Jane the Actuary General Interest, Retirement

Forbes post, “What’s Needed To Create A Wider Safety Net? More Trust”

Originally published at Forbes.com on December 21, 2021.

 

In late November, The Atlantic published an article titled, ominously, “The End of Trust.” The story sounds the alarm about an unexpected consequence of the pandemic, and, specifically, the shift towards working remotely that was its consequence for white-collar workers: a drop in trust among workers towards their remote colleagues, due to the lack of face-to-face interaction.

This is on top of an already existing drop in reported trust levels in the United States: the General Social Survey (GSS) has been asking participants, since 1972, the standard question of whether, generally speaking, people “can be trusted” or whether “you can’t be too careful.” In 1972, 46% said people “can be trusted”; in 2018 (the most recent available), that had dropped to only 31%.

And it matters — for many reasons, of course, but, in particular, it’s hard to have public support for social insurance systems if they don’t trust that they are being administered fairly and that their fellow citizens aren’t gaming the system in one way or another.

Consider, after all, the fights over the Child Tax Credit, or, specifically, the proposed extension of the expanded and refundable version, in the now (likely) failed Build Back Better bill. Senator Joe Manchin, among others, wanted the benefit restricted to those with some employment, out of a concern that, without this requirement, it would not be put to good use.

Or consider the expanded unemployment benefits which were offered based on a recipient’s assertion that he or she was unable to work due to child care needs, and the extended length of time that unemployment benefits were available without job search requirements in many states.

The proposed paid leave benefit? Its provisions were expansive, allowing workers to claim benefits for the caregiving of any person with a relationship that’s the “equivalent of a family relationship” to any degree that it is “in lieu of work.” It’s easy to see unscrupulous individuals taking advantage of such a benefit.

And even such benefits as the proposed “Social Security 2100” bill carry with it the opportunity for abusing the system: a guaranteed minimum benefit of 125% of the single-person poverty level takes away an incentive for self-employed individuals to fully report their income, if they can instead report only enough income to be credited with that year’s Social Security credits. The same would be true for other proposed benefits based on earnings: a child care benefit based on salary, for instance.

So let’s look at some details.

Some regional distinctiveness

Exactly how, and where, did trust decline?

The GSS divides up participants by region. In the early 70s, there were clear differences between the regions — the South had much lower levels of trust than the rest of the country, the Great Plains states had trust levels far higher than the rest of the country, and, of the rest, New England and the Mountain states took second and third. In the most recent years of the survey, the South remains lowest, New England is highest by a wide margin, and the remaining regions are all quite similar, with the Great Plains region in particular having lost its trust distinctiveness.

Globally, the most extensive data comes from 2009, in a World Values Survey (there exists a 2014 version, but with fewer countries). Here are two versions of that data.

What’s to be made of this? It’s clear that in many countries, the trust levels have shifted dramatically even in just a decade — but whether this is real or merely apparent based on the process of collecting survey data is not clear. (The survey also shows a clearly higher trust level for the US than does the GSS, possibly as a result of different answer choices.) What is more certain is that the three Nordic countries in the survey, Norway, Sweden, and Finland, have significantly higher trust levels than even Western/”WEIRD” countries. And, generally speaking, higher trust levels are positively correlated with higher GDP per capita, though which is cause and which is effect is not obvious.

(As a side comment, the book The WEIRDest People in the World by Joseph Henrich characterized the United States as scoring high in social trust, but to be more specific, Henrich examined the relative difference between our willingness to trust people in our in-group vs. strangers, and these studies look at social trust in general.)

Does that mean that we in the United States can just copy what the Nordic countries do, in order to boost our trust levels? Superficially, those countries are known for having generous social welfare systems — but that’s hardly what creates high trust levels and likely, instead, at least to an extent, the result of existing trust levels or underlying conditions.

An academic paper from 2004, “Social Trust: Global Pattern or Nordic Exceptionalism?” by Jan Delhey and Kenneth Newton, attempts to identify the underlying causes of high trust levels, not merely the characteristics correlated with high-trust societies.

First evaluating simple correlations, they found that higher GDP per capita correlates with higher trust and a large agricultural sector is associated with low levels of trust. Political characteristics such as political stability, political freedom, effective governement, and rule of law are associated with high trust, as is “public expenditure on health and education,” and, not surprisingly, corruption is associated with low trust. The degree to which voluntary associations are prevalent in a country (a longstanding concern in the United States since the publication of Bowling Alone by Robert Putnam) appeared unconnected and the particular religion prevalent in a country had no significance except that Protestant countries were higher-trust than Catholic countries.

