Total Retirement Assets Will Increase, Even as Baby Boomers Retire


RetirementAssetsGraph.jpg   Source of graph:  online version of the NYT article cited below.


WILL stocks suffer a multidecade bear market as the baby-boom generation sells its shares to support its retirement? Some have predicted such an outcome, but a new study — which projects huge growth in 401(k) assets in future decades — paints a far more sanguine picture.

The study, “New Estimates of the Future Path of 401(k) Assets,” has been circulating since earlier this month as a working paper from the National Bureau of Economic Research. Its authors are James M. Poterba, chairman of the economics department at the Massachusetts Institute of Technology; Steven F. Venti, an economics professor at Dartmouth; and David A. Wise, a professor of political economy at Harvard. A version is at

Despite the baby boomers’ liquidation of retirement assets in coming decades, the study estimates that the total size of 401(k) plans will nevertheless grow markedly. That forecast may come as a surprise to some people, the professors concede, because 401(k)’s now represent only a modest fraction of a typical retiree’s total wealth. But the professors point out that 401(k) plans have existed only since the early 1980s; by the time that today’s younger workers retire, they will have had many more years to contribute to their 401(k)’s than current retirees have had.


For the full commentary, see: 

MARK HULBERT.  "STRATEGIES; Baby Boomers Are Cashing In.  So What?"  The New York Times, Section 3  (Sun., May 27, 2007):  5.


Professors Have Lost the Skills to Write Lively Prose and Choose Interesting Topics


The excerpt below is from a WSJ summary of an article by Maureen Ogle in the March-April 2007 issue of HISTORICALLY SPEAKING.


History professors, writes Ms. Ogle in the History Society’s bimonthly bulletin, don’t make enough effort to connect with students who view the world through a lens shaped by iPods and instant messaging. Worse, professors have lost the skills needed to engage a general audience like writing lively prose or choosing interesting topics. Their careers depend on getting articles into tiny journals on abstruse topics, not conveying the importance of that research to the public.  . . .

. . .

She resigned from her university post in 1999 and began a mission to provide nonacademic readers with "well-researched, well-documented, well-reasoned history." On the way, she discovered the perils, and pleasures, of writing for an audience "larger than six."


For the full summary, see: 

"Informed Reader; ACADEMIA; Historians Belong on the Street, Not in the Tower."  The Wall Street Journal  (Thurs., May 31, 2007):  B6.

(Note:  ellipsis added.)


Fred Thompson Skewers Michael Moore with Wit and Wisdom

Mr. Moore was back from Cuba, where he made a documentary on the superiority of Castro’s health-care system. Mr. Thompson suggested Mr. Moore is just another lefty who loves dictators. Mr. Moore challenged Mr. Thompson to a health-care debate and accused him of smoking embargoed cigars. Within hours Mr. Thompson and his supposedly nonexistent staff had produced a spirited video response that flew through YouTube and the conservative blogosphere. Sitting at a desk and puffing on a fat cigar, Mr. Thompson announces to Mr. Moore he can’t fit him into his schedule. Then: "The next time you’re down in Cuba . . . you might ask them about another documentary maker. His name was Nicolás Guillén. He did something Castro didn’t like, and they put him in a mental institution for several years, giving him devastating electroshock treatments. A mental institution, Michael. Might be something you ought to think about."

You couldn’t quite tell if Mr. Thompson was telling Mr. Moore he ought to think more about Cuba, or might himself benefit from psychiatric treatment. It seemed almost . . . deliberately unclear.


PEGGY NOONAN.  "DECLARATIONS; The Man Who Wasn’t There."  The Wall Street Journal  (Sat., May 19, 2007): P14.

(Note:  ellipsis in original.)


See Fred Thompson’s response to Michael Moore on YouTube at:  


    Source:  screen capture from Fred Thompson’s response to Michael Moore at


Better Measures of Worker Output, Increase Income Inequality


Many of us would say that income inequality is not bad, if it reflects differences in worker productivity.  One argument in the article excerpted below, is that information technology has allowed better measurement of worker productivity, and hence is partly responsible for the increase in income inequality.


. . . as companies and compensation consultants began using information technology to determine more accurately the contributions of individual employees, employers began to discriminate among employees based on performance. In a working paper, Professor MacLeod, along with Thomas Lemieux of the University of British Columbia and Daniel Parent of McGill University, mined census data and found that the proportion of jobs with a performance-pay component rose to 40 percent in the 1990s from 30 percent in the late 1970s.

”Since companies are better able to measure precisely what an employee contributes, we’ve seen a greater range of incomes among people doing roughly the same jobs,” Professor MacLeod said.

