President Barack Obama Weekly Address August 30, 2014 (Video/Trascript )

President Barack Obama
Weekly Address
The White House
August 30, 2014
Hi, everybody.  Whether you’re firing up the grill, fired up for some college football, or filling up the car for one last summer roadtrip – Happy Labor Day weekend.

We set aside Labor Day to honor the working men and women of America.  And this Labor Day, we’ve got more to celebrate.  Over the past 53 months, our businesses have added nearly 10 million new jobs.  Last month, for the first time since 1997, we created more than 200,000 jobs for six straight months.  And for the first time in over a decade, business leaders worldwide have declared, two years running, that the number one place to invest isn’t China – it’s America.

So there are reasons to be optimistic about where we’re headed.  And the decisions we make now will determine whether or not we accelerate this progress – whether economic gains flow to a few at the top, or whether a growing economy fuels rising incomes and a thriving middle class.

Think about it this Labor Day.  The things we often take for granted – Social Security and Medicare, workplace safety laws and the right to organize for better pay and benefits, even weekends – we didn’t always have these things.  Workers and the unions who get their back had to fight for them.  And those fights built a stronger middle class.

To build a stronger middle class in today’s changing economy, we’ve got to keep fighting.  We’ve got to fight for the right to affordable health insurance for everybody.  The right to fair pay, family leave, and workplace flexibility.  The right to a fair living wage. 

Let me focus on that last one for a minute.  In America, no one who works full-time should ever have to raise a family in poverty.  A hard day’s work deserves a fair day’s pay.  And raising the minimum wage would be one of the best ways to give a boost to working families.  It would help around 28 million Americans from all walks of life pay the bills, provide for their kids, and spend that money at local businesses.  And that grows the economy for everyone.

The bottom line is, America deserves a raise.  But until we’ve got a Congress that cares about raising working folks’ wages, it’s up to the rest of us to make it happen.  And in the year and a half since I first asked Congress to raise the minimum wage, Americans of all walks of life are doing just that.

Thirteen states and D.C. have done their part by raising their minimum wages.  Four more states have minimum wage initiatives on the ballot this November.  And the states where the minimum wage has gone up this year have experienced higher job growth than the states that haven’t. 

Business leaders at companies like The Gap are doing their part.  They’re raising base wages for tens of thousands of workers because they know it’s good for business.

Mayors across the country are doing their part.  Mayor Emanuel in Chicago and Mayor Garcetti in L.A. are working to lift their cities’ wages over time to at least thirteen dollars an hour.

I’ve tried to do my part by requiring companies that get contracts with the federal government to pay their workers a fair wage of ten dollars and ten cents an hour. 

And earlier this month, the president of Kentucky State University set a great example by giving himself a $90,000 pay cut, so that he could give raises to his lowest-paid employees.  His sacrifice will give more of his workers and their families a little extra money to help make ends meet. 

That’s how America built the greatest middle class the world has ever known.  Not by making sure a fortunate few at the top are doing well, but by making sure that everyone who’s willing to work hard and play by the rules can get ahead.  That’s the bedrock this country is built on.  Hard work.  Responsibility.  
Sacrifice.  And looking out for one another as one united American family.

Let’s keep that in mind this Labor Day, and every day.  Have a great weekend, everybody.


Obama's miscalculation

Marwan Bishara
Source: Al Jazeera

And the greater lesson from the Middle East.

President Barack Obama, who by any measure is a smart and shrewd politician, must be feeling rather foolish nowadays. Not only have his predictions proved wrong about Iraq and al-Qaeda, but, under his watch, America is also being drawn back into the Iraq quagmire three years after it withdrew.

The president was all optimistic when he secured US withdrawal from Iraq in 2011. But his claim of "extraordinary achievement", of leaving behind a "sovereign, stable and self-reliant Iraq", was soon shown to be, at best, wishful thinking - indeed a grave error.

Despite retaining eyes and ears on the Iraqi ground, the advance of the Islamic State group, over the last few months has clearly taken Washington by surprise. It's yet another terrible failure of US intelligence services.

How much of this can be said to be Obama's fault? Of course, he cannot be blamed for the follies of his predecessor, nor is he responsible for half a century of foreign policy that compromised America's values in favour of its short-term interests.

