The war on “the war on savers”
Apr 5th 2013, 12:50 by Buttonwood

JAMES Surowiecki is a well-respected writer and I normally enjoy his New Yorker columns. But his latest effort “Shut up, savers!” is very odd. It is understandable that he might get irritated about right-wing complaints about economic policy (Rick Perry’s treason comment. Jack Welch’s conspiracy to hide unemployment etc); often these remarks are paranoid or silly.

But in an entire page devoted to how savers benefit in other ways from monetary policy (a stronger economy, many of them are also borrowers etc), he devotes not one word to pensions. Pensions are the single most important savings pot. And pension plans have been hit by low rates, since pensions are a bond-like liability. This is not a theoretical issue; use your pension pot to buy a fixed annuity and you will get a much lower income than 10 years ago; when a company wants to offload part of its final salary plan to an insurance company (as GM has done) the cost is much greater than it previously would have been.

But doesn’t the higher stockmarket. itself a consequence of monetary policy, compensate for the rise in liabilities? No it doesn’t*. At the end of 2012, the deficit of US corporate pension plans was $557 billion, the highest ever; plans were only 74% funded. Even the bumper stockmarket returns of the first quarter still leave the deficit at $372 billion. Companies had to contribute $80 billion to their pension plans last year, twice the level of a few years ago.

And then there are the state and local government pension plans, most of which are final salary. Joshua Rauh and Robert Novy-Marx have estimated that the true deficit on these plans is more than $4 trillion; closing this deficit over 30 years will require an average tax increase of $1,385 per US household per year.

For people who expect to survive on money from a private (401k-style pension) low rates mean they need to save more to generate a given retirement income. but of course, low rates are designed to encourage spending, not saving. The result may be that many people find they have entirely inadequate savings when they get to 65, and have to keep working.

These are all problems that have to be set against the potential gains to employment, borrowers etc that might flow from monetary policy. It might be legitimate to say that the problems are outweighed by the advantages. Fair enough. But not to mention pensions at all?

* On that point, most equities are owned by the wealthiest. So a policy that penalises small savers with bank deposits and pushes up equities is redistributive. Indeed, in my view, the persistent willingness of central banks over the last 25 years to cut rates to prop up the stock market when it wobbles contributed to the rise of the finance sector and of wealth inequality. They’re still doing it.