401-k and fantasy

 In the American election just past, a voter gave the state of her 401-k retirement savings plan as a reason for voting for Donald Trump. I don't begrudge anyone feeling happy about the state of their preparations for retirement. I don't even feel moved to condemn anyone for overlooking Mr. Trump's egregious offences, from the hundred thousand excess American pandemic deaths to the separation of families on the Southern border of the United States. We live in a merciless, every person for themselves society, and  some of us come to terms with that by taking steps to secure their future.

I have something else to say to this Trump voter: the numbers in this person's 401-k statement and in the stock market section of the news she reads may make her feel happy, but they have a good chance of meaning as much to her actual life in retirement, or even her ability to stop working, as Darth Vader's revelation to Luke, or Aragorn's marriage to Arwen. Three related reasons explain why.

First, the present and apparently relatively happy state of the American stock market rests on a very unstable foundation of massive debt. As the stock market climbed to record heights in 2017 and 2018, Donald Trump and his congressional allies engineered a massive tax cut, because of course they did, and promptly increased the deficit. Now hard times have arrived, and the United States has managed to run a multi-trillion dollar deficit. They ratio of federal government debt to GDP in the United States is now 98%. That doesn't include such matters as unfunded state and local debts and pension liabilities, which add about another 25% to the total. Whether or not you see the sheer magnitude of the debt as a problem, the relentless growth of the debt, and the lack of inclination, by either party, to do anything about it, does not point in a good direction. The good times will roll until they don't: last year, almost 5% of the US GDP came from money borrowed by the federal government and pumped into the economy; this year, according to the bipartisan policy center's debt tracker, over 15% of the American economy came from federal borrowing. An economy supported, in whole or in part, by borrowed money does not rest on a foundation of reality, and sooner or later the bills come due. Donald Trump may have produced impressive stock market figures, but he did nothing to make the American economy stronger or more resilient. 

This brings us to the next problem: 401-k account values will undoubtedly change on the inevitable day the United States government needs to stop borrowing and start actually paying off its debt. They will also change as the largest American generation in history moves through retirement. As more and more people convert their savings to high yield bonds, or simply liquidate their portfolios to pay for final expenses, logic suggests the stock market will decline, and declines in the stock market seldom run smoothly. 

Finally, the figures in a person's 401-k refer to purchasing power, but purchasing power changes drastically. Don't take my word for it, look up the price of hotels most places right now. Few people want to travel; indeed, most people can't travel, and the price of hotel accommodations has fallen far and fast. Conversely, when many people want the same thing, and that thing has a short supply, the price gets bid up. Have you tried buying hand sanitizer lately? Most people with 401-k retirement plans today will retire into an economy where a huge wave of retirees, and even more, or increasingly elderly people needing more and more care, creates an increasing demand for long term care facilities and retirement residences. These services don't allow for a lot of labour saving; unlike car manufacture, senior care doesn't lend itself to automation. With a shrinking labour force, the price for care will go up, and the numbers in a retirement account may not equate to a good or easy life.