It’s a truism
that has become engrained into American life.
Go to school to get good grades.
Get good grades to get a good job.
Get a good job to get a good pension for retirement. Be sure to save enough on the side in an IRA
or 401(k) to supplement your pension and Social Security so you can afford to
do all the fun things you see other people doing on TV.
That’s all very
well, but the whole scenario takes for granted that there will always be highly
paid jobs for well-educated willing workers.
That this might be a trifle unrealistic in light of the habit that
advancing technology has of eliminating jobs at an accelerating rate.
True, there will
always be work that only human beings can do, and such work often requires
highly skilled and educated people to do it . . . but it is the sort of work
that often is underpaid, when it is paid at all. “Starving Artist” is not so much a label as a
description. Nor does this sort of work
guarantee recognition or even acceptance; “Full many a flower is born to blush
unseen and waste its sweetness on the desert air.”
Of course, such
“leisure work” is never truly wasted. If
nothing else, someone who works for the sake of the work itself at the very
least develops his or her own character and acquires and develops virtue. Yes, people who work at wage system jobs can
also acquire and develop virtue, but they often have to work harder at becoming
more fully human than someone who works for the sake of the work, not just
because it is the only way to earn income.
That segues into
today’s topic, saving for retirement, or, How to Have Adequate Income When You
Can No Longer Work. A large part of the
problem with retirement today is the fixed idea that you must physically toil
to be justified in having income.
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| Reverend Vincent McNabb, O.P., |
Connected with
that is the equally fixed idea that income derived from something other than
physical toil is illegitimate. Brain
work, or work that does not produce a tangible good or service, is theft
according to extreme proponents of this theory.
The Reverend
Vincent McNabb, O.P., friend of G.K. Chesterton and something of a character
himself, believed that everyone should engage in manual labor to produce goods
needed for one’s own consumption. In his
book, The Church and the Land (1926), Fr. McNabb claimed that people
like lawyers and accountants contribute nothing to society and are mere drones
feeding off truly productive members of society.
This attitude, of
course, undermines the concept of private property. If — as people like Fr. McNabb, Henry George,
and Karl Marx believed — only labor produces private property, then income from
capital (i.e., all non-labor inputs to production) is illegitimate . . .
including whatever land produces and all natural resources. If only labor grants private property, then
no one has a right to take anything whatsoever from nature.
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| Henry George |
This includes
“adding labor” by hunting or gathering.
If collecting fruits and nuts from field and forest gives ownership,
then so does shoplifting or cattle rustling.
Obviously this is
wrong; only the owner of the land and trees or the people to whom he or she had
granted the right has the right to gather fruit or nuts. Anyone raiding someone else’s orchard or herd
of cattle is a thief.
Thus, the
contradiction in the “labor alone” theory should be immediately obvious. If only labor produces anything and only
labor creates ownership, then not even an owner necessarily has the right to
the income from capital. All income is
attributable to whoever’s labor created the capital. Trade, inheritance, even charity become
illegitimate because there is no right to own conveyed in any transaction, only
by labor.
Nor does the
theory improve by claiming that humanity in general has the right to own, but
not individuals in particular. The
problem with that theory is that “Humanity” is an abstraction created by human beings;
it exists only as an idea, not as a concrete reality. “Humanity” therefore only has such rights as
its creators — actual human beings — give it.
As a result, it is contradictory (and therefore nonsense) to say that humanity
created by human beings has rights that human beings created by God do not.
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| Louis O. Kelso |
This is important
because private property is not the thing owned, but the absolute and unlimited
God-given right to be an owner inherent in every single human being, and
(this is important, but not to be confused with the right to be an owner in the
first place) the necessarily limited and socially determined bundle of rights
that define what an owner may do with what he or she owns.
These rights of
property (as opposed to the right to property) include the right to
exclude others from using what one owns, and the right to receive any income
generated by what is owned. As Louis
Kelso pointed out, “Property
in everyday life, is the right of control.” (Louis O. Kelso, American
Bar Association Journal, March 1957.)
All of this leads
up to the issue of “saving for retirement.”
Under current law — and popular understanding — retirement plans are
construed as “deferred compensation.”
Money is set aside now, usually on a tax-deferred basis for a “qualified
plan,” and distributed after retirement (or retirement age, whichever comes
first). It is then taxed at a presumably
lower rate.
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| "Do you suppose he meant the other IRA?" |
There is a slight
misconception embodied in current law and popular understanding relating to the
belief that money distributed from a qualified plan is money that has been
earned by labor. That is true only of
the principal, money “contributed” (funds put into a qualified plan are always
referred to as “contributions”) by the participant(s) or plan sponsor for the
benefit of the plan participants.
The bulk of
distributions from most qualified retirement plans — including IRAs and 401(k)s
— are not usually made from funds contributed by the participant or the plan
sponsor during the participant’s period of employment. However construed in current law or popular
myth, distributions are not, therefore, actual deferred compensation. That is a “legal fiction” for tax and accounting
purposes.
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| Somehow the irony escapes them. . . . |
So where do the
bulk of distributions come from in most qualified retirement plans? From earnings on assets purchased with past
contributions made by plan participants and plan sponsors, and from current
contributions made by plan sponsors after the recipients terminated employment.
Given the belief
that labor is the only thing that justifies receipt of income, the inescapable
conclusion is that most payments out of qualified retirement plans are
therefore illegitimate. Only private
property in capital — that is, ownership of productive assets — justifies the
bulk of distributions from qualified retirement plans.
The fact that
most distributions from qualified retirement plans are actually derived from
earnings on invested capital and not directly from savings suggests that the
whole concept of retirement income needs to be rethought. In fact, it may be time to rethink the whole
concept of retirement, but one thing at a time.
Actually, there
has been something of a shift from saving for retirement, to investing for
retirement, but the idea is still that both investment earnings and the
principal should be depleted during retirement.
“Retirement planning” therefore consists largely of a guessing game with
far too many variables, viz., how long do you expect to live after
retirement, what rate of return do you expect to receive, what will the tax
laws be like, do you want to leave a residual for your heirs, and so on, so
forth.
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| Is there maybe a just, third way to go? |
It is an economic
truism that “savings equals investment.”
Retirement planning under current assumptions therefore really consists
of trying to guess how much of your assets should you liquidate and still have
an adequate income. The idea of
accumulating assets with the goal of receiving investment income without
liquidating any of your principal is alien to most people, something that only
“the rich” need to trouble themselves.
There are sound
financial and economic reasons why it is extremely harmful to assume that
financing of all new capital formation comes out of past savings, but we will
not look at that — today. Instead, we
will very briefly address the real issue here: what is the best way for people
to have an adequate and secure income for retirement . . . or any other reason?
The answer, in
light of advancing technology, lack of “quality” jobs, inadequate rates of
saving, and so on, ad infinitum, is that both retirement and career
planning must shift from saving out of current consumption income to have
something to consume later. It has to
change to saving out of future production to have something to consume now.
In short, the
only way to address the problem of both inadequate current income and future
income is to have an intensive program of expanded capital ownership that
allows people to accumulate self-liquidating capital (i.e., capital that
pays for itself out of its own future profits) that provides an adequate and
secure income for an entire lifetime without reducing or spending the
principal.
Such a program
can be found in the
“Capital Homesteading” proposal of the Center for Economic and Social Justice.
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