Economic Update: The Pension Crisis

Summary

Economic Update with Richard D. Wolff

Episode: The Pension Crisis
Date: October 13, 2016

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Overview

In this episode, Richard D. Wolff explores the emerging crisis around pensions in the United States, set against the broader economic backdrops of recession warnings, economic inequality, and the fragility of workers’ rights. The second half features a detailed and passionate interview with economist Teresa Ghilarducci, a specialist in retirement security, who explains the mechanics, history, and challenges of the American pension system—and lays out the risks for retirees if present trends continue.

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Key Discussion Points and Insights

1. Economic News Round-up (00:00–29:53)

a. Looming Recession Warnings (01:00)

• Theme: Major global banks (HSBC, Bank of America, Goldman Sachs) have recently issued "red alerts" concerning an imminent recession.
  • “Looming down the road has a bit more meaning than it normally might have.” — Richard Wolff (01:17)

b. Labor and Inequality: Harvard Strike and Farmworkers Win (02:00)

• Harvard’s 750 cafeteria workers, among the lowest paid in an exceedingly wealthy institution, strike for modest pay and health benefits.
• The strike highlights grotesque inequality; Harvard’s endowment ($30 billion+) dwarfs the cost of these workers' demands.
  • “The amount of money involved for Harvard would be the equivalent of you or I taking a nickel or a dime out of our pockets in order to do something that would... transform the lives of 750 people and their families.” — Richard Wolff (05:13)
• Contrast: Good news for farmworkers at Sakuma Brothers Berry Farms (WA), who secured improved conditions following a successful boycott (08:07).

c. The Food Industrial Complex (08:45)

• Richard discusses Michael Pollan’s critical article on the failure of the Obama administration to challenge "Big Food" and its links to public health crises (obesity, diabetes).
• Organic/"little food" estimated at $50 billion, dwarfed by "big food’s" $1.5 trillion (10:11).

d. Berlin’s Anti-Gentrification Policies Compared to London (11:29)

• Berlin’s left-wing government is taking concrete steps (taxes on foreign buyers, Airbnb restrictions, reinforced rent controls) to prevent gentrification and protect residents in contrast to the luxury-driven transformation of London and New York.
  • “Markets... to distribute scarce items to those most able to pay ... makes the city uniform, a playground for wealthy people.” — Richard Wolff (13:24)

e. The "Mauling" of America: Retail Crisis (14:00)

• The U.S. has more malls per capita than any other country, but major retail anchors (Sears, Macy’s, JC Penney) are closing, causing widespread mall failures.
  • “Across America today, there are hundreds of dead malls... looking a lot like Detroit or Cleveland or Camden, New Jersey.” — Richard Wolff (16:56)
• Underlying cause: income inequality and shift to e-commerce, exposing market failures and inefficient capital allocation (17:15).

f. Labor Market Exclusion and Palliative Policy (21:30)

• Richard critiques a paper by Alan Krueger (Princeton), which finds many non-participating working-age men rely on pain medication.
  • “These people don’t need pain medication. These people need a good job at a good salary in a community where they can live out lives that mean something to them.” — Richard Wolff (25:59)

g. Electoral Disconnection from Real Economic Issues (27:28)

• The two leading presidential candidates aren’t seriously addressing urgent economic threats or historic inequality.
  • “These are severe failings of this election campaign and have nothing to do with which of these folks ends up in the, the hot and to becoming hotter seat in the years to come.” — Richard Wolff (28:52)

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2. The Pension Crisis – Interview with Teresa Ghilarducci (29:53–57:43)

a. What Are Pensions? (31:08)

• Pensions are “deferred income,” a way for workers to secure income after their labor ends; also compared to a “depreciation allowance” for human labor.
  • “When they sell their time to employers, the employers owe them a depreciation payment. So for your listeners... I think that view of what pensions are makes some sense.” — Teresa Ghilarducci (32:25)

b. Origins and Role of Pensions in the U.S. (33:13)

• The modern pension concept started with Civil War veterans and was then incorporated into labor agreements and Social Security.
• Pensions act as stabilizers for households and local economies (e.g., Detroit’s reliance on Social Security/pensions).

c. Defining Retirement and Its Social Importance (35:45)

• Ghilarducci expands on retirement as earned time to control life’s pace/content, not mere idleness.
  • “Everybody deserves a time in their life when they can control the pace and content of their life. We fought hard for the weekend… the retirement time I’m talking about is a long weekend before we die.” — Teresa Ghilarducci (36:20)

d. How Universal Retirement Time Was Achieved—and Now Being Lost (39:08)

• Achievement: Decades of struggle produced rough equity in the years spent in retirement for rich, middle-class, and poor.
• Current Crisis: Only the rich and well-educated now retire with sufficient resources; the middle-class and poor face downward mobility, insecure retirements, and poverty.
  • “Only the rich and well educated are going to be able to have a healthy retirement.... The middle class and the poor... have to work into their late 60s, 70s, and on into their 80s just to maintain... above the poverty or near poverty level.” — Teresa Ghilarducci (40:51)

e. The Shift from Defined Benefit to Defined Contribution (401k, IRA) (42:49)

• Past: Employer-based, defined benefit plans plus Social Security created predictable, dignified retirements.
• Present: The rise of voluntary 401k/IRA plans means fewer protections and more individual “do-it-yourself” risk. Only 50% of workers have any employer pension or 401k.
  • “Companies do not have to provide a 401k plan. It's completely voluntary… Only half of workers have a 401k or a pension at work. Half have nothing.” — Teresa Ghilarducci (44:59)
• 401k/IRA plans are plagued by high fees, poor investment options, and predatory financial vendors.

