UCLA Anderson Forecast economists have a New Year’s resolution for the nation: Start saving now before it’s too late. A slow-rolling catastrophe of grossly inadequate national savings is upon us, and the crisis will affect us on personal, city, state and national levels.
“Our forecast on this — and you don't want to believe it — is next year we'll be a year older,” said Forecast Director Edward Leamer. Looking at current long-term demographic trends, we are an aging nation with a growing savings deficit and little political or personal will to change course, he noted.
“We need an AAYP to offset the AARP. The “Y” stands for young,” Leamer said. “We are engaging in a huge transfer from the young to the old. You have to choose: Who should pay for kids’ schooling, and who should pay for the elderly’s Viagra?”Earlier this month, Laurence Kotlikoff, the William Fairfield Warren Distinguished Professor of Economics at Boston University, highlighted the intergenerational impact of our dwindling savings at the Forecast’s December Economic Outlook event at the Grand Horizon Ballroom in UCLA’s Covel Commons.
“I think we're stealing from our children, and I think we've been doing that as a policy for the past 60 years,” said Kotlikoff, the author of “The Clash of Generations: Saving Ourselves, Our Kids and Our Economy.” “It's not pay as you go, but take as you go.”
Both Leamer and Kotlikoff focused on the shift in spending peaks from a mid-life high to the growing trend in high spending by the elderly. “Who's been consuming so much more?” Kotlikoff asked. “Is it Uncle Sam or is it grandma? It's grandma.”
To address the future of savings, a panel comprised of Anderson professor Suzanne Shu; Michael Hiltzik, business columnist for the Los Angeles Times; Ann Boynton, deputy executive officer of Programs, Benefits and Policy at Calpers; and David Crane, lecturer and research scholar at the Stanford Institute for Economic Policy Research gave differing viewpoints of the challenges facing all sectors of the national economy.
Shu, whose research focuses on financial decision-making and behavioral economic choices, said that when it comes to Social Security, most people act against their best interests. “From a financial perspective, waiting until later — assuming a regular life expectancy — is better, yet most people claim it earlier. There’s a loss aversion for after you're dead.”
Boynton followed Shu’s comments with more advice for retirement. “Our research shows that a defined benefit plan is the best way to save for retirement,” she said.
On the political side of the savings and economy debate, Hiltzik agreed with the growing chorus of critics.
On the political side of the savings and economy debate, Hiltzik agreed with the growing chorus of critics.
“The reason people don’t want things to change is that everyone in Washington has a vested interest in the status quo,” the newspaper columnist said.
Extending the list of possible interest groups resisting reform, Crane added the current Bogeymen in New York to the challenges to new policy creation. “There is an unholy alliance between public pension plans and Wall Street private equity,” Hiltzik said.
_____________________________________________________________________________________
_____________________________________________________________________________________
See the complete story and other economic news on the UCLA Anderson Blog.