Still, the president does share major responsibility for the present failures after serving five years in office.

Obama might be careful, calculating and nuanced, but his foreign policy has produced one blowback after another from Libya to Afghanistan through Iraq and Syria.

Obama's mistakes

Miscalculation and myopia have seemingly marked the execution of the Obama doctrine of leading from far and behind.

Four major miscalculations stand out:
Inside Story - Islamic State 'beheading': A challenge to US?

First, the president rightly promised to "end the mindset" that produced the Iraq catastrophe, but instead he only reformatted it. He played it safe, not wise, staying below the radar by using, for example, remotely run drones instead of foot soldiers on the ground. Every attack has sown death and produced new recruits for the jihadi groups. Just ask the Afghans, Pakistanis and Yemenis.

In effect, President Obama wasted a historic mandate granted by the American people to "un-Bush" America's foreign policy by ending the hawkish unilateral militarism.

Second, Obama was right to downsize US regional commitments and lower regional expectations, but he did not help bring about multilateral alternative to US influence.

Obama lectured US allies and global powers about why they need to a play greater role in regional affairs, while preserving the US military and strategic dominance in the Middle East. In other words, as Washington projects overwhelming power from the Mediterranean to the Gulf - but forgoes its strategic commitments there - expect more not less trouble in the explosive region.

In that way the fragmentation of Iraq that started with the US invasion in 2003, has only escalated with US withdrawal in 2011. The same goes for the likes of Syria, Lebanon, Yemen, Libya etc.

Third, President Obama might have succeeded in tracing and killing Osama Bin Laden, but he has grossly underestimated the consequences of further decentralisation of al-Qaeda Central that Bin Laden once commanded on the borders of Afghanistan/Pakistan.

Only a few months ago, the president offered a blithe basketball analogy in response to questions about the rise and proliferation of jihadi groups affiliated with al-Qaeda: "If a JV team puts on Lakers uniforms that doesn't make them Kobe Bryant."

Alas, the Islamic State group has proved more powerful, more strategic and even deadlier than al-Qaeda Central, with far reaching ramifications for the US and its allies. Its leader, Al-Abu Bakr al-Baghdadi, has outperformed Bin Laden and has become a rallying symbol for many al-Qaeda affiliates throughout the region.

Lastly, the Obama administration has misjudged the tenacity of its nemeses, just as it underestimated the dependency of its regional allies on its protection.

Obama's attempts to remove the White House, albeit partially, from the region's disputes, has left behind more than just a major strategic void. These are the conditions for a perfect storm, the eye of which is the void left by the US.

For example, the Obama administration remained conspicuously silent as Prime Minister Nouri al-Maliki cracked down on his Sunni rivals, alienated the Kurds and undermined the unity of the country. This was made easier when the US media largely abandoned the country in an attempt at collective amnesia about the scars of the war.

The same goes for Syria. When Bashar Assad's regime was challenged by a popular revolt in 2011, Washington's allies looked to the US to intervene, preventing Assad from carrying out genocide against his own people, given that no other power had the capacity to do so. And of course the same goes for Washington's continued support for the Netanyahu government, as it expanded illegal settlements in Palestine and carried out a horrific offensive against Gaza.

The greater lesson

The lesson from all of these mishaps can be found, partly, in President Obama's own admission regarding Libya. In a recent interview with the New York Times, the president acknowledged that it was a mistake not to follow the war to dislodge Qaddafi with a real multilateral effort to stabilise the country and secure its unity.

Not so different from former Secretary of State Colin Powell's advice: if you break it, you own it.

Islamic Group claims control of Raqqa province

More importantly, removing the lid on any sort of hegemony, be it a dictatorship like Saddam's, a terrorist organisation like Bin Laden's, or even a superpower power like the US, can only open a can of worms, if it is not contained through the establishment in its place of a viable alternative power system.
Once the can has been opened, it's been proven impossible to close. Removing Saddam Hussein opened the gates of sectarian hell in Iraq. Assassinating Bin Laden empowered new jihadist leaders to step in to take up the mantle of al-Qaeda.

Whether evil or benevolent, a superpower is also a system of patronage with many stakeholders dependent upon it. Failure to change, meet or manage their expectations is sure to make US' clients pricklier, less secure, and, as a consequence, less cooperative.