f. Financialization and Middle-Class Squeeze (49:04)

• The finance industry, rather than employers, is extracting value through fees and complexity. Even employers are dissatisfied, opening the door for broad coalitions for reform.
  • “The squeeze on the mass of people is accruing to... the financing... the middlemen, not so much employers, not to the employers so much, not to the real economy. You should have an alliance with the employers to squeeze the middle.” — Richard Wolff (52:09)

g. Collective Institutional Investment vs. Do-It-Yourself Models (52:22)

• Institutional pension plans (like CalPERS or UAW plans) pool risk and achieve better returns/management.
• The individualized 401k/IRA model forces workers to act as financial professionals and exposes them to predatory practices.

h. International Comparisons and Solutions (55:25)

• Most developed countries have a mixed system: a public, pay-as-you-go base and a regulated, advance-funded public/private pension layer.
• The U.S. stands apart for its heavy reliance on individualized, profit-seeking models.

i. Policy Momentum and Hope (57:04)

• States like California are adopting “Secure Choice” automatic pension plans for all workers, a sign of grassroots solution-building.
  • “The retirement crisis is real and people know it. So, 29 states have moved before the federal government has moved and we're passing Secure Choice.” — Teresa Ghilarducci (57:10)

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Notable Quotes and Memorable Moments

• On Corporate Greed and Inequality:
  “Administrators, faculty, alumni [at Harvard] indulge themselves in these gracious charitable speeches. But when it comes down to where they are and what they do and the institutional life they partake of, suddenly they are out to lunch, most of them.” — Richard Wolff (03:57)

• On the Purpose of Retirement:
  “Everybody deserves a time in their life when they can control the pace and content of their life. We fought hard for the weekend… the retirement time I’m talking about is a long weekend before we die.” — Teresa Ghilarducci (36:20)

• On the Roots of the Pension Crisis:
  “Only the rich and well educated are going to be able to have a healthy retirement.... The middle class and the poor... have to work into their late 60s, 70s, and on into their 80s just to maintain... above the poverty or near poverty level.” — Teresa Ghilarducci (40:51)

• Critique of Individual Responsibility Narrative:
  “People are saving for the long term earnestly. And I resist everybody blaming the victim for not saving enough.” — Teresa Ghilarducci (50:19)

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Timestamps for Important Segments

• [01:00]–[07:30] – Harvard strike and inequality
• [08:45]–[11:19] – The food industry and diet-related health costs
• [11:29]–[14:00] – Berlin’s anti-gentrification approach
• [14:00]–[21:20] – U.S. retail crisis & the “mauling” of America
• [21:30]–[25:59] – Alan Krueger’s paper and “pain management policy”
• [27:28]–[29:09] – Disconnect in the electoral discourse on economic threats
• [29:53]–[31:08] – Introduction to Teresa Ghilarducci and pension focus
• [31:08]–[35:27] – What pensions are, history, and function
• [35:45]–[41:10] – Retirement as entitlement, crisis emerging
• [42:03]–[49:28] – Trends in pension coverage and individual risk
• [49:28]–[54:11] – Financial industry’s profit from individual retirement savings
• [55:25]–[57:43] – International models and policy reform efforts

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Tone and Language

Richard Wolff’s tone is critical, direct, and analytical, blending professional expertise with urgency about real-world consequences. Teresa Ghilarducci is passionate, detailed, and empathetic, focusing both on hard policy facts and the lived experience of retirees facing insecurity.

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Summary

This episode chronicles the economic, social, and political factors underlying America’s pension crisis. It highlights how the dismantling of collective, stable retirement systems has left the majority of workers exposed to insecurity, predatory financial interests, and the perils of growing old in a system designed for profit over wellbeing. The discussion is both a warning and a call to action for alternative, collective solutions rooted in real economic democracy.

Transcript

[Teresa Ghilarducci]

Sam.

[Unidentified Vocalizations]

Saint.

[Richard Wolff]

Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives, our jobs, our incomes, our debts, those of our children and those looming down the road. And today I need to make a mention about looming down the road. Since yesterday, the HSBC bank, one of the largest banks in the world, issued what is rare for it, what it calls a red alert because it feels that there is an imminent recession facing the United States and indeed the world economy. And this puts them alongside bank of America, which did much the same last week, and Goldman Sachs the week before. So looming down the road has a bit more meaning than it normally might have. This is Richard Wolff. I'm your host. I've been a professor of economics all my adult life, and currently I teach at the New School University in New York City. I want to begin today by talking about a strike at a college. The strike in particular is at Harvard College, and It entails about 750 cafeteria workers. These are not well paid people. They live in the local New Haven community. And perhaps before I go any further, I should mention in the interest of full disclosure, that I went to Harvard as a student as the college that I attended. So I say what I'm about to say about the college with as much shame as this situation calls forth, which is quite a bit. Harvard is the richest university in the United States, perhaps in the world. It has the largest endowment, something in the neighborhood of $30 billion, which puts into the shade even places like Yale and Texas and other major private universities and indeed universities of any kind. So to talk about the very low pay of 750 cafeteria workers who spend their lives providing food to the faculty and students of some of the richest families on this planet, together with folks working for them for a high salary in many cases, this is extraordinary. This is the equivalent of any grotesque example of inequality in the United States that you could look for. It's doubly galling because Harvard likes to be a place where people declaim about excess inequality, where they like to posture as though they are concerned about it. Administrators, faculty, alumni, indulge themselves in these gracious charitable speeches. But when it comes down to where they are and what they do and the institutional life they partake of, suddenly they are out to lunch, most of them. There are a core, both of faculty and students who are supporting these workers in their very modest demands not to have their medical deductions from their check raised. That's all they're asking. Don't raise them. And asking for a modest increase in their salaries, an increase which, if they got it, would still be less than half of the annual cost of going to Harvard as a student these days, et cetera, et cetera. It is grotesque. The amount of money involved for Harvard would be the equivalent of you or I taking a nickel or a dime out of our pockets in order to do something that would do what? Transform the lives of 750 people and their families? Yes, do something about New Haven, Connecticut. And let me drive home the point. Harvard and Yale pretty much the same. I know Yale because I went to graduate school there and lived there for many years of my life. At Yale, like at Harvard, we're talking about a larger community. In Yale, it's New Haven. At Harvard, it's Cambridge and Boston, in which there is vast amount of poverty in part because the community hasn't got the money, the tax revenue to do all kinds of useful things. Harvard could and should contribute properly, but it doesn't. It's tax exempt, just like Yale is tax exempt in New Haven. It's even more galling at Yale because Yale, the third or fourth richest university in the United States, is located in New Haven, with which is one of the 10 poorest cities in the United States. Therefore, the gap is even more grotesque than it is at Harvard. But let's stay with Harvard. If they paid these people properly, if they paid taxes properly, they'd be a good citizen. But they're not. They do it in order to become even more wealthy than they already are. And as the richest university in the United States, it tells you more about the reality of that university than all the public relations nonsense that they spew out at high cost year in and year out. But lest I leave you with the thought that there's a strike there that pits 750 poor cafeteria workers against the colossus of Harvard University, I also would like to mention my congratulations to an organization known as Families United for Justice, who just won a dispute with the Sakuma Brothers Berry Farms in Burlington, Washington. You all know these berry farms because Sakuma is one of the farms that provides berries to the Driscoll Corporation, which is the United States number one purveyor of berries of all kind. And you've seen them in your supermarket. In all likelihood, those workers, most of whom are indigenous Mexican workers, finally got together and called off their boycott, which was successful and won some decent provisions as farm workers in the far reaches of the northwest of the United States. Good news on some cases, shame on Harvard for the other, an article in Last week's Sunday New York Times Magazine caught my attention. It's by a very famous writer on the food crisis of America named Michael Poland. P O L L A N. If you're interested, the article is really worth reading. October 9th New York Times Sunday Magazine. In it he explains how the beginnings of the Obama administration were filled with promises that we would do something about what I call he doesn't this is my term, the food industrial complex in the United States. Just as key a player in our society as the military industrial complex or the medical industrial complex and so on. It's an industry composed again of four parts. The people at the base who produce the food, the farm, the agribusinesses, the seed companies, the fertilizer companies. Then it moves on to the processors of all of this, the meat industry. And finally at the top, the retail purveyors in supermarkets and fast food joints of what is the product of our food? A tiny number of companies. It is highly monopolized. Tiny number of companies control the food that we eat. And Michael Pollin, in addition to making all this clear, points out that there are terrible problems about what they've been doing which they refuse to address. Problems of the fact that a major part of the cost of medical care in the United States has to do with diseases linked to diet. And these are the people who shape the diet of most Americans. Problems of obesity, problems of diabetes, and a whole long list of others are clearly linked, not as the only cause, but as a partial cause to the diets these industries basically impose on the American people. There are many other aspects of his work that are worthwhile, but this article summarizes the failure of the Obama administration to live up to what it promised at the outset. Poland's position is that the Obama administration tried, and he gives special credit to Michelle Obama more than to her husband for having led the charge, but that the combined lobbying and political muscle of the food industrial complex frustrated and blocked the very efforts they tried to make. Nor does he say, are the prospects very good because both Trump and Clinton are less committed than even the Obamas were, and the Obamas weren't able to do much. It tells you something not only about concentrated industry in the United States, but its particular role in your health, in your diet and what that implies about the society as a whole. He does recognize, he does recognize that there's a beginning of change. He says it's coming from the bottle. But bottom as millions of Americans begin to demand better quality food, healthier food. But he cautions us to be careful. He says he's measured the size of what he calls little food. That's the business of organic food, locally sourced food, artisanally prepared food. Says it's about $50 billion, which is a significant size. But big food, the four that I mentioned before, their value is one and a half trillion. So keep in mind we are looking at a struggle which has begun, but is very much a David and Goliath kind of struggle. Next item.

[Interviewer/Host]

I want to bring to your attention.

[Richard Wolff]

The city of Berlin and the reason why is what caught my eye was.

[Interviewer/Host]

A story the other day in the Financial Times.

[Richard Wolff]

