aren’t a sure thing, in part because the countries involved don’t offer the political stability and commitment to property rights that we enjoy in the U.S.
Indeed, when the costs attributable to investing are assessed, the potential gains look even slimmer:
If the markets’ raw results are a tad slim in the decades ahead, the gains may all but disappear after figuring in investment costs, taxes and inflation.
Suppose you own a balanced portfolio of stocks and bonds that scores 6% a year. Knock off two percentage points for investment costs, and you will be down to 4%. Lose 25% to taxes, and that 4% will become 3%. Wouldn’t mind earning 3%? Problem is, that 3% could easily be devoured by inflation, leaving you with no real return.
Faced with such potentially meager results, the solutions are obvious enough, and I find myself advocating them ever more stridently. Want to make your investment portfolio grow? You need to save like crazy, make the most of tax-sheltered retirement accounts, trade sparingly and favor low-expense funds, especially market-tracking index funds.
After ten years of reviewing the travails of the individual investor, Mr. Clements is no fan of the Bush Administration’s proposal to privatize Social Security:
Unfortunately, during the past decade, my confidence in the investment acumen of ordinary investors has been shaken. I have come across too many serial blunderers, folks who jumped from technology stocks in the late 1990s, to bonds in the bear market, to real-estate investment trusts in 2004, always buying after the big money has already been made.
These investors have neither the education nor the emotional fortitude to invest sensibly. That is one of the reasons I believe replacing traditional company pension plans with 401(k) plans has been a mistake. Similarly, I fear that the privatization of Social Security will be a disaster unless it is accompanied by a slew of safeguards.
And perhaps most surprisingly, Mr. Clements levels his harshest criticism for the industry that makes its living off of advising people on how to invest:
Of course, wayward investors could be straightened out with sound investment advice. But that isn’t exactly a safe bet.
Over the years, I have met some fine brokers and financial planners. I have also, however, heard too many horror stories. As e-mail has spread, journalists have become more accessible to readers — and that means I get a steady stream of e-mails from aggrieved investors who were taken to the cleaners by unscrupulous advisers.
To make matters worse, Wall Street appears to have scant interest in fixing this mess. In theory, we should be entering a golden age of investment advice, with brokers and planners helping legions of aging baby boomers to manage their burgeoning nest eggs.
Yet rather than helping investors, Wall Street seems more intent on profiting from them. Brokerage firms could refuse to sell bad investment products and ruthlessly weed out rotten brokers. Instead, they appear content to let their brokers loose on the unsuspecting public. What about the legal problems that inevitably follow? That, it seems, is viewed as simply the price of doing business.
Writing in this National Journal op-ed, Stuart Taylor is not particularly impressed with the quality of the two major parties’ Presidential candidates this year:
One candidate is an intellectually shallow, closed-minded, strangely smirking, free-spending, hard-right culture warrior who combines smug ideological certitude with stunning indifference to facts and evidence, who is obsessed with shifting the tax burden from the wealthiest Americans to future generations, who claims virtually unlimited power to suspend constitutional liberties, who has alienated millions of America’s onetime admirers abroad, and who has never made a mistake he would not repeat.
The other is a both-sides-of-tough-issues, unlikable, aloof, cheap-shotting, free-spending political careerist whose domestic policies might make the Bush deficits even worse, whose Iraq policy shifts with every political wind, and who has long been close to his party’s quasi-pacifist, lawsuit-loving Left.
Ouch!
This Chronicle article about the downturn in the Houston Golf Association‘s charitable donations after a less than stellar Shell Houston Open this past spring brings to mind how even well-intentioned people can bungle a good thing through a series of bad decisions.
The HGA has operated the Houston Open PGA Tour golf tournament for about 60 years. Although Houston has a rich golf tradition, the Houston Open has not always been a resounding success. Indeed, I vividly recall a time in the 1970’s when, after a particularly unfulfilling Houston Open, the Houston Post’s cranky golf columnist, the late Jack Gallagher, penned a controversial column in which the basic thrust was “if this is the best you can do, then why don’t we just forget about having the Houston Open.” The HGA’s members were not pleased with Gallagher’s column, but what he had to say had some merit.
To the HGA’s credit, however, it turned things around. In 1975 or so, the HGA entered into a long term agreement with The Woodlands Corporation, which at the time was in the early stages of developing a master-planned suburban community on the far northside of Houston’s metropolitan area. For the next 26 years, the Houston Open and The Woodlands enjoyed a mutually beneficial relationship as the golf tournament rode The Woodlands’ extraordinary success and growth to become one of the top tournaments on the PGA Tour in terms of the amount of money raised for charity each year. That status was cemented when Royal Dutch/Shell Corporation stepped up in the 1990’s to become a stable title sponsor for the tournament.
