Maya MacGuineas, Director of the Fiscal Policy Program at New America and President of the Committee for a Responsible Federal Budget, argued that the economic crisis is revealing the deep cracks in our existing social insurance system. Although the focus right now is on stimulus and economic growth, we must start talking about our institutions and how to update them. The federal budget deficit will reach at least $1 trillion next year, MacGuineas said, and policymakers need to review the budget line-by-line and think hard about how we are going to pay for it all. Because most of our money currently goes towards “mandatory spending programs,” these programs cannot be ignored when we rethink the budget. MacGuineas would like to link stimulus and long-term entitlement reform. The sums of current stimulus proposals are so large as to enable major, lasting investments in our economy. We should borrow money now, MacGuineas argued, but offset costs once the economy is stabilized. Without neglecting the importance of greater individual responsibility, we must think about vulnerable populations in our country right now--children and those hurt by globalization. Government must become more progressive, and focus its limited resources on those that need them most. The current economic climate demands major reforms, MacGuineas concluded, and the national discussion about the most appropriate policy choices is just beginning.
Three weeks after my testimony, and a week before the election, I got my first clue about where the buzz was being created about my plan. I went to a well-organized, exciting conference on Life-Cycle Saving at Boston University. Zvi Bodie, the nation’s leading finance economist, gathered industry leaders and academics to discuss issues in American’s retirement income security system. I sat at the table of gracious, well-dressed, and extremely knowledgeable financial industry executives, people I have grown comfortable with during my stints as a pension trustee. They stunned me by asking if my ears were burning, because I was much discussed at a previous week’s conference on 401(k) plans. What happened was that Rush Limbaugh had given a garbled version of my testimony on his Web site (complete with my photograph). In my book (and in Congress) I proposed the government set up a new plan, which would supplement Social Security, an additional place Americans could save for their retirement.
Only 50 percent of workers have pensions at work. This rate of coverage has been stagnant since the 1970s. Many people don’t know how hard it is to save. In order for an average earner to supplement Social Security benefits at the most basic level, she would have to save 5 percent out of every paycheck for 40 years. Because it is hard, I proposed the government give a tax credit of $600 (indexed for inflation) for everyone towards his or her contribution. 401(k) plans would still exist. But the truth didn’t stand a chance in the hyper-desperate time around the presidential election. The ire of the industry came when I proposed to pay for the tax credits by scaling back dramatically the tax deduction for 401(k) plans, deductions that were expanded greatly under the Bush administration. Without the tax deduction the 401(k) industry knew it would have to lower fees and provide a better, safer, product, and that is when it started a full-court media blitz against me.
The Fed's new lending occurs through programs with such baffling names as the ABCP MMMF Liquidity Facility. The mumbo jumbo aside, the Fed is lending in new ways because the old ways aren't working. Traditionally, the Fed has reduced interest rates by cutting one short-term rate (the Fed funds rate, on overnight bank loans) and assuming that, by making credit more abundant and cheaper, other rates on consumer and business loans would follow. Since September 2007, the Fed has cut the Fed funds rate from 5.25 percent to 1 percent. But some other rates have actually increased (high-quality corporate bonds were a percentage point higher in November than at the start of 2007), and some loans are unavailable at any rate.
