I’m more of a Tom Friedman fan than most of my progressive friends. But I believe he whiffed badly, and instructively, with today’s column: “It’s a 401(k) world.”
Friedman energetically presents his usual “world is flat” thesis that Americans must adjust to living in a rewired, more meritocratic, hyper-connected, and competitive world:
We now live in a 401(k) world—a world of defined contributions, not defined benefits—where everyone needs to pass the bar exam and no one can escape the most e-mailed list…
I’m always struck that Facebook, Twitter, 4G, iPhones, iPads, high-speech broadband, ubiquitous wireless and Web-enabled cellphones, the cloud, Big Data, cellphone apps and Skype did not exist or were in their infancy a decade ago. . . . [T]he combination of these tools of connectivity and creativity has created a global education, commercial, communication and innovation platform on which more people can start stuff, collaborate on stuff, learn stuff, make stuff (and destroy stuff) with more other people than ever before.
What’s exciting is that this platform empowers individuals to access learning, retrain, engage in commerce, seek or advertise a job, invent, invest and crowd source—all online. But this huge expansion in an individual’s ability to do all these things comes with one big difference: more now rests on you.
Friedman goes on to write: “We’re entering a world that increasingly rewards individual aspiration and persistence and can measure precisely who is contributing and who is not.” And he gives the usual list of ways this might happen: teachers’ progress teaching students, which Jamba Juice clerk sells the most product, some stuff about Big Data and the Cloud.
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. That is what I mean when I say “it is a 401(k) world.” Government will do less for you. Companies will do less for you. Unions can do less for you. There will be fewer limits, but also fewer guarantees. Your specific contribution will define your specific benefits much more. Just showing up will not cut it.
The policy implications? “Just as having a 401(k) defined contribution plan requires you to learn more about investing in your retirement, a 401(k) world requires you to learn much more about investing in yourself: how do I build my own competencies to be attractive to employers and flourish in this world,” said Byron Auguste, a director at McKinsey and one of the founders of Hope Street Group…
Friedman’s global-technological determinism leaves me scratching my head here. I ask myself: Which of these things is not like the other?
Let’s presume that the world is a more complicated, interconnected place, in which teachers, computer programmers, and Jamba Juice clerks need to raise their game. I get that social media, Big Data, and smart phones are important technological innovations. These hi-tech advances just have nothing whatever to do with 401(k) plans.
Matt Yglesias notes today that our existing 401(k) retirement system is a disastrously inefficient and predatory substitute for a more stable and economical social insurance system. Helaine Olen tells the story in greater detail in her recent book, Pound Foolish (more on that here, here, and here).
There’s nothing particularly high-tech about the CNBC/e-trade baby culture of day trading or the broader investment and mutual-fund world, either. Financial innovations are sometimes useful. These should not be confused with real-economy innovations that produce the next generation of hybrid car or Wi-Fi network, either. Within a well-functioning economy, companies such as General Motors and Ford provide infinitely greater innovations to improve our lives than (say) Citibank or Goldman is going to do.
Our 401(k) world imposes huge risks, costs, and burdens on everyone. One of these costs is that we expect everyone to learn skills they shouldn’t have to master. Another cost is that we expect savvy individual behavior to protect people against broader environmental risks imposed by stagnant wages, global economic instability, accidents, and ill-health.
Friedman’s basic frame seems oddly misplaced. People’s retirement savings weren’t hammered in 2007 and 2008 because they were slacking off or “just showing up.” The macro-economy stumbled badly. Meanwhile, a largely parasitic financial advice and credit industry made things worse rather than better.
I’m all in to support measures that impart greater financial literacy to everyday Americans. I even wrote an advanced treatise on the subject. Given the world we live in, people need these skills.
That’s too bad, because millions of people will exercise these skills badly. Millions of others will simply waste huge amounts of time on this stuff. I want nurses to spend their time and mental energies learning how to care for sick patients. I want computer programmers to learn how to improve Windows. I want Jamba Juice clerks and teachers and cops to spend their time doing real stuff, doing their jobs better. I don’t want these people spending time reading mutual fund prospectuses, learning about iShares, or otherwise moonlighting as amateur financial professionals responsible to finance their own retirements.
Given the unstable “world is flat” economy we inhabit, policymakers might have chosen to strengthen Social Security, health care entitlements, and other social insurance structures to avoid shifting greater risks onto individuals. We made different policy choices, with rather predictable results.
We might as well train people to function well in the world we’ve built. Yet, poor individual skills are not the real problem here. Focusing on that piece of the puzzle is a distinctly second-best solution.