And in that story, the Financial Times, which comes out of London, by the way, congratulates Britain. Let me read you the title of the Financial Times story. Germany, Berlin's War on Gentrification. That's the lead title and then the subtitle as Demand Booms, officials want to prevent the city turning into another London. Oh, this comes from the Financial Times in London. And they're congratulating Berlin. Why? Because it turns out the Berlin government, which is a government controlled by the Socialist Party and the Die Linke, the further Left party in Germany at this point, or at least those are the two major parties in the parliament that runs Berlin. They are not permitting all kinds of things to happen. That turned London, like New York, San Francisco and many other cities into playgrounds for the rich, where gentrification basically pushes out low and middle income people who can't afford the rising cost of homes and apartments and makes way for those who can afford it. Because as gentrification everywhere shows us, that's how markets, that institution we're supposed to revere, work markets to distribute scarce items to those most able to pay. If the number of apartments in a city like San Francisco or New York is limited and the market determines who gets it, then the people with the most money get it and the people with less money are thrown out of their homes and can't afford to live. It makes the city uniform, a playground for wealthy people, and those who work for them have to commute from long distances or lose their jobs altogether. It also leaves open the question, where did the money come from that these people have to spend? How did they acquire it? Markets never ask those questions. You may be concerned about how the city is a diverse place or not. You may be concerned about holding on to neighborhoods developed over a century to have real distinct qualities. But if you're in a market economy, that doesn't count. All that counts is, is who's got how much money and that's what's happened to London. And the Financial Times, based in London, nostalgic for what once was London, congratulates Berlin on a left wing government using all kinds of regulations, and all kinds, to be honest, of creative interpretations of existing law to keep people in their homes. They have done such things as pass taxes on foreigners trying to buy property in Berlin who have to pay a tax much higher than any German would have to pay. That keeps one part of the gentrification pressure out. They have kicked out Airbnb can't do that in Berlin because of its effects on the housing market. They have reinforced rent control, rent stabilization. They have banned luxury renovations we, when used to jack up rents, et cetera, et cetera. And it's making a difference. So much so that the Financial Times, hardly a place of social criticism or left wing sympathies, looks upon Berlin as a model of what London could have and should have done long ago. Next item for today. This one has to do with malls, what we might call the mauling of the United States. For those of you not familiar, let me catch you up on this. The United States has more malls per person than any other country on the face of the earth. In fact, no other country's close. Let me give you the statistics. And all of this is from Business Insider, an Internet magazine for business. And this is an article from 11 October called Sears, Macy's and JC Penney are fueling a $48 billion crisis in the retail industry. Well, what are we talking about here? We're talking about malls. The United States has 23.5 square feet of retail space per person. Let me do that again so you all can listen. 23 and a half square feet of retail space per person. The second country in the world after us, we're number one, is Canada, but it has only 16.4 square feet per person. In other words, a third less. And the third ranked country in the world, Australia, has only 11.1 less than half. And all the rest of the world doesn't even come close. We are a mauled country and the problem is in our economy that this is turning out to be a disastrous economic catastrophe. Nothing short of that. All across the United States, large retailers like Sears, Macy's and J.C. penney are closing stores, hundreds of them. And when that happens, malls collapse.

[Interviewer/Host]

Why?

[Richard Wolff]