But which is cause, and which is effect (or neither)? The paper attempts to solve this problem by looking at potential factors which might have preceded others in time. With respect to Protestantism, for instance, similar to Hendrick’s explanations of WEIRD countries,

“The argument is not that Protestant theology or beliefs necessary pervade countries than are labelled Protestant now, but that the religion has left a clear cultural imprint over the past centuries that has shaped a very wide range of present-day features from economic development and forms of government, to attitudes towards equality and corruption. The Protestant ethic facilitated the emergence of capitalism in the seventeenth century, and Protestant countries are still among the richest, the most democratic, and the least corrupt in the world today.”

Similarly, they examine the degree of ethnic homogeneity in a country because

“We are aware that wealthy countries that guarantee human rights for minority groups may attract immigrants, and therefore good government and wealth affect patterns of migration, but ethnic composition does not change greatly in the short run, even in the modern era of mass population movements.”

Based on these presuppositions, they then find these two factors are indeed drivers of such factors as good government and economic well-being, which in turn produce higher levels of social trust.

At the same time, however, “Nordic exceptionalism” appears to drive higher levels of social trust, as a sort of intensifier — but why that is, the authors don’t claim to know.

And that brings me back to the Atlantic article, which discouragingly concludes:

“A trust spiral, once begun, is hard to reverse. One study found that, even 20 years after reunification, fully half of the income disparity between East and West Germany could be traced to the legacy of Stasi informers. Counties that had a higher density of informers who’d ratted out their closest friends, colleagues, and neighbors fared worse. The legacy of broken trust has proved extraordinarily difficult to shake.”

We can’t, in the United States, become ethnically homogeneous — at least not as its traditionally understood. We can’t all convert to Protestantism to become more trusting. Whether there is, indeed, a path towards rebuilding trust, is not even clear — but perhaps the recognition of the issue is at least a first step.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary Retirement

Forbes post, “Public Pensions And Social Trust”

Originally published at Forbes.com on March 17, 2019.

 

So it seems that I hit the one-year mark of my writing on retirement at this platform, and have still not managed to address some of the topics I wanted to discuss, in particular, questions of what pensions look like abroad and what we can learn from them.  But right now I find myself thinking about international comparisons in another way, around the question of social trust.

Round about a year ago, Megan McArdle, formerly a Bloomberg columnist and now writing at the Washington Post, wrote a series of articles coming out of a visit to Denmark.  Her first, at Bloomberg (paywalled), expresses the gist of the article in its title, “You Can’t Have Denmark Without Danes; What a small, happy country can teach a huge and fractious one. And what it can’t.”  Fundamentally, Demark can do what it does and function as well as it does because of its considerable degree of social cohesion; a sense of cohesion that, to her understanding, was not the result of an expansive welfare state but a precondition for its success.  (She subsequently expanded on this in a series of tweets, though non-subscribers will miss out on what I vaguely recall, from pre-paywall days, to have been an anecdote about losing her wallet and having it returned.)

She subsequently wrote again on the topic of the Danes’ system of disability and the country’s level of social trust at the Washington Post, observing that it has very generous social insurance provision of such benefits as disability income replacement with neither the sort of cheating nor the fears of cheating that you’d see elsewhere, including, yes, the United States, where one periodically sees reports of city workers taking advantage of generous disability pay-replacement and being seen out and about engaging in all manner of activities that indicate their claims of incapacity are fraudulent.

“Social trust” is, well, what it sounds like: How much do you trust your neighbors? And in turn, how trustworthy are they? In a low-trust place such as Greece, people don’t trust their neighbors not to cheat, which in turn makes them more likely to cheat themselves, because why should you stay honest when everyone else is getting away with something? This affects everything: whether people pay their taxes, whether they take benefits they don’t really need, how easy it is to regulate companies. And social trust also works as a productivity booster, because you can do away with a lot of the cumbersome monitoring that is ubiquitous in modern societies — the supervisors who oversee low-level workers, the store clerks who keep an eye on the customers. Every worker who is not making sure that people don’t steal or shirk can be re-employed doing something that actually increases output.