For all these reasons, the US must ensure a viable multilateral alternative to its hegemony in the Middle East. It must use its super-power status to empower allies and regional players to assume greater authority. Europe and the countries of the region should be invited to take part and emboldened to step up to the plate if there's a genuine attempt at extracting the US from the Middle East's challenges.

US deniability over its hegemony in the Middle East would've been terribly amusing if it weren't terribly tragic. It's bad enough to behave like an empire in the 21st century, but to act irresponsibly is far worse.


President Barack Obama Weekly Address August 23, 2014 (Video/Trascript )

President Barack Obama
Weekly Address
The White House
Saturday, August 23, 2014 

Hi, everybody. Nearly six years after the worst financial crisis of our lifetimes, our businesses have added nearly 10 million new jobs over the past 53 months. That’s the longest streak of private-sector job creation in our history. And we’re in a six-month streak with our economy creating at least 200,000 new jobs each month -- the first time that’s happened since 1997.

Thanks to the decisions we made to rescue and rebuild our economy, and your hard work and resilience, America is leading again. Areas like manufacturing, energy, technology, and autos are all booming. And here’s the thing: we’re selling more goods Made in America to the rest of the world than ever before. American exports are at an all-time high.

Over the past five years, we’ve worked hard to open new markets for our businesses, and to help them compete on a level playing field in those markets. And we’ve broken records for exports four years running. Last year, our exports supported more than 11 million American jobs – about 1.6 million more than when I took office. They’re good jobs that typically pay about 15% more than the national average. And more small businesses are selling their goods abroad than ever before -- nearly 300,000 last year alone.

We should be doing everything we can to accelerate this progress, not stall it.
One place to start is by supporting something called the U.S. Export-Import Bank. Its sole mission is to create American jobs. That’s it. It helps many American entrepreneurs take that next step and take their small business global. But next month, its charter will expire -- unless Members of Congress do their job and reauthorize it.

Now, past Congresses have done this 16 times, always with support from both parties. Republican and Democratic Presidents have supported the bank, too.

This time around shouldn’t be any different. Because the bank works. It’s independent. It pays for itself. But if Congress fails to act, thousands of businesses, large and small, that sell their products abroad will take a completely unnecessary hit.

Small business owners have had to overcome a lot these past several years. We all saw local businesses close their doors during the crisis. And in the past few years, we’ve seen more and more open their doors and do their part to help lead America’s comeback. At the very least, they deserve a Congress that doesn’t stand in the way of their success.

Your members of Congress are home this month. If you’re a small business owner or employee of a large business that depends on financing to tackle new markets and create new jobs, tell them to quit treating your business like it’s expendable, and start treating it for what it is: vital to America’s success. Tell them to do their jobs -- keep America’s exports growing, and keep America’s recovery going.

Thanks, and have a great weekend.


Robert Reich: American democracy is diseased

This originally appeared on Robert Reich's blog
Americans are sick of politics. Only 13 percent approve of the job Congress is doing, a near record low. The President’s approval ratings are also in the basement.

A large portion of the public doesn’t even bother voting. Only 57.5 percent of eligible voters cast their ballots in the 2012 presidential election.
Put simply, most Americans feel powerless, and assume the political game is fixed. So why bother?

A new study scheduled to be published in this fall by Princeton’s Martin Gilens and Northwestern University’s Benjamin Page confirms our worst suspicions.
Gilens and Page analyzed 1,799 policy issues in detail, determining the relative influence on them of economic elites, business groups, mass-based interest groups, and average citizens.

Their conclusion: “The preferences of the average American appear to have only a miniscule, near-zero, statistically non-significant impact upon public policy.”
Instead, lawmakers respond to the policy demands of wealthy individuals and monied business interests – those with the most lobbying prowess and deepest pockets to bankroll campaigns.

Before you’re tempted to say “duh,” wait a moment. Gilens’ and Page’s data come from the period 1981 to 2002. This was before the Supreme Court opened the floodgates to big money in “Citizens United,” prior to SuperPACs, and before the Wall Street bailout.

So it’s likely to be even worse now.

But did the average citizen ever have much power? The eminent journalist and commentator Walter Lippman argued in his 1922 book “Public Opinion” that the broad public didn’t know or care about public policy. Its consent was “manufactured” by an elite that manipulated it. “It is no longer possible … to believe in the original dogma of democracy,” Lippman concluded.