Because these large stores are called mall anchors. They are the large store that brings the population to the mall and allows the smaller stores that exist around the anchor to survive, to get the customers without which they can't survive. If you close the anchor store, the rest of the mall will die. This has become so obvious in recent years that small stores have adjusted their leases so that they can leave. They can get out of the lease if and when the anchor store closes, which means the owners of the whole mall, the developers and so on, face an immediate collapse when one of these large stores closes. Across America today, there are hundreds of dead malls. Malls sitting there looking a lot like Detroit or Cleveland or Camden, New Jersey, with the weeds growing up out of the parking lots because nothing is happening. There's an estimate from Credit Suisse bank that Sears alone will cause 200 shopping malls to close in the next year or two. Moreover, it is a catastrophe with ramifications. That's how capitalism works. Turns out lots of these malls are based on borrowed money, in which case the developer borrows the money to build the mall. And the mall and the revenue it generates is the security for the debt. Which means that those who invested in those bonds issued by developers in those loans taken out by developers now face mega defaults as the malls can't function, can't generate any revenue, and therefore can't pay off their debts, therefore plunging their creditors into all kinds of mess. It's a small version of the subprime mortgage kind of disintegration. Therefore it will take down all kinds of lenders, banks and others as this unwraps. What are the causes? Well, there's two major ones. First and foremost is the inequality of income, which has basically reduced the purchasing power capability of the mass of the population. The middle and lower parts of our distribution of income are pinched in dozens of ways, as we well know. And as a result, they can't buy and they can't keep these malls going. Number two, the very difficulty they're having in making purchase makes them shift more and more to electronic purchases rather than going to the mall to save money of all kinds. And so we're seeing a shift of business from the physical retail store to, to the Internet capable purchase that way. And that's also hurting these malls in an indirect way. But in the end, it's the lack of purchasing power. And what does it tell us as a conclusion? People like me, professional economists, are told to teach in our courses about the genius of the market as an allocative mechanism, that capitalism is some terribly well worked out system for making sure that investments go to where the rates of return will be good. Investments poured into malls in the United States in the last 20 years. That investment turns out to be a disaster a little bit like many others that we've cataloged on this program. And it's not just a disaster in the sense that they invested in something without thinking through capitalism's tendency to have economic crises like the one in 2008, which could make all of this very dangerous, which is what's happening. It's not only that they didn't think that through, they didn't take that into account. They didn't do any of the necessary things. They went ahead and mauled the United States beyond that of any other country in the world, not particularly inefficient. And now, having made that terrible mistake, nothing is done with the parking lots, with the buildings, with all the alternative uses that these hundreds and hundreds of dead malls could be put to. We live in a society that wastes all of that. It's not only inefficient investment, it is a chaotic, wasteful misuse of the very detritus and debris that your misinvestments have led to. It's a lesson, in short, that those who take seriously the claim that capitalism has some particular virtue in the investments it directs people to make. Maybe you ought to think again. I need to make a comment about a colleague of mine. I don't do that very often, but this one bothered me, so I will. His name is Alan Krueger. He teaches at Economics at Princeton. And his most recent paper, which came across my desk and that is going to be presented on the weekend of the 14th and 15th of October at a conference of the Federal Reserve bank of Boston, is called A Paper about the Workers who are Not Participating in the Labor Market. He's very taken with young men, or let's call them middle aged men between 25 and 54 years of age, because he says these people are not looking for work. He's talking about the people outside the labor market, outside the labor force. The people who are counted that way because they've given up, they're not looking for work anymore. They're at a high point in our history. It's troubling large numbers of people, particularly in the areas of labor economics, because clearly you're doing something to a society if the number of its adult prime age working people not in the labor force means we're all dependent on the production of. Of a shrinking portion of our own community. And however you cut that, that's going to have social effects that are not minor. So he's trying to figure that out. As far as that goes, congratulations to him. It's an important issue, and he's looking at it. But it's what he found that is so troubling. He did a survey and he discovered that half or more of the millions that are in this category take pain medication and that two thirds of those take prescription pain medication, which means heavy duty pain medication. So he says these are people in pain, which makes a certain sense to me, since I don't believe this is in any meaningful use of the word, a choice on the part of these people. This is a painful response to a set of social circumstances that have come into their lives unbidden and unwanted. So far, so good. Here's the problem when he concludes what should be done about it. Professor Krueger advocates using the Affordable Care Act, Obamacare to expand its coverage to enable more active intervention by providing pain medication. This reminds me of Aldous Huxley, of Julian Huxley. This reminds me of horrible novels I read when I was young about working classes given drugs to make them docile, given drugs to make them accept, resign themselves to an economic system that isn't working for them, rather than demanding an economic system that would and could and should work for them. These people don't need pain medication. These people need a good job at a good salary in a community where they can live out lives that mean something to them. A society that can't provide that, shame on it. A society that can't provide it and proposes instead pain intervention and pain medication ought to examine its most basic assumptions. Let me stop here and make a final comment. In this first half that we are in the final weeks and speaking only personally, I am so grateful for this. We're in the final weeks of an election campaign for President of the United States. My guess is most of you have noticed this. We have four candidates, but in our strange society, we pretend that we only have two by excluding the other two. There's no justification for this and it flies in the face of even the most fundamental Democratic commitments. But that's not what I want to talk about. This is a program about economics. So here's what I do want to talk about. Very briefly. There are enormous economic problems afflicting the United States. In the second half of today's program, we'll be talking about one of them, the pension crisis of this country. But I want to talk right quickly about two others that I have talked about before. One, we opened today with the statement by major banks in this country that we are on the precipice of, of serious economic downturns. And this in a world economy that has not yet recovered from the collapse of 2008. Is that an urgent consideration for the American people in terms of what the president, the next president, can and will commit to do to deal with this? If you think that's an issue, then you are right. If you think the two leading candidates have addressed it, then you are wrong. They haven't. They're acting in unison as if that weren't a problem, as if that weren't there, as if that weren't the important thing for them to address. Here's a second example. This last year, 2015, the world crossed a kind of line. The richest 1% finally own more wealth than the other 99% of this planet's population. That's right. The richest 1% together own more than the other 99% altogether. Do we also have Oxfam earlier this year telling us that the 62 richest people on this planet, most of whom are Americans, have more wealth than the bottom half of the planet's population, three and a half billion people? These are levels of inequality that make us think back of the pharaohs in Egypt. What in the world is going on? The economic ramifications of this are awful. The personal, mental, physical ramifications equally awful. Are our leading two candidates addressing this question? No. They either say nothing about it or they propose plans that are laughable in their grotesque tininess relative to the size of the problem, almost a mockery of a serious engagement. These are severe failings of this election campaign and have nothing to do with which of these folks ends up in the hot and to becoming hotter seat in the years to come. We've come to the end of the first half of this program. As usual, we will have a short interlude and then folks please come back. Stay with us. The music will be short and sweet and then we will have a major conversation with a major expert about the crisis of pensions in the United States. Something that either already concerns you or will very soon and so is a very important topic for us to deal with. We will be right back.

[Unidentified Vocalizations]

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[Richard Wolff]

Welcome back folks to the second half of today's economic update. It is with great pleasure that that I introduce to you the person who.

[Interviewer/Host]

Will be talking much of the next.

[Richard Wolff]

Half hour about the Important matter of pensions.

[Interviewer/Host]

She is Teresa Ghilarducci.

[Richard Wolff]

Teresa, welcome to the program.

[Teresa Ghilarducci]

Good to see you.

[Interviewer/Host]

Teresa is a professor of economics at the New School for Social Research in New York City. She's widely known for her progressive views about how to solve the upcoming retirement crises and has written two books this year alone. One is a snappy and warm personal finance book called how to Retire with.

[Richard Wolff]

Enough Money, clearly an important matter for.

[Interviewer/Host]

Many of us from workmen publishers. And the second book is written with an unlikely partner, the president of one of the largest private equity firms in.

[Richard Wolff]

The world, Blackstone, and his name is Tony James.

[Interviewer/Host]

Their book is a bold blueprint for the public option to our bewildering array of 401k and IRA systems. That book is called Rescuing Retirement and is published by Disruption Books.

[Richard Wolff]

So having introduced you, now let me jump in and ask you to teach us. Let's start with the biggest question. What are pensions?

[Interviewer/Host]

Why do we have pensions?

[Richard Wolff]

When did it start, at least here in the United States? Give us some sense of what the pension issue is.

[Teresa Ghilarducci]

So pensions are a part of your pay as a worker. So workers get pensions. For many people, many economists, it's viewed as deferred income. And that's familiar to most of us. If we're in a union, we have collective bargaining and the workers decide to put most of their compensation into wages. But they also could decide in a collective way to put some of it towards health care. Just like the Harvard workers want their pay to go. Pensions, vacation pay, little, little buckets, and that's viewed as deferred pay. Those are the conservative economists. There are other economists like me who view pensions as a payment for depreciation. The idea here is that capital gets an allowance for its depreciation and the owners get an allowance for that.