The fact that more Americans are paid less on the basis of a job title and more on their individual output inexorably leads to greater inequality. The authors’ conclusion is that the rise of performance-based pay has accounted for 25 percent of the growth in wage inequality among male workers from 1976 to 1993.

”All the bits of evidence we have tend to say that this trend is continuing,” Professor Lemieux said. In 2003, the authors note, 44.5 percent of workers at Fortune 1000 companies received some form of performance-based pay, up from 34.7 percent in 1996. And think of the growing legions of self-employed — people selling items on eBay, mortgage brokers and real estate brokers, freelance journalists and consultants of all types — for whom all pay is performance-based. Among these growing cadres, the dispersion of incomes is rather large.

”When you look at the self-employed and contractors,” Professor Lemieux said, ”inequality is much higher.”


For the full commentary, see: 

DANIEL GROSS.  "ECONOMIC VIEW; Income Inequality, Writ Larger."  The New York Times, Section 3  (Sun., June 10, 2007):  7.

(Note:  ellipsis added.)


Why CEOs Are Paid So Much More than Other Near-Top Execs


   Source of graph:  online version of the NYT article quoted and cited below.


(p. A1)  Like most companies, Office Depot has long made sure that its chief executive was the highest-paid employee. Ten years ago, the $2.2 million pay package of its chief was more than double that of his No. 2. The fifth-ranked executive received less than one-third.

But the incentive for reaching the very top of the company is now far greater. Steve Odland, who runs Office Depot today, made almost $12 million last year, more than four times the compensation of the second-highest-paid executive and over six times that of the fifth-ranking executive in the current hierarchy.

As executive pay has surged in most American companies, attention has focused on the growing gap between the earnings of top executives and the average wage of workers in cubicles or on the shop floor. Little noticed, though, is how much the gap has also widened between the summit and the next few echelons down.

. . .

The pay of chief executives, analysts say, is being driven by superstar dynamics similar to those that determine the inordinate rewards for pop stars and athletes — a phenomenon first explained by Sherwin Rosen of the University of Chicago in (p. C7) 1981 and underlined more than a decade ago by the economists Robert H. Frank and Philip J. Cook in their book “The Winner-Take-All Society” (Free Press, 1995).

As American companies, American hedge funds — and even American lawsuits — have grown in size, it has become ever more valuable to get the “best” chief executive or fund manager or litigator. This has fueled a fierce competition for talent at the top, which has pushed economic rewards farther up the ladder of success, concentrating the richest pay levels even more.

“There is an interaction between technology and scale which is true in all these businesses,” said Steven N. Kaplan, a finance professor at the Graduate School of Business of the University of Chicago. “One person can oversee more assets, and this translates into more money.”

. . .

As companies grow and expand globally, the value of the top executive can grow exponentially. In a study last year, two economists, Xavier Gabaix of the Massachusetts Institute of Technology and Augustin Landier of New York University, argued that the fast rise in pay of corporate C.E.O.’s mostly reflected the growing size of American corporations.

Processing reams of data, the economists estimated that hiring the most effective chief executive in the country would, statistically, increase the stock value of a company by only 0.016 percent, compared with hiring the 250th chief executive. But at a company like General Electric, which is worth about $380 billion, that tiny difference would amount to $60 million.

This, the economists argued, helps explain why that top chief executive earned five times as much as the 250th. “Substantial firm size leads to the economics of superstars, translating small differences in ability to very large deviations in pay,” the economists wrote.


For the full story, see: 

EDUARDO PORTER.  "More Than Ever, It Pays to Be the Top Executive."  The New York Times  (Fri., May 25, 2007):  A1 & C7.

(Note:  ellipses added.)


“The Engine of Prosperity is Technological Progress”


Steve sometimes writes clever, entertaining essays on issues of little policy importance (like whether a rational person should stand still, or move forward, on escalators).  But in the piece excerpted below, he does a great job of discussing the biggest policy issue of them all:  what drives economic progress?


Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture — but none of that stuff had much effect on the quality of people’s lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level. True, there were always tiny aristocracies who lived far better, but numerically they were quite insignificant.

Then — just a couple of hundred years ago, maybe 10 generations — people started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year. A couple of decades later, the same thing was happening around the world.

Then it got even better. By the 20th century, per capita real incomes, that is, incomes adjusted for inflation, were growing at 1.5% per year, on average, and for the past half century they’ve been growing at about 2.3%. If you’re earning a modest middle-class income of $50,000 a year, and if you expect your children, 25 years from now, to occupy that same modest rung on the economic ladder, then with a 2.3% growth rate, they’ll be earning the inflation-adjusted equivalent of $89,000 a year. Their children, another 25 years down the line, will earn $158,000 a year.