Yet American democracy seemed robust compared to other nations that in the first half of the twentieth century succumbed to communism or totalitarianism.
Political scientists after World War II hypothesized that even though the voices of individual Americans counted for little, most people belonged to a variety of interest groups and membership organizations – clubs, associations, political parties, unions – to which politicians were responsive.

“Interest-group pluralism,” as it was called, thereby channeled the views of individual citizens, and made American democracy function.

What’s more, the political power of big corporations and Wall Street was offset by the power of labor unions, farm cooperatives, retailers, and smaller banks.

Economist John Kenneth Galbraith approvingly dubbed it “countervailing power.” These alternative power centers ensured that America’s vast middle and working classes received a significant share of the gains from economic growth.

Starting in 1980, something profoundly changed. It wasn’t just that big corporations and wealthy individuals became more politically potent, as Gilens and Page document. It was also that other interest groups began to wither.

Grass-roots membership organizations shrank because Americans had less time for them. As wages stagnated, most people had to devote more time to work in order to makes ends meet. That included the time of wives and mothers who began streaming into the paid workforce to prop up family incomes.

At the same time, union membership plunged because corporations began sending jobs abroad and fighting attempts to unionize. (Ronald Reagan helped legitimized these moves when he fired striking air traffic controllers.)

Other centers of countervailing power – retailers, farm cooperatives, and local and regional banks – also lost ground to national discount chains, big agribusiness, and Wall Street. Deregulation sealed their fates.

Meanwhile, political parties stopped representing the views of most constituents. As the costs of campaigns escalated, parties morphing from state and local membership organizations into national fund-raising machines.

We entered a vicious cycle in which political power became more concentrated in monied interests that used the power to their advantage – getting tax cuts, expanding tax loopholes, benefiting from corporate welfare and free-trade agreements, slicing safety nets, enacting anti-union legislation, and reducing public investments.

These moves further concentrated economic gains at the top, while leaving out most of the rest of America.

No wonder Americans feel powerless. No surprise we’re sick of politics, and many of us aren’t even voting.

But if we give up on politics, we’re done for. Powerlessness is a self-fulfilling prophesy.

The only way back toward a democracy and economy that work for the majority is for most of us to get politically active once again, becoming organized and mobilized.

We have to establish a new countervailing power.

The monied interests are doing what they do best – making money. The rest of us need to do what we can do best – use our voices, our vigor, and our votes.
Robert Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written 13 books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His new movie "Inequality for All" is in Theaters. His widely-read blog can be found at


Teresa Ghilarducci: Why the 401(k) is a “Failed Experiment”

Source: PBS

Teresa Ghilarducci is director of the Schwartz Center for Economic Policy Analysis at The New School for Social Research. The 401(k) system has been a “failed experiment” for middle-class Americans because it was never designed with them in mind, she told FRONTLINE. “It’s not the fault of people that they don’t have enough savings in their individual retirement account or their 401(k)s,” she said. “It’s the fault of the system, and the whole system needs to be reformed.” This is the edited transcript of an interview conducted Oct. 25, 2012.
I’m going to take you all the way back to 1974. What was the significance of ERISA passing?

ERISA, the Employee Retirement Income Security Act of 1974, was passed after many people lost their pensions after many years of work, and they were promised pensions, but the company went bankrupt, and there wasn’t actually any funds to back up the promise.

The most famous case of that was Studebaker, that was based in South Bend, Ind. And that city [was] filled with people who for 20 years had been promised a pension, and they found themselves in their late 50s without a job or any income.

ERISA was passed to make companies set aside money to back up to promises. And a lot of the bigger companies were doing it anyway, so it codified, or made legal, what the big companies thought [was] the responsible thing to do.

And it was also a time when companies, to be successful, provided pensions, because they realized that turnover costs were really high, that after you trained workers and they left for another firm, it just affected their bottom line. …

So ERISA rode that wave of employer-employee relationships that really valued skilled workers and some loyalty to the job.

And how did that get reversed?

It wasn’t because the need for skilled workers or less turnover got reversed. … What’s happening is that [employers] are shedding older workers. At 50 to 55, there’s been a huge change in the connection between an employer and an older worker. Now, the reason why this … affects pension plans is because that change in employee relationships [has] come about with the same change of the design of the pension plan.

