1) You can not chart average balances to compare total returns with an index. The contributions being made to the 401k accounts would skew the results (like it does here)

2) The chart axes should show percentage changes, not absolute values. This also skews the graph and makes it impossible to interpret (not that the underlying data has any validity)

3)A growth in 401k account balances could be attributed to non-market factors such as: more people retiring or leave the firm (smaller denominator), accelerated contributions (higher numerator), or some other factor.

The only thing that this chart measures, at least in proportional terms, is the author’s relative level of stupidity vs. the average population. As you can see it is rising over time, presumably as he becomes more confident in his poorly researched theories. Honestly, what qualifications do you need to be a financial writer? Apparently none.

Our first child was born in 2002. I could have quit at that time (or if I wanted to be fair to my employer, a few months ahead of the birth). Instead we arranged for my mother-in-law to live with us for a year and a half, while I continued working. That continued employment generated another $80k-$90k in income, which has grown to $150k-$200k in our retirement accounts.

Giving up $90k of income in your early 30s is very expensive.

Yup. There’s the number one answer, tough as it will be. All the supersized houses built in recent years are perfect for multi-generational living, and now they are cheaper. Plus the grandparents provide childcare while both parents work, if needed, saving money. If the grandparents need to be cared-for, their adult children can do that, saving more money. Less wild living means fewer visits to the shrink, saving yet more money.

When states want growth, they frequently use tax incentives to steal companies from other states.

If the US wants growth, might it steal talent, capital, and innovation from other countries? What policies would favor this?

The key is how fast will the global economy rebalance the massive inequities that exist today. Even if it takes an entire generation it will feel like we are at best swimming franticly in place. Tell your loved ones to constantly strive to build up both their marketable skills and personal capital… anyone who dosen’t will almost surely be falling behind.

That said, Megan McArdle had an interesting commentary on a post by Arnold Kling: http://www.theatlantic.com/business/arch ive/2011/09/the-new-new-new-economy/2450 28/

Specialized skills are still in demand, but compensation may be plateauing. And part of the reason they are well-compensated is because they are rare. Train ten million IT professionals and you will have 9 million unemployed IT professionals (with falling salaries for the remaining employed).

My sense is that creativity and entrepreneurship are still immensely valuable, and likely always will be. But can this be an answer for the broader economy?

“The thing left to do is make one’s life cheaper.”

That is always the alternative. Rethink some of our assumptions about living arrangements (children moving out only when they get married, elderly parents living with children) and you save a lot of money over what has in recent decades been the American norm. It might not be fun to live with your MIL, but there are times that it makes clear economic sense.

I agree with would, answers are very tough. Certainly, there is no sense in make-work or having people do things that aren’t really important just to keep them busy.

I was listening to NPR on Monday night (a rerun of something from earlier that day). The topic related to job creation with Texas being a case study. Huge job creation, but the jobs often don’t pay that great.

Then they had a snippet of Bill Gross talking and my ears perked up. Basically he said that Americans in the globalized world just have to get used to earning a lot less. To hear him talk, we Americans just have to get used to Texas-style job creation, i.e. you can get your jobs but not for great pay. As you can imagine, the NPR callers don’t accept that and I partially agree with them that solid pay is still possible with useful education.

But I think the ‘great adjustment’ will have to involve US wages coming down a lot because we aren’t even on the same order of magnitude as China yet and not all of the adjustment will come from them.

The thing left to do is make one’s life cheaper.

(1) Houses and mortgages are now much more affordable. Enjoy if you can, or get a downpayment so you can participate there.
(2) Online education is opening up. You can learn anything you want to under the sun and then certifications, bar exams and all the rest.
(3) Walmart helped gut American manufacturing. One might as well take advantage of their low, low prices and let the rich support the boutique stores.
(4) The best forms of recreation are free. ;)

People will just have to humble themselves or hustle hard. True status is not primary about material wealth anyway, it is about integrity and charity, education and manners.

I could describe my own vision for a “right-sized” economy, but others obviously prefer a different emphasis. Ideally each individual should have the opportunity to find their own answer.

The greatest challenge may be distribution of the wealth. We can meet the basic needs of society with fewer workers than ever before — so how shall the other 90% of the population be employed?

If you get a chance, read the “Beggars in Spain” series by Nancy Kress (c) 1993. Hopefully we can find a better answer than that.

Frankly, I think this post is a little off. If you ask me the most important thing for retirement saving is having a good job with an employer that offers generous benefits and is a meticulous plan fiduciary that monitors plan costs. Of course, once these selections are made, actually contributing to the plan is important.

Is it wrong to even fight for growth? Demographics is a huge elephant in the room and we are in the middle of a paradigm shift in the developed world.

Demographics is in my view not a side note, it is the main event. Looking at Japan, Germany or any aging society there just is very little demand. Much of economic life just vanishes. You need zero new houses. You need zero new roads, schools and the like. And what’s more, the elderly just slow down economically. They eat less, travel less, already have most of the ‘stuff’ they will ever need.

Even in America, which supposedly is fine demographically, there are major issues. The marriage rate is way down, and the fraction of the population that follows the ‘normal’ trajectory of working hard to support a nuclear family and a mortgage is much-reduced. Even if a majority eventually get there, if it happens at age 35 instead of 25, the collective impact in society is very large. The number of families can actually decline or stagnate as population rises.

It seems that the whole global economy has been structured for growth for the last century. Much of economic activity is centered on building the new, whether in infrastructure or housing or social organizations or businesses or products.

What if suddenly there is no need for the new anymore? We can just make do with what we have (buildings, businesses, products), as we are getting older, with occasional maintenance or replacement. There goes 30% or 40% of the economy, right? And the thing is, isn’t that as it should be? Shouldn’t the major parts of the economy be allowed to downsize dramatically? It honestly seems like that is what the market is trying to do in aging societies, but the powers that be can’t get their minds around the idea that major contraction is really okay and actually proper, for an aging society.

Can an economy right-size itself at a substantially smaller size? What would this mean, because it sure seems like the invisible hand is pushing hard toward that?

Right-sizing of the *entire economy* raises 100 hard questions, but those questions need to be asked I think, because the invisible hand *will* prevail in the end.

To put it another way, yeah, the balances have gone up, but they didn’t go up because people were putting their money in the market, they went up because people were transferring in cash, which retained value because it *wasn’t* in the market.

I think the conclusion that we should invest for the long term stands, but the argument advanced in its favor doesn’t really work.