Nobel laureate and University of Chicago Prof. Robert W. Fogel died last Tuesday at age 86. Fogel was a remarkable economic historian. In college I read excerpts from his two most famous and controversial books, “Time on the Cross’’ on the economics of slavery and “Railroads and American Economic Growth.’’
The Fogel book I often refer to in my work is “The Fourth Great Awakening and the Future of Egalitarianism,’’ an ambitious, sweeping study of U.S. history that draws from religion, politics, economics, demography, health, nutrition and other disciplines. Fogel’s thesis is that egalitarianism lies at the “core of American political culture,” although what egalitarianism means has changed crucially over the decades. My last interview with Fogel was in 2010. The topic: retirement savings.
We all know that America confronts a crisis of retirement savings with an aging population. Most people don’t have enough money set aside for their elder years. Only 42 percent of private-sector workers ages 25 to 64 have any pension coverage. The result is that more than one-third of households end up with no pension coverage during their work lives, according to the Center for Retirement Research at Boston College. An employer-based retirement savings system doesn’t even come close to universal coverage. Little wonder that Social Security remains the financial foundation of retirement. Yet, mention Social Security, and you’ll hear various versions of the refrain “We can’t afford it.” The only solution, we’re told, is to retrench.
Really? Two-thirds of senior households rely on Social Security for a majority of their income. Specifically, 65.3 percent of those 65 and older get half or more of their income from Social Security. More than a third of the same age group — 36.3 percent — receive 90 percent or more of their income from their monthly Social Security checks.
Fogel had no use for the retrenchment mentality. His work emphasized that increased longevity isn’t a burden; it’s an opportunity. America is an immensely wealthy country with more than ample resources and economic dynamism to provide for a secure retirement for everyone.
In “The Fourth Great Awakening,’’ he proposed the outline of a universal pension system. Under reasonable economic growth assumptions, he calculated that if households were required to set aside 14.7 percent of their annual income into retirement savings they would accumulate enough at age 55 to fund a pension paying 60 percent of their peak earnings. Low-income people would get help through a progressive tax of 2 or 3 percent on better-off households. The plan would stay with workers when they changed jobs.
This isn’t the kind of idea on the table in Washington, especially since it includes a “mandate.” Another comparable approach for improving the retirement savings system is for the government to automatically enroll every worker in an individual retirement account through payroll deduction. The IRA could be invested in low-cost, diversified funds.
The details of reform are less important than the fundamental insight: The economic resources are there to finance a secure retirement and greater freedom of choice in the last third of life. It’s the retirement savings model that needs improvement. There’s no excuse for sticking with an unsatisfactory status quo. Fogel was right: We can do better.
Chris Farrell is economics editor for “Marketplace Money.” His e-mail is email@example.com.