However, in the late 90’s, the partnership between the HGA and The Woodlands Corporation began to have problems. The HGA believed that the tournament needed to move from the Tournament Players Course in The Woodlands, which had parking problems and was not a particularly popular venue with many of the top players. After The Woodlands Corporation developed the outstanding Carlton Woods Golf Club on the westside of The Woodlands, the HGA concluded that The Woodlands Corporation had reneged on its commitment to build a new Tom Fazio-designed TPC Course on the westside of The Woodlands to host the Houston Open. The Woodlands Corporation — now owned by different owners than the ones who had struck the original deal with the HGA — concluded that the HGA did not sufficiently appreciate how much the growing attractiveness of The Woodlands had contributed to the success of the tournament and that The Woodlands really did not need the golf tournament to continue its phenomenal success.
Consequently, in 2002, the HGA decided to leave The Woodlands and relocate to Redstone Golf Club on the northeast side of Houston. Although the local media typically mimics the HGA’s endlessly positive pronouncements regarding the move to Redstone, the decision is beginning to look like a monumental blunder.
As noted in this earlier post, John O’Neill is a prominent Houston attorney and Swift Boat Veteran who is a co-author of Unfit for Command that is highly critical of John Kerry’s Vietnam War service and subsequent anti-war activities. Mr. O’Neill had a hard time getting a word in edgewise in this hilarious television interview with MSNBC analyst and Kerry supporter, Lawrence O’Donnell.
I must say that it is impressive that Mr. O’Donnell’s performance made moderator Pat Buchanan appear to be absolutely moderate! ;^) Hat tip to the TigerHawk for the link to this interview.
The first Enron-related criminal trial — the mess known as the Nigerian Barge trial (previous trial posts here, here, and here) — will conclude its evidentiary phase today and U.S. District Judge Ewing Werlein will complete the charge to the jury. Final arguments are scheduled to begin on Tuesday, and likely will extend into Wednesday. Stay tuned for updates.
Following up on the analysis noted in this previous post, Victor over at the Dead Parrot Society has posted the second part of his analysis on the Bush Administation’s record on domestic, non-defense, non-homeland security, discretionary spending. Inasmuch as the Bush Administration has come under criticism (including here) for its apparent profligacy in this area, I highly recommend reviewing Victor’s analysis, which concludes as follows:
Bush’s record on discretionary spending is not nearly as clear cut as the conventional wisdom would suggest. Bush has dramatically increased discretionary spending in certain specific areas like education. But if we are to try to glean information from his first-term record in order to predict his second term, the evidence is mixed. He isn’t as frugal as Reagan, but isn’t necessarily profligate, either. Upon examining his record in this much detail, I truly cannot say with much certainty whether a second Bush term would be fiscally conservative or whether his view of “compassionate conservatism” necessarily means more spending.
(All of this analysis, of course, ignores the elephant in the room which is the Medicare Prescription Drug bill. But again, there, I’m not sure he’ll do something like that again.)
Brandeis history professor David Hackett Fischer — author of Washington’s Crossing and (Oxford 2003) and Paul Revere’s Ride (Oxford 1994) — provides this favorable book review of Mount Holyoke College history professor Joseph J. Ellis‘ (author of Founding Brothers (Vintage 2002) and biographies on Thomas Jefferson and John Adams) new book, His Excellency: George Washington (Knopf 2004).
Professor Fischer notes that Professor Ellis’ book is skeptical of the “conventional idea of Washington as a leader who won the trust of others by honesty, virtue, dignity, and character; a man not consumed by ambition or avarice, but driven by his ideals, and devoted to the principles of the Revolution:”
He dismisses it as a fiction and even a deliberate falsehood, “fabricated” in large part by Washington himself. In its place, he argues that the true Washington was a man of “tumultuous passions,” “aggressive instincts,” “bottomless ambition,” “personal avarice,” and “a truly monumental ego with a massive personal agenda.”
Many men who knew Washington agreed on the passions but believed that he gained full control of them. Ellis argues to the contrary that Washington never mastered himself, and “his aggressive instincts would remain a dangerous liability” through his career. The thesis of this book is that Washington’s life was a continuing struggle against dark inner forces, which led to an “obsession with control,” which in turn caused him to favor control mechanisms for America, including a highly disciplined regular army, strong central government, and hierarchical society. . .
Some elements of Ellis’s conflict model are solidly confirmed by other sources. Jefferson wrote of Washington, “his temper was naturally high toned, but reflection and resolution had obtained a firm and habitual ascendancy. If however, it broke its bounds, he was most tremendous in his wrath.” Adams added, “He had great self-command. It cost him great exertion sometimes, and a constant constraint.”
Read the entire review. Professor Ellis’ latest book is yet another in a long line of fine books over the past decade that have focused on America’s Revolutionary War-era leaders.
But wait a minute. Just how good are these books? In this review, Matthew Price reviews University of Georgia historian Peter Charles Hoffer” new book, Past Imperfect: Facts, Fictions, Fraud — American History from Bancroft and Parkman to Ambrose, Bellesiles, Ellis, and Goodwin (PublicAffairs 2004) contends that the history profession has condoned sloppy scholarship and an “anything-goes” ethical climate:
Hoffer revisits the now-familiar cases of a quartet of historians brought low by scandal in 2002: former Emory University professor Michael Bellesiles, who was accused of falsifying data in “Arming America,” his controversial 2000 study of 18th- and 19th-century gun culture; Stephen Ambrose and Doris Kearns Goodwin, who were both found to have used material from other scholars without full attribution; and Mount Holyoke’s Joseph Ellis, who was rebuked for spinning tales of his nonexistent Vietnam combat record in classes and newspaper articles. According to Hoffer, these were not just isolated incidents but symptoms of a wider problem — one that goes far beyond the headlines to the very way history is written and consumed in America.
