Jane White. America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need. Upper Saddle River, New Jersey: FT Press, 2010. 247 pages.
I’m leery of anyone who tells you what bad shape you’re in, then says that they and only they can help you get out of the fix you’re in. It’s a modus operandi that snake oil salesmen honed to perfection years ago, probably because it works. Still, I approached this book with an open mind, despite the subtitle (“What you must do to protect your financial future”).
Then on pages 16 and 17, White says that it’s essential that 401 (k) participants be able to buy software that tells them to “contribute the maximum, don’t time the market, and stick with index funds,” helpfully disclosing to readers that she’s “interested in developing this software.” Suddenly, it seems that while the advice might be good, it’s at least a tad self-serving.
Indeed, the first part of the book is all about 401 (k) plans. White believes that it’s unjust that people aren’t forced to contribute more money to their 401 (k) plans, and makes no bones about the fact that ordinary people shouldn’t be allowed to “shoot themselves in the foot” by managing their own retirement portfolio. There are two numbers that she returns to, time and again, without explaining why they are important. Throughout the book, White insists that Americans must have ten times their “final” salary saved in their 401 (k) by the time they retire, without explaining why nine times is too little and eleven times is too much. Second, she proposes that the federal government mandate that all employers with more than 9 employees be forced to contribute 9 percent of their salary to a 401 (k) plan. Again, why 9 (for both criteria) and not 8 or 10?
White’s thesis–that it would be good policy to legislate adding an additional nine percent to labor costs overnight–seems to fly in the face of what we known about the economy. She doesn’t consider that employers might lay off employees or cut salaries to compensate. It’s like she thinks employers are just going to pull this extra nine percent in compensation out of the same hammerspace that she pulled the nine employees/nine percent number. I kept waiting for her to explain it in more detail, but she didn’t.
Besides the dodgy macro-economics, much of the book is partisan finger-pointing that doesn’t advance the debate on retirement security or help people planning for their retirement. At this stage, most Americans probably don’t care whether Bill Clinton or George Bush did more to contribute to the mess we’re in: they just want honest solutions to get out of it. More disturbing is White’s contempt for the rich, who she believes should have to pay proportionally more taxes, again without thinking that this might lead people to become less productive, which surely is to the detriment of everyone.
Personally, I got a hoot out of her statement that “a college education should be a taxpayer subsidized right for low- and middle-income Americans…no family earning $60,000 or less should have to pay anything for college.” I couldn’t disagree more, even though I’m a tenured faculty member of a university and were such a law to pass it would doubtless personally benefit me. That’s because I think that you don’t value what you don’t pay for. If you want a college education, you should have to pay at least something for it. White makes some good points about Sallie Mae wreaking havoc with the student loan process, but the solution is to mandate low-interest student loans and work study opportunities as well as merit-based scholarships, not give away college to anyone whose family happens to not make more than $60,000 a year (another arbitrary number).
White also snarks about gambling as “one of the sleaziest industries of all, in which the ‘house always wins’–otherwise how would the industry make any money?” in a throwaway line, that again betrays a misunderstanding of how businesses work. How does any business, from an ice cream stand to a 401 (k) manager, stay in business except by taking in more money than they pay out?
The book closes with some standard populist invective against “greedy and needy politicians,” with demands that Congress become “closer to Main Street than to K Street” (the Washington street on which many lobbyists have offices). It’s not particularly original. As political agitprop, it’s serviceable for those of both parties who want to “throw the bums out,” but it doesn’t help Americans trying to plan for their retirement.
In between all of this fluff, there is some helpful, but unspectacular, advice to Americans: spend less, save more, and stay out of debt. Of course, if everyone buys less the retail and ultimately manufacturing sectors will tank, so it’s probably best that not everyone takes her advice. The personal finance stuff in general is simple common sense, and nothing that would justify a $23 book purchase. So maybe readers should take her advice and economize–in this case you should take the money you would have spent on this book and save it for your retirement.