The United States simply doesn’t have that level of trust. And while it would be nice to think that we could get there if companies and government simply stopped acting so suspicious, the fact is that they frequently act suspicious because, well, Americans cheat more than Danes do. (Compare, for example, the American and Danish rates of tax evasion). Moreover, the mutual suspicion that Americans feel for each other restricts the range of politically feasible policies. Even if people aren’t cheating on benefits, if there is a widespread social belief that your fellow citizens might, you will not be willing to support a generous welfare state. (This helps explain why support is highest for old-age benefits in the United States; it’s hard to fake turning 65).

I find myself revisiting this article in light of both my own articles on prospects for public pension reform in Illinois (among others, my own proposal for reform and  my pessimism that Illinois politicians even recognize the importance of pension funding in the first place) and models for improved systems such as Wisconsin’s (and — spoiler alert — there are other systems with risk-sharing elements which I’ll profile soon) as well as the politics around Illinois Gov. JB Pritzker’s proposal for a graduated income tax.  In both cases, any such legislation requires amendments to the constitution Illinois adopted in 1970.  And in both cases, Illinois faces a lack of social trust.

Does a statement about public employee pensions belong in the constitution?  As it turns out, Illinois is only one of two states (the other is New York) with an explicit guarantee protecting future accruals.  (Others guarantee this by means of state supreme court decisions.)  Does it make sense to prohibit a graduated form to an income tax in a state constitution? Illinois, Michigan, and Massachusetts are the only ones which do so.   (North Carolina passed an amendment capping income tax rates to 7% in November 2018; in a peculiar turn of events, this was overturned in a February court decision because of the claim by plaintiffs that the state legislature was invalidly gerrymandered.  The decision is being appealed.)

As the Chicago Tribune reported in 2013, no thought was given in the 1970 discussions to the question of funding those pensions:

In short, state and local governments would be required to keep their pension promises but not be required to sock away enough money to cover payments years into the future. When it came to funding, officials of both parties in Illinois took significant advantage of the escape clause, helping them skate by for decades without having to make politically difficult decisions on raising revenues or cutting services to meet pension obligations.

In May 1971, just weeks before the new constitution would go in effect, an official state pension oversight panel of lawmakers and laymen issued a report warning that the new pension safeguards were a mistake.

The Illinois Public Employees Pension Laws Commission, which no longer exists, said it had opposed the language inserted into the constitution and had asked one of the sponsors to soften it or at least read a statement into the convention record that it wouldn’t preclude “a reserved legislative power” to change benefits in order to keep retirement plans sound.

Nothing came of the request, the report noted.

As it happens, I’m on record in support of removing both these clauses from the Illinois constitution in one fell swoop.

But to raise the issue of a change to the constitution in either of these respects raises fears:  how can we trust the legislature to use their newly-expanded powers reasonably, sensibly, justly?  Republicans will cut the pensions of hapless retirees!  Democrats will recklessly raise taxes!  In comments at my personal website JaneTheActuary.com and via Twitter @JanetheActuary, readers told me that they simply could not believe that Illinois politicians would make the hard political decisions needed to reform pensions, when it would cost them votes and would cost them campaign funds.  And similarly with respect to the proposed income tax amendment, opponents raise objections that this is just Pritzker’s opening bid, but that, once the limits on graduated income taxation are removed, the Democratic supermajority will be unfettered in its tax-and-spending spree.

It is, in the end, the fruit of a long history of corruption in Chicago/Chicagoland and Illinois.  After all, just this past February, the Chicago area was named the most corrupt in the nation, based on its share of corruption convictions.  Statewide, Illinoisians can now breathe a sigh of relief that our past two governors appear not to have been criminals, unlike their two predecessors.  Reforming pensions and instituting risk-sharing mechanisms simply can’t happen if Illinois voters don’t trust that their politicians will seek to make fair decisions.

 

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary Retirement

Forbes post, “How Will Alienated America Save For Retirement?”

Originally published at Forbes.com on March 4, 2019.

 

Alienated America is the title of a new book out by Tim Carney, commentary editor at the Washington Examiner and American Enterprise Institute visiting fellow.  Its core observation is this:  while in the 2016 general election, Trump had the support of evangelicals and other pro-life Christians, because of the binary choice between Trump and Clinton (where the single issue of abortion was key for many reluctant Trump votes), quite the opposite was true for the primaries.  Then, as now, Trump’s core support came elsewhere, from those disconnected from religious communities.  What’s more, it was localities in which community institutions were strong that Trump did poorly in the primaries, and in areas where they were weak and where residents were disconnected from each other, that Trump did well.  For wealthy communities like the D.C. suburb of Chevy Chase which Carney uses as one reference point, a swim club or a book discussion group or garden club might do a great job of connecting up residents, but for most Americans, it has historically been their church/house of worship which has been their primary “community institution” and, despite stereotypes otherwise, it is among the white working class that the trend of religious disaffiliation has been most dramatic — and its impact is much more far-reaching that the results in an election, as the loss of those institutions impact the well-being of the alienated.