Against a backdrop like that, the temporary ups and downs of the business cycle seem fantastically minor. In the 1930s, we had a Great Depression, when income levels fell back to where they had been 20 years earlier. For a few years, people had to live the way their parents had always lived, and they found it almost intolerable. The underlying expectation — that the present is supposed to be better than the past — is a new phenomenon in history. No 18th-century politician would have asked "Are you better off than you were four years ago?" because it never would have occurred to anyone that they ought to be better off than they were four years ago.

. . .

The source of this wealth — the engine of prosperity — is technological progress. And the engine of technological progress is ideas — not just the ideas from engineering laboratories, but also ideas like new methods of crop rotation, or just-in-time inventory management.


For the full commentary, see: 

STEVEN LANDSBURG.  "A Brief History of Economic Time."   The Wall Street Journal  (Sat., June 9, 2007):  A8. 

(Note:  ellipsis added.)


Japanese Engineers Taking Bigger Risks and Getting Bigger Rewards


   In front is engineer Kazumitsu Nakamura, retired from Japan’s Hitachi, and now working for a Hitachi subsidiary in Taiwan.  Source of photo:  online version of the NYT article cited below.


(p. C1)  HSINCHU, Taiwan — One of the hottest exports from Japan these days isn’t video games or eco-friendly cars.

It is engineers.

. . .

. . . , the recent export of job seek-(p. C5)ers is a sign of just how much Japan has changed during a decade of increased competition, corporate belt-tightening and the end of lifetime job guarantees. This harsher new world has forced Japan’s famously conservative salarymen to become more aggressive in their job choices, and to view their careers as something for their own benefit and not simply their companies’, employment experts say.

This shift in mindset also underscores how Japan’s long-closed economy is finally integrating with that of its neighbors. China has already replaced the United States as Japan’s biggest trading partner, and many Japanese now see their nation’s and their own personal future as linked to Asia’s red-hot economies.

“Salarymen are taking bigger risks,” said Mitsuhide Shiraki, a professor of economics at Waseda University in Tokyo. “They’re making a logical decision to work in Asia, where they are being better rewarded than in Japan.”   . . .

. . .

There has also been a growing number of retired engineers wanting to go to less-developed economies where their skills are still highly valued, allowing them to pursue second careers late in life.

“In Asia, we can keep contributing to society,” said Kazumitsu Nakamura, 64, a former engineer for Hitachi who quit to go to Taiwan, and was recently hired by a Hitachi subsidiary to train Taiwanese employees. “In Japan, we would just be collecting pensions.”

. . .

. . .   For Tatsuo Okamoto, a 51-year-old semiconductor engineer, the biggest change was the speed in decision-making at the Taiwanese company, Winbond Electronics, which hired him away from the Tokyo-based chip maker Renesas Technology two years ago.

Dr. Okamoto recalled one instance when a 15-minute chat in the hallway with Winbond’s president was enough to win immediate approval to purchase millions of dollars worth of factory equipment. The same decision in Japan would have taken days of committee meetings, he said.

Dr. Okamoto said the experience opened his eyes to the problems that were hobbling the competitiveness of Japan’s electronics industry.

“Joining a Taiwanese company was a high-risk, high-return decision,” Mr. Okamoto said. “But staying in Japan had become a high-risk, low-return proposition.”


For the full story, see: 

MARTIN FACKLER.  "A Japanese Export: Talent  Company; Technologists See Brighter Prospects in Other Parts of Asia." The New York Times  (Thurs., May 24, 2007):  C1 & C5.

(Note:  ellipses added.)


    Source of graph:  online version of the NYT article cited above.


NASA Leader Attacked for Good Sense on Global Warming


How much of global warming is due to human activity is far from clear.  And if the current, modest, gradual warming continues, there will be winners and losers, and plenty of time to adjust.  Winners will include, for instance, those pursuing agriculture in northern regions, and shippers seeking a feasible ‘Northwest Passage.’

Economic forecasting is highly inaccurate beyond a few months out, for most variables, So who can honestly claim to know that the long-term losses of the losers will be larger than the long-term gains of the winners?

And if I am right, then what Michael Griffin said below, makes sense, and did not deserve the contempt and vitriol he received from the global warming environmentalists.


(p. A21) “I have no doubt that global — that a trend of global warming exists,” the administrator of NASA, Michael Griffin, said in a taped interview that was broadcast Thursday on National Public Radio. “I am not sure that it is fair to say that is a problem we must wrestle with.”