[Richard Wolff]

In other words, the machines and so on wear out over time, wear out.

[Teresa Ghilarducci]

And so do people. When they sell their time to employers, the employers owe them a depreciation payment. So for your listeners, for all of us who work, I think that view of what pensions are makes some sense. They also are viewed in illegal context right now. If you set aside pensions, the deal is you get a tax break for that set aside and that puts it in a whole other category. These are tax qualified accounts. You accumulate money in those accounts because you're a worker. Non workers don't accumulate pensions unless they're wealthy housewives, basically who use individual retirement accounts. So for the most part those tax qualified accounts come from workers wages and those are protected in various and inadequate ways. You Asked another question. Where did pensions come from in this country? It's places where they come from other countries too. They're fascinating. They come from Civil War veterans and their dependents. So we first had the idea that workers, these were soldiers, deserved something for their service long after they provided the service, when we decided how to manage the outcomes of the Civil War. So union soldiers from the United States got a pension and so did their dependence. The Confederate states, state by state, also compensated their soldiers and their families by providing state pensions. I don't know if you wanted all this history, but it's really important for us to know it. The last Civil War widow died just about 10 years ago. So that's my other point. Pensions can last for a very, very long time. They also serve a function to help stabilize our economy. If we didn't have pensions and we didn't have Social Security, Detroit would be even debtor than it is now. In the last 10 years, a third of income going to Detroit households come from pensions come from Social Security or the long, hard fought for pensions by Detroit city workers, police officers, firefighters, and of course, people associated with the auto industry and from unionized industries. So pensions are a lot of things.

[Richard Wolff]

And they're very important to a lot of people and a lot of cities and a lot of our society.

[Teresa Ghilarducci]

Yeah, they are very important in a capitalist system. They are a part of pay that helps stabilize economies and help stabilize the lives of households even long after the worker has died.

[Richard Wolff]

Right. And it's a way of provisioning so that you're not literally, as we used to say, thrown on the slag heap when your years of labor are over, when you reach 65, or whenever, that you're not just discarded like a piece of machinery that isn't useful anymore.

[Teresa Ghilarducci]

If I can elaborate on that. Joe Glaser, the labor's troubadour, the songwriter for many working people who fight hard for their provisions, wrote a song in 1959 during the Chrysler strike, the autoworker strike against Chrysler. And it's a song that I played over and over and over again as I was writing my first book called Too Old to Work, Too Young to Die. The bosses get pensions when their days are through. There's nothing for you, buddy, you're out in the cold. So that song is an expression that we all deserve time at the end of our working lives for our own lives. I don't like the word retirement, and increasingly I get a lot of resistance when I use it. Workers love the word retirement, but they also resist it. Too, Rick. They say, look, I don't want to be thrown away. I don't want to be useless when I stop my job. So I want to provide a new definition, a new aspiration of what I want funded. And that is that everybody deserves a time in their life when they can control the pace and content of their life. We fought hard for the weekend, for that period of time, maybe on Sunday, maybe a little bit on Saturday. Now the phone and the Internet and the kinds of work disorganization we have now is encroaching upon that protected time of the weekend. But the retirement time I'm talking about is a long weekend before we die. And so we accomplish entitlement to that time. When we passed Social Security in 1935, when state and local workers got pensions even before Social Security was passed, the railroad workers got it in 1934 with the railroad retirement system. Scores of union workers in the 40s, 50s and 60s got that entitlement to that time when they negotiated defined benefit plans. When companies, not wanting unions, put in defined benefit plans as a way to avoid the union, as a way to avoid the unions. So the unions had their effect by what we economists call the threat effect. If you don't want unions, buddy, then you better provide the wages, hours and working conditions that unions would impose upon you. So we had and the horrible irony.

[Richard Wolff]

That the very companies that forfeit fear of unions made good benefits, then turn around and claim to their workers, you don't need a union because we gave you the benefits as if we gave you something other than under the duress of a union threat.

[Teresa Ghilarducci]

And that's always been the problem of the labor movement, is to have their own members appreciate it's not their company giving them the as well as the neighbors. But with enough of a union movement, everybody knows why they're getting paid. But let me fast forward to what's happening now if that's okay.

[Richard Wolff]

That's what I want. I want you to tell us, given the background you've now given us, tell us what you mean by a crisis in pensions right now.

[Teresa Ghilarducci]

Because I told you a story of hope and success and victories. So we have people now and I follow them. I follow dead people. In my sample of research, I have thousands of people who have died and I look back to see what their lives were like and I look at those people in terms of their wealth distribution, the poor people, the middle income people and the rich people to see just one thing, Rick. How much retirement time did they get? They had that period of time Too old to work, too young to die. I count the days and months and years for each of these people, and I found something pretty startling. And I ran the numbers over and over again. I found that on that system that we built Social Security, negotiated pensions, that the rich, the middle class and the poor had the same number of years. So this was a celebrated moment of equity that we got out of our economy. This was as of when, well, about now. The people dying now retiring on their pensions and their Social Security system and their disability systems got an equal retirement time. It's an accomplishment of equality we forgot to celebrate. The crisis can be described in a number of ways. One of them is that only the rich and well educated are going to be able to have a healthy retirement. The middle class and the poor, their retirement, their pension income has shrunk and got so unstable that they are going to have to work in their late 60s, their 70s, and on into their 80s just to maintain not even their standard of living they achieved when they were working, but just to stay above the poverty or near poverty level. That's the crisis. It's a crisis of downward mobility and it's a crisis of inequality.