. . . Hoffer is particularly harsh on Bellesiles, who resigned from his job at Emory and was stripped of the Bancroft Prize in the wake of the controversy over “Arming America.”
To his defenders, the former Emory historian was the victim of a conservative plot, spearheaded by the National Rifle Association, to discredit Bellesiles’ conclusion that, contrary to the image of the musket-wielding patriot, few early Americans owned functional guns. But in Hoffer’s telling, Bellesiles engaged in deliberate “falsification” of his data. Furthermore, Hoffer asserts, Bellesiles published his book with the trade publisher Knopf (which eventually withdrew the book from circulation) rather than a scholarly press “in order to claim . . . immunity from close professional scrutiny.” (While an investigative panel formed by the AHA found no outright falsification, they condemned Bellesilles’ evasiveness about his source records, many of which could not be traced.)
As for Goodwin and Ambrose, who are also published by trade presses, Hoffer brushes aside their claims that the instances of missing footnotes or insufficient citations were just unintentional and isolated lapses in otherwise sound work. Whatever the intention, Hoffer writes, the end result is the same: “plagiarism,” which under AHA standards, he notes, does not require actual intent to deceive. (He brings greater sympathy to the case of Joseph Ellis, whose scholarship itself was not questioned, suggesting that the same imaginative powers that led him to lie about his life story may have helped him write more subtle and nuanced books.)
The Texans were off in Week 7 of the NFL season. They play the Jags at Reliant Stadium in Houston next Sunday.
Green Bay 41 Dallas 20. If there was any doubt that the Cowboys were in deep trouble to date, then this game removed all doubt. The Packers toyed with the Cowboys, who were incapable of stopping either the Pack’s ground or aerial game. In the meantime, the Cowboys have no rushing attack and no real deep threat in the passing game. This 2-5 Cowboy team is a good bet to reach 10-12 losses this season. The improved Lions are up next for the Pokes at Texas Stadium next Sunday.
Texas 51 Texas Tech 21. The 6-1 Horns proved again that they can dominate a team that cannot stop the run. Unfortunately, Texas’ problem is with the teams that can stop the run and force the Horns to rely on their questionable passing game. None of the Horns next four games are going to be picnics — at Colorado, home against Okie State, at Kansas, and the annual Thanksgiving weekend grudge match against the Texas Aggies. Interestingly, it may be Texas’ relatively unnoticed but much improved defense that pulls the Horns through these next four games.
Texas Aggies 29 Colorado 26 (OT). After back-to-back impressive road wins over the past two weeks, the Ags came home and almost laid an egg before winning their sixth straight. The Aggies came out flat in the first half of this game, but mounted a couple of impressive second half comebacks to tie the game in regulation. The Buffs sprayed the ball all around Kyle Field in generating almost 400 yards of passing offense, so the Aggies’ secondary better shore up quickly if they want to stay on the same field with OU’s high-powered offense in two weeks. The 6-1 Ags tune up for the OU showdown by taking on Baylor next week in Waco.
TCU 34 Houston 27. The Coogs are in a clear freefall as their record deteriorates to 1-6 in a game that was not as close as the score reflects. Houston is looking like a 1-10 or 2-9 team to me. What a comedown after Art Briles’ magical first season as UH’s coach.
Navy 14 Rice 13. The Owls made a nice fourth quarter comeback against a strong Navy squad only to undermine their chance for victory in overtime by blowing the PAT after the second TD. The 3-4 Owls are just a couple of breaks away from being 5-2 and in the thick of the race for a minor bowl appearance, but the Owls are now facing a brutal final month of the season beginning next Saturday at Tulsa. Rice will struggle to finish with a .500 record this season.
And, as usual, Kevin Whited has his excellent weekly review of Big 12 games.
Daniel Drezner, the assistant professor of poli sci at the University of Chicago who runs the smart Daniel W. Drezner blog, has decided to vote for John Kerry for president, albeit unenthusiastically. His post in which he publishes his decision links to a series of posts over the past several weeks in which Professor Dresner evaluates the pros and cons of each candidate. The series of posts is a highly informative resource for evaluating the positions of the candidates, particularly in the foreign policy arena.
I believe that Professor Drezner places too much emphasis in making his decision on criticism of the Bush Administration’s tactical decisions in Iraq. History instructs us that even successful battlefronts rarely are without significant tactical errors — unfortunately, such is the essential nature of the messy business of war. However, Professor Drezner’s point about the lack of reasoned policy analysis and lack of intellectual flexibility in the Bush Administration is a valid criticism and reflects my biggest reservation about the current administration.