So we’ve seen in the 1980s and ’90s a shift away from a regular traditional pension plan to something called a 401(k)-type plan. Most call it a defined contribution plan, but most defined contribution plans are 401(k)-type plans. These plans were put into place at the beginning of the 1980s, and it was really meant to serve the needs of executives in a company that already provided pension plans for everybody else.

“The 401(k) … is one of the only products that Americans buy that they don’t know the price of it. It’s also one of the products that Americans buy that they don’t even know its quality or know how to judge its quality. It’s one of the products that Americans buy that they don’t know its danger.”
The plea from larger corporations to the Internal Revenue Service was: “Please give us a way to let our higher-paid employees save on top of the traditional plan for their retirement. Let us deduct their pay, tax-free, and let them pay taxes later after the accumulation.”

So the IRS thought, well, they’ll never do it if we allow them to do it, but make that available to all the workers. And the IRS was a little surprised that in fact, company after company started to adopt these 401(k) plans as a supplement to regular pensions.

When workers lost bargaining power because of international trade, because of the decline in unions, that supplement became a primary plan.

But … the biggest trend is not that these traditional plans are moving to defined contribution plans or 401(k) plans. The biggest trend we’re picking up is that employers are not providing any way for Americans to save for their retirement. So on top of the shift away from traditional plans to 401(k)’s is actually a [lesser] probability that a firm will even have a retirement account at work.

… Kind of unpack the irony that 401(k)’s were a way to make rich people richer.

So the end of the 1970s and early ’80s was a period of a lot of economic turmoil, but the relationship of the employer and the employee hadn’t changed much. … All employers cared about the loyalty of all their workers and wanted to help out their higher-paid managers. They decided to petition the IRS to actually expand their pension offerings, and they provided 401(k)’s as a supplement to the traditional plans.

What’s ironic is that as time progressed and regular workers had less bargaining power, less presence in the modern firm, is that this plan that was really built to supplement the retirement accounts for the higher-paid workers became the only vehicle in which lower-paid workers could save for their retirement.

So the structure was always set up against lower-paid or middle-class workers from the very beginning, because it was never intended to be the primary savings vehicles for most Americans.

How was it popularized?

The 401(k) plan was never organically popular among workers. The fact that workers were faced with decisions about where to invest — they were told that they had to choose how much they had to save for their retirement in order to be comfortable — was never anything that was a superior option to just a regular pension plan. …

But it became popularized with lots of advertising money and a lot of congressional protection that other kinds of financial products and other kinds of products in general didn’t have.

For instance, the 401(k) manager, or mutual fund, is one of the only products that Americans buy that they don’t know the price of it. It’s also one of the products that Americans buy that they don’t even know its quality or know how to judge its quality. It’s one of the products that Americans buy that they don’t know its danger, and it’s because the mutual fund industry had been able to protect themselves against regulation that would expose the danger and price of their products.

… How is it possible that our retirement funds, there’s so little transparency?

… The period of the 1980s and ’90s was a period in which there were high rates of return, or consistent rates of return in the product. So there was a complicity of belief that the mutual fund industry was regulated by the Securities and Exchange Commission or some other agencies that would just make sure that companies did the right thing and that the market competition would regulate itself.

So there was some faith in the product. It hadn’t blown up yet. People liked the [Ford] Pinto until the engines blew up. So it’s a matter of complacency. 401(k)’s were new products, and they were working well for a while. …

One of the worst aspects of the 401(k) industry is the conflict of interest. … So the 401(k) industry took fees from customers, paid lobbyists to go to Congress to say:
“You don’t need fee transparency. People won’t really understand it. Let the market thrive, and then through competition, the fees will just be appropriately priced.”

And so that was the story year after year when the Congress tried to expose the fees. …

… We all know that banks spend money on lobbying. But was it different than the usual sort of Wall Street kind of shenanigans?