[Unidentified Vocalizations]

And.

[Teresa Ghilarducci]

And we're not going to see it because people are going to just get by. They're going to work a little bit more, they're going to skip lunch, they're going to be isolated in their homes. And so.

[Richard Wolff]

And they're not going to paint the house as often as they once did, and they're not going to fix it.

[Teresa Ghilarducci]

And they're going to cut their pills in half or they're not going to get their medical care. And more to the point that economists aren't really good at describing, perhaps it's poets, medical professor, you know, medical people, or social workers or people smarter than us to describe what happens to the lives of people when they're isolated and poor and also humiliated because of the downward mobility. I mean, I'm very passionate about this because we once had it.

[Richard Wolff]

Yes.

[Teresa Ghilarducci]

And we're losing it, and we aren't collectively organized around it.

[Richard Wolff]

Let me make sure everybody is on the same page, including me. So the achievement, the good news was we got to a point where the pensions that were won and struggled for made it the case that rich, middle and poor had about the same amount of time between the end of the active work life and the end of the life altogether. But the crisis is that what's happening now is that having achieved in equal time, we're making the experience of that time horribly unequal. By the resources that those at the upper end have for their period of not working compared to what the middle and the lower are.

[Teresa Ghilarducci]

That's well put. I want to jump into why that's happening.

[Richard Wolff]

Yes, please.

[Teresa Ghilarducci]

But I really wanted to just settle, just like you did, on how unnecessary and what a reversal of fortune this is. We can really make it. We can actually bring back legitimacy to that time of life that is so precious because it's basically scarce. So I can tell you what happened. It's a story of sort of two people. One family is as messed up as the family is now. This is a couple that got married when they got out of high school. A man and a woman kind of couple. And they worked in, let's say, Ohio, let's say it's Toledo. And the woman did not work. She raised family and her husband did. And he worked in a plant that wasn't unionized, but the employer provided a defined benefit plan. They got a divorce. They were all messed up just like we are now in their 30s. And she had to go back to work. They're in my sample, right? They're in my database. They retired and each of them has a Social Security benefit. And each of them have a little bit of pension for the rest of their life. Both of them were able to cobble out a lower middle class retirement life and they died in about the same years. Maybe he died a year before she did. But the difference between the mortality rates among workers, especially if the women works, is not that large. This is a major point I really want to be dispelled in this retirement literature. There's not something about women and men that are so different that on average women live three years longer than men. It turns out if you have a woman who has an economic life like a man, meaning she has to go work for somebody else and the man works for somebody else, their mortality is about the same. So work does depreciate you. Work does kill A lot of whalemen who actually live a long time, actually were wives with income that never had to work. So it's really important for all of us who work for a living to know we deserve a depreciation allowance, we deserve pensions. So here's those lies. Social Security pension for life gets you to be lower middle class for the rest of your life. But you have dignity. You know where your money is coming from. You don't skip lunch. You don't cut your pills. You stay in your house and you may actually fix the plumbing. Fast forward to their kids who might have the same kind of life. They get married, they get divorced, they do all the right things, they do all the wrong things. We're human beings. But they're thrown into a different kind of a pension system. They have Social Security, to be sure, because we haven't lost that fight yet. But they've been thrown into a pension system that's either a 401 or nothing. And I want to tell you and everybody who's listening or watching that companies do not have to provide a 401 plan. It's completely voluntary on part of the company to whether or not they offer a 401. And right now, as we're talking, only half of workers have a 401k or a pension at work. Half have nothing. So those children who are now adults are thrown into a system where they have a likelihood that their employer offers no pension or 401k at all. If they have nothing, they probably haven't saved for their retirement. And all they have is Social Security, which on average is $1,300 a month. It keeps people above the poverty line. But you don't get that lower middle class or middle class retirement time. If you're in a 401k, you are in the maw of predators. The Obama administration has pointed out that Employers are providing 401 s, but employers are taking their hands off the wheel and give it to a vendor. And a worker is faced with 75 choices, 100 choices. Yale University, NYU, MIT, and more and more universities are being sued because their 401ks are filled with garbage and bewildering.

[Richard Wolff]

Choices and sky high fees and sky high fees that reduce the ability to grow in the way that you need.

[Teresa Ghilarducci]

And it worked. You know, when you have these high fees, you could charge 1% or 2% when the rate of return before the financial crisis were 8 or 9. And if you forget about the bad years, even 11. And you could sort of take off the top the cream. Well, now that we have economic growth at what, 1.45? Let's talk about that someday.

[Richard Wolff]

Interest rates at the bottom.

[Teresa Ghilarducci]

At the bottom. The rates of return in these safe assets are pretty small. When you take 1% for a third of people in IRAs, they're getting negative returns. There's a professor at Yale on their pensions, on their.

[Richard Wolff]

So their pensions are shrinking, are shrinking.

[Teresa Ghilarducci]

Because they don't get the tax break that the richer people do. They pay higher fees and they may even actually take it out before retirement. So they're better off with money under their mattress, not Only because sort of a mattress is heavy and you have to get the money out. It's a little bit harder to get. But no American Express funds or Charles Schwab are taking fees out of it. So the system is not working for most of us and we need to go back to the success that we had and actually revive our aspirations that we all get a time when we're too old to work and before we die. And it's dignified and it's stable.

[Richard Wolff]

So is this a part of what we see everywhere else, that is the growing inequality in this economy, the stagnant wages, the cutting back of other kinds of benefits, so that the pensions are just being another claw back by the employers on what they offer to the working class in general. Is it part of that?