So what does this have to do with retirement?

In early February, the Aspen Institute published a new report, “Portable Non-Employer Retirement Benefits: An Approach to Expanding Coverage for a 21st Century Workforce,” which sought to address the 55 million Americans who, according to survey data, lack access to a workplace retirement plan, by describing/proposing six alternate ways of providing access to retirement plans which might be scaled up or, in some cases, brought into existence.

Some of these mechanisms are still very much workplace-centered.  The report proposes that employers and workers in a specific industry sector might band together to provide retirement plans in which all employees could maintain participation even as they move from one employer to another.  These sector-based plans are common in the Netherlands — for example, the Dutch multiemployer plan which I contrasted with the US equivalent back in November was a plan for the metal industry.  In Massachusetts, nonprofit organizations are partnering to provide a multiple employer 401(k) plan, as is a similar coalition in Canada for its nonprofit workers.  The report also profiles “new worker organizations” — union-like groups formed to advance the interests of workers, such as domestic workers, freelancers, app-platform drivers, and so on — and suggests that they might offer workers the ability to enroll in a retirement plan, and considers professional associations and trade associations as further sources of retirement plan access — ideas which have been proposed elsewhere.

But there are two suggestions which are new.

The report suggests that labor unions might be a source of retirement benefits — not in the form of Taft-Hartley multi-employer plans which are already so troubled in their defined benefit form, but as a sponsor of retirement savings that reaches beyond mandatory contributions as a part of collective bargaining (though it does suggest this) to acting as a plan sponsor for spouses of union members, “non-unionized workers who might join a union under an ‘associate member’ category” and workers at employers who choose to participate in the union-sponsored plan.

The report also proposes that faith communities be a source of retirement plan participation.  They observe that the United Methodist Church provides retirement benefits for all its clergy and lay employees via its Wespath entity, the “largest publicly reported denominational plan in the US.”  (Side note: you’d think the Catholics would be larger, but they manage everything at the level of the diocese rather than country-wide.)  But the Aspen report suggests taking this a step further:

A potentially more far-reaching approach would be for faith groups to sponsor portable non-employer retirement benefits for the members of their community. The addressable uncovered group here is, in theory, very large. If we assume 55 million Americans lack access to a workplace retirement plan, and 36 percent of those attend religious services once a week or more (assuming the same proportion as the population as a whole), then there is a pool of nearly 20 million regular participants in faith communities who could be served by a faith group-sponsored portable non-employer retirement benefit. Where the faith community already sponsors a retirement arrangement for its employees — especially where that arrangement has scale, as in the Wespath example — there could be opportunities to extend access to that arrangement to the broader faith community.

To be sure, for an entity such as Wespath to reach beyond the employees of the church it serves, to those parishioners, it would become more like a “retail retirement account.”  Would this, then, be no different than a church partnering with a Vanguard or Fidelity, or allowing that member whose day job is financial planner to set up a table during after-church social hour or sponsoring the after-mass donuts?  The report’s suggestion might sound trivial to educated Americans who already have done their due diligence on how to save for retirement, but the kernel of this proposal could make a big difference for those who haven’t.

Carney emphasizes that churches in America have a key role as community institutions, and, at least among churches with greater resources, they offer groups that reach beyond Bible studies to provide support for the bereaved, young mothers, the unemployed, those in recovery, and so on.  In many parishes a “parish nurse” provides further resources and referrals, visits the sick, and provides other aid.  Whether through a formal organization or simply through an informal process that materializes as needed, they deliver casseroles to families struck by illness.  And many evangelical/mega-churches offer Dave Ramsey’s “Financial Peace University” money-management classes.

In this context, it’s not so crazy to imagine that churches, community groups, and unions acting as a community group could and should have an important role to play in financial wellness and retirement savings — both as organizations which might provide education and support on the path, and because they provide the sort of informal social networks that nudge people forward towards, for example, saving for retirement.  Yet these are exactly the organizations which Carney (and others) reports are disappearing in the regions of America that turned to Trump in 2016.

How to get from here to there?  That’s another question.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.