“I would ask which human beings, where and when, are to be accorded the privilege of deciding that this particular climate that we have right here today, right now, is the best climate for all other human beings,” he said. “I think that’s a rather arrogant position for people to take.”

. . .

Jerry Mahlman, a scientist at the National Center for Atmospheric Research, said Mr. Griffin’s remarks showed he was either “totally clueless” or “a deep antiglobal warming ideologue.”

James Hansen, a top NASA climate scientist and lead author of the research paper, said the comments showed “arrogance and ignorance” because millions of people will probably be harmed by global warming.


For the full story, see: 

"NASA Leader: Who Says Warming Is a Problem?"  The New York Times  (Fri., June 1, 2007):  A21.

(Note: ellipsis added.)


Ethanol Subsidies Reduce Incentives to Build New Oil Refineries

  Source of graphs:  online version of the NYT article quoted and cited below.


(p. A1)  “If the national policy of the country is to push for dramatic increases in the biofuels industry, this is a disincentive for those making investment decisions on expanding capacity in oil products and refining,” said John D. Hofmeister, the president of the Shell Oil Company. “Industrywide, this will have an impact.”

The concerns were echoed in a recent report by Barclays Capital, which said the uncertainty about the ethanol growth “will do little to accelerate desperately needed investment in complex United States refining units.”

“Indeed, it is likely to deter and further delay investment, if not rule out many refinery investments completely.”

. . .

(p. A15)  As a result of the push for biofuels, and encouraged by federal subsidies and grants, dozens of ethanol distilleries are being planned. These investments should double the annual production of ethanol from corn to 15 billion gallons by 2012 from about 6 billion gallons today.

But given farmland constraints and the need to use corn for food, that is as much ethanol as can possibly be produced from corn, according to the ethanol industry’s own calculations. Ethanol producers recognize that it is not clear how an additional 20 billion gallons of ethanol — President Bush has called for 35 billion gallons of biofuels by 2017 — would be produced from cellulose or biomass.

“The current thinking is that based on today’s technology, we suspect corn-based ethanol will generate at least 15 billion gallons,” said Brian Jennings, the executive vice president of the American Coalition for Ethanol, an association of ethanol and corn producers. “Beyond that, it’s uncertain. The marketplace will make that determination on where it will come from.”

Yet some members of Congress would like to make the president’s goal for biofuels a mandatory target — the equivalent of 2.3 million barrels a day that would, in effect, create an ethanol industry roughly the size of world-class oil producers like Kuwait or Nigeria.

The economics of cellulosic ethanol, made from nonfood crops and agricultural waste, are also unclear. Since cellulosic ethanol, still at an experimental stage, is twice as expensive as corn-based ethanol, there are currently no commercial-scale cellulosic plants.

Lawrence Goldstein, an energy analyst at the Energy Policy Research Foundation, an industry-financed group, has been warning for nearly a year that the government’s twin goals of encouraging refiners to increase production and promoting increased supplies of biofuels work against each other.

“These two policies are not complementary,” Mr. Goldstein said. “These policies are in conflict.”

In addition, Mr. Goldstein said, an emphasis on ethanol might lead to increased volatility in fuel prices.

“If we get a bad corn crop, we will end up paying for it at the pump and on the food shelves,” he said. “We are not buying security. We are increasing volatility.”


For the full story, see: 

JAD MOUAWAD.  "Oil Industry Says Biofuel Push May Hurt at Pump."  The New York Times  (Thurs., May 24, 2007):  A1 & A15.

(Note:  ellipsis added.)


    A trucker getting ready to fill his tanker at a Mississippi refinery.  Source of photo:  online version of the NYT article quoted and cited above.

Ethanol Costs Increasingly Obvious


Corn ethanol seemed unstoppable, but a remarkable thing happened on the road from Des Moines. Just as the smart people warned, the government’s decision to play energy market God and forcibly divert huge amounts of corn stocks into ethanol has played havoc with key sectors of the economy. Corn prices have nearly doubled, which means livestock owners can’t afford to feed their animals, and food and drink manufacturers are struggling to buy corn and corn syrup. Environmentalists are sour over new stresses on farmland; international aid groups are moaning that the U.S. is cutting back its charitable food giving, and many of these folks are taking out their anger on Congress.

. . .

Turns out there are huge economic consequences to Congress micromanaging energy policy, and all to aid its campaign donors in agribusiness. A lesson the U.S. is now learning the hard way.


For the full commentary, see: 

KIMBERLEY STRASSEL.  "POTOMAC WATCH; Ethanol’s Bitter Taste."  The Wall Street Journal  (Fri., May 18, 2007):  A16.

(Note:  ellipsis added.)