[Teresa Ghilarducci]

That's the effect. But the process is a little different, which means that we have, when we build a political strategy around getting back good pensions, we have to be aware of a lot of the clawback, a lot of the erosion of our pension system is accidental more than intentional. And so in our fight for more pensions, I'm now working with the head of the biggest real estate and private equity firm in the world, Blackstone. A very unlikely partnership. But when he read my articles that there was a retirement crisis, we had lunch and by the end of the lunch we were finishing each other's sentences. And maybe this is where collaboration and coalitions are built, is that you find a place where we agree. And this banker and private equity investor is one that invests long term. His firm doesn't own companies that sell on the stock market. His firm own companies that don't have to answer to shareholders. They invest. They can actually do environmental mitigation for their firms. They don't have to disgorge money out in dividends. So there's a common. He also said to me, whenever my companies get rid of a defined benefit plan, a middle class person doesn't have a chance to retire. He says, that's not fair. We also realize that the 401k in the IRA system is terribly inefficient. People are saving for the long term earnestly. And I resist everybody blaming the victim for not saving enough. This is why I wrote the little warm, snappy how to Book. I'm talking to people who write me every day, Rick, who say, what am I going to do about my retirement? Do I have to work until I drop dead? And I say, no, you have an imperfect system, but this is a way you can make the best of it. In the last chapter of my little book, I tell them why they should vote to expand Social Security and Medicare. So it's the only personal finance book that has a voter guide with it because the government's an important partner in this. So yes, the inequality of retirement time is because the finance industry want your money. And the finance industry have built up 30,000 so called financial advisors that want your money. But employers don't like the system any more than workers do. Capital markets, in other words.

[Richard Wolff]

So the squeeze on the mass of people is accruing to the financing.

[Teresa Ghilarducci]

To the financing.

[Richard Wolff]

The middlemen, not so much employers, not to the employers so much, not to the real economy. You should have an alliance with the employers to squeeze the middle.

[Teresa Ghilarducci]

Right, exactly. And the other unlikely coalition partner. But this is what we do in order to have big change is build coalitions are the people who invest money for these defined benefit plans. So we have trillions of dollars in what's called institutional money, pooled money that invests for the long term. Those are the California state pension system, the New York state pension system, the United Auto Workers defined benefit system. This is pooled money. And if you're lucky enough to be in it, you are in. One at the University of Massachusetts has a defined benefit plan. You have the best investment managers investing your money at the lowest possible fee. So, so the institutional managers take workers long term savings and invest it appropriately for the long term. We may quibble with the fact they don't put environmental bottom line issues enough in their investments. But the risk adjusted rate of return adjusted for fees is the lowest we could get. And we actually have a voice in how those companies are run through institutional investors, stakeholder vost, you know, corporate activism. But the other half of America has their money in these 401ks and IRAs. And the only place you can put that money is into liquid, purely liquid stocks and bonds. So they could be sold every hour of the day. And in America you can take money out of your 401k or IRA, you know, every minute of the day. So those assets have to be liquidated. No, is this too.

[Richard Wolff]

No, no, it's fine.

[Teresa Ghilarducci]

But it's a big mistake of the system that was built 30 years ago where we had a 401k and IRA system built on alongside of the defined benefit system. We have too many of our children, too many of our colleagues who are putting their money in 401s and IRAs. They're paying too high fees. But they also have a completely inadequate portfolio. It's like some of us get our money run by professionals. We get to go to dentists and doctors and we have electricians who expertly do what we can't do. But the rest of America have to decide do it themselves. Like they have to pull their own teeth, you know, sort of. Or do their own wiring. And so some people have individual retirement accounts invested in money told by some predator financial advisor about where to put it. It enriches the financial advisor and impoverishes the worker. So I make coalitions with not only employers who don't want the money they pay their workers to be wasted and also to institutional investors.

[Richard Wolff]

Let me.

[Interviewer/Host]

Because we're running out of time, let.

[Richard Wolff]

Me push you a question. Do other countries simplify all this? Don't have 8 million financial firms competing with one another, ripping you off, undermining the whole point and purpose. Are we doing this in a way that other countries don't do for good reasons?

[Teresa Ghilarducci]

Yeah. No. So I think that every country is moving towards a mixed system. So there's no country. I think the last one might be Greece where they only have a pay as you go Social Security system. And we don't want that kind of a system. A pay as you go system becomes impoverished, becomes politicized and the poor don't do so well and either do workers. Every country that has a viable, strong labor movement has two layers. They have a pay as you go social insurance system. And on top of that, that's public. Yeah, public system. They have an advance funded public private system, highly regulated, well managed. We stand apart from Australia, Germany, Italy, where we have a very powerful financial system that has a do it yourself individually directed system because it makes them money. Right. So I have advocated in a very particular way, it makes the money, everybody can make money in this system. Rescuing Retirement calls for a public option to 401ks and IRAs. This is. I'm going to leave you with good news. The retirement crisis is real and people know it. So 29 states have moved before, the federal government has moved and we're passing Secure Choice. California just signed into law September 29, 2016 that every employer in California has to offer a pension plan. The contested terrain now is how we're going to manage it. I don't want everybody being in a predatory 401 or IRA. We need a public option.

[Richard Wolff]

Teresa Ghilarducci, thank you very, very much. I hope that the details enhance people's understanding, but your passion about it is the best thing and the best hope we have.

[Interviewer/Host]

Thank you all for listening.

[Richard Wolff]

I hope you found this a useful program. I want to thank truthout.org, that remarkable independent source of news and analysis that has been partnering with us for years. I look forward to speaking with you.

[Interviewer/Host]

Again next week.

[Unidentified Vocalizations]

Sam.