The Telegraph today reported that “Panic Grips World Markets As FTSE and Gilt Yields Hit Record Lows”. The visceral fear the headline produces is rather misleading however, for I doubt the power-brokers of the London Financial Markets and the upper echelons of governments are particularly worried.
The governments of the UK, the US, and Western Europe; as well as their respective financial “wizards”; are well aware that capitalist markets go up, and down, and that crashes, or recessions, will happen every 7-10 years on average. And they expect that if and when the markets do crash, their citizens will look at their plunging
retirement accounts, cower in fear, and then let their governments do whatever they want in order to “save things”.
401k’s, of course, are the US Retirement Vehicle which allows your retirement investments to accumulate “tax free”- as a government sponsored “boost” to encourage retirement investing. The UK has similar vehicles, as does Europe to a lesser extent. And despite the various differences these accounts have across Europe and the West, the retirement funds within them are largely uniform.
The unfortunate fact, however, is that very few of the individuals and families across these nations who are contributing to these retirement plans understand their history, or for that matter the history of investing and retirement saving in general.
In the pre-industrial era, that we might recognize in 1700’s America or Scandinavia, investing was of a very “tangible” nature. The majority of people were farmers and craftsmen, the latter small businessmen who might be coopers, glassblowers, silversmiths, etc. Investing for them took very immediate forms: they bought 1) more land, which they could either farm or rent out to tenant farmers; 2) valuables such as silver and gold coins and jewels, which provided liquidity with which they could buy things or take with them when they traveled; and finally 3) businesses and assets such as ships, which they could own but hire other people to manage for them.
As the West progressed into the industrial era however, more and more people were forced to leave the fields and leave their jobs as craftsmen to head to the cities, and become employees of huge companies like Ford. It was natural then for these large companies to take over “retirement”, and provide pensions to their long-term workers.
In the latter half of the 20th century however, employees began changing companies far more regularly. The markets became more “efficient” as a result of globalization, and as a result finding a job with one stable company, and staying there for the rest of your life, became increasingly antiquated. It was at this time that the American government passed the “Employee Retirement Income Security Act of 1974” (ERISA), which introduced 401k’s, which took retirement planning out of the hands of big companies and into the hands of individual Americans. Very similar plans were soon created by the governments of Australia, Canada, the UK, and various European countries. The biggest effect of this was that it placed the responsibility of retirement planning on individual citizens.
This was not a negative development, as this was no different than how things were back in the aforementioned pre-industrial era, but it was a pronounced change. The problems instead came from the basic structure and rules of the 401k, and from the resulting retirement investing done within it.
The 401k, and its similar vehicles in Europe and the Commonwealth Countries, are almost by definition tied to the sort of diversified, “don’t think about it”, “park your money and wait” mutual funds that are invested either in the market as a whole (an S&P index fund in America), or similar funds that seek to invest in hundreds of companies from specific segments of the market, or some class of investments such as “bond funds”. There also are, we should acknowledge, rules allowing for “self-directed IRA’s”, but nevertheless, it is clear that the 401k system, and the American financial retirement savings system as created and hyped by the government and Wall Street, is designed to get you to park all of your retirement savings into big, multinational New York Stock Exchange companies like Coke, Walmart, and General Electric.
One of the foremost problems this creates for regular citizens in these countries is a distinct lack of financial literacy, as well as a frightening disconnection from their savings. Whereas their ancestors invested in the fields and businesses they saw and walked through every day, and whereas more savvy investors in today’s world invest in real estate, businesses, notes, or in the stock market while having the requisite knowledge and ability to do so, the majority of citizens have no understanding of their investments, and no tangible connection to said investments’ performance.
In addition these retirement accounts, in their current incarnations, are not ideal financial vehicles by any means. They penalize you for taking money out before age 65. So should you want to start a business, or get married- two things which, statistically speaking, have profound benefits for your financial livelihood (as well as your personal well-being)- you will have to give up 40% of your accumulated earnings to the state.
The other huge problem, and the one this article is most focused on, is that these typical retirement investments- index funds, mutual funds, etc- are invested in large multinational companies whose needs and aims are often in direct conflict with the citizens whose retirement depends upon their profitability.
The Coke’s and Pepsi’s and HSBC’s and Royal Dutch Shell’s of the world do not care if little girls in England are raped by Muslims. They, as corporations, exist for only one purpose, which is to make shareholders money. One of the foremost ways this is accomplished is by reducing the cost of labor, which is done most effectively by mass immigration. Neither do these companies care if men fall out of the workforce in mass, because of manufacturing jobs being sent across the world. Indeed such global corporations are to a very large degree tied to and benefiting from what are often called “Social Justice Warrior”, or “Cultural Marxist” policies. Take feminism for example. It has been said that feminism is “one thousand women in Manhattan having cool jobs, and two million grandmothers working at Walmart.” While idealistic feminism activists protest in cities across Europe and North America, corporations and hedge fund managers are smiling with glee, knowing that it produces a far bigger and more robust labor market, where stay at home mom’s don’t exist.
One hopeful development we have seen in America is the rise of two politicians whose rhetoric seems directly in opposition to this, these two candidates being Bernie Sanders and Donald Trump. They each say very clearly to the American people: “You are getting screwed”. They both acknowledge the fact that big business and its corrupt government cronies are taking the American people for a ride. They both acknowledge that jobs (especially jobs for men that involve the use of one’s hands and mechanical aptitude) are being shipped across the world to the benefit of multinational corporations. And while we as citizens are meant to grin and bare this because it makes the market more efficient, and thus raises GDP, Sanders and Trump offer a refreshingly contrarian attitude.
We can be hopeful of what might come to fruition in America, as well as in the UK and Europe. For in Europe specifically it looks as if the corporate-multicultural status quo has overplayed its hand on immigration. This is not surprising. The folks who head many of these large corporations are very wealthy, and certainly highly intelligent in their ways, but this does not always correspond to geopolitical savvy. Anyone who has watched interviews with Warren Buffet and Bill Gates knows this. I would say they are rather more like actors, who, having utilized one sort of skill to attain positions of wealth and notoriety, then mindlessly repeat the slogans and causes of the mainstream progressive intelligentsia.
As a result, when the mass immigration Europe and the UK have seen and are still seeing finally begins to cause full societal and financial destabilization, it can be hoped that beyond just the retirement systems, the countries as a whole can be both saved, and rendered greater stewards of their countrymen’s wellbeing and resources.