I think that the rest of Wall Street and the rest of banks were more highly regulated because there was a popular movement against credit cards and against mortgages. …

Even the people who worked in the banks just accepted that they had to reveal what the real checking account fees were and what the real interest rate fees [were]. So there was a culture of regulation among commercial banks. …

The 401(k) industry comes from a different side of Wall Street and a different side of the banking industry. Those were products that used to be available only to the very rich. And they made a deal. Those mutual funds made a deal with Congress, just like hedge funds are now, that look, it’s sophisticated consumers that buy our products, and therefore they can understand what the fees are. If you regulate us, all you will do [is] create red tape and take money away from customers. …

Do you remember the first time you heard the term 401(k) and what you thought about it?

USA Today in the early ’90s asked me what I thought about the this new forum of defined contribution plans, and they asked me because I was a new professor and had just finished a huge study of 800 firms and how much money they put aside for their employees.

I had just written a book on how Americans prepare for their retirement, and I knew that Americans really prepared for retirement by paying taxes into Social Security and also saving at work. And I had just finished a study that showed that if employers adopted a 401(k) plan, this new kind of plan, that they actually lowered their pension costs. …

And I wondered what this new forum was. So the early ’90s, I just told the news media and everybody about the fact that these 401(k) vehicles seemed to be a way that companies just got out of contributing to their workers’ savings plans. …

And yet they became very popular among workers. …

So when workers were offered a 401(k) plan and their defined benefit plan was frozen or eliminated, workers did say they liked it. But it wasn’t because it was their first [choice]; it was because [it was] their only choice.

All of us, when we’re faced with something rather than nothing, tend to be optimistic about how that something is going to work. Study after study that asks workers, “Would you prefer a secure retirement plan, or do you prefer a plan where you can decide where to invest, and how much to save?,” workers choose the more traditional plan.

They like the supplement; they like the choice. But it doesn’t mean they refused a secure retirement plan.

But the markets were booming. It was exciting. We were all sort of gambling on the market, and suddenly we could gamble with our retirement money.

… The stock market was all over the news media. Personal finance journalists all of a sudden were in high demand. There are lots of people on the radio that have personal finance programs. You had [Jim] Cramer and the Motley Fool making investment almost kind of fun and childlike. Cramer reminds me of Sesame Street, you know, running around and honking horns and talking to people about big adult stuff.

All of a sudden, workers were getting some familiarity, like you do when you are exposed to a lot of advertising, with terms that were really in another rarefied world of finance, so that everybody on the street could talk about [large] cap and NASDAQ and the Dow as if it were part of their life.

So the 401(k)’s actually exposed consumers to a whole other world of finance, and the market was in a long-term bubble. It was actually growing.

Now people couldn’t see what their accounts were actually doing. That was hidden from view. And in fact, there were lots of articles in that period of time which would survey workers. How much did you earn in your own account? And even very highly educated workers would name a number that actually incorporated their own contributions. So many sophisticated workers — these are engineers; these are highly educated workers — could not separate out the earnings in their accounts, the actual earnings from the stock market from actually the money that they themselves put in. …

[It] would only take a huge financial crisis, like the one we had in 2008, 2009 for people to realize that that account was at risk. And so the industry was able to coast on some satisfaction among the consumers, the workers who were putting money into it, and their employers who thought, “Well, if my employees aren’t complaining, I guess it’s OK.”

And they were able to lobby Congress to say: “Look, if it ain’t broke, don’t fix it. Don’t saddle us with regulation.”

… Talk about the growth of the mutual fund industry. What role was Fidelity playing in making 401(k)’s popular?

In the 1970s, ’80s and ’90s, we were in … a period of time when the labor force was aging rapidly. … The mutual fund industry was not very well regulated, and they were finding that people were moving into their savings years. A 40-year-old saves more than a 30-year-old, and a 50-year-old saves even more than a 40-year-old. So they were just taking in money hand over fist, and they loved it.

As demand was increasing in their industry, it let them play with it more, offer more financial innovation. So programs in colleges, at MBA schools really ignored engineering, really ignored management, and it was the finance programs that were exploding.

The big investment houses worried less about whether or not the steel company they were investing in had good operations, and they were just interested in creating more financial products. So we had more financial engineering in the 1970s and ’80s, more product innovation than we had actual engineering.

But this product innovation, this money flowing into the mutual fund industry because the workforce was getting older, was a way for them not only to create more high-value, high-profit products, but it was also a way for them to consolidate their political power. …

So who were the early players? And how did they get so big?

The early players were Fidelity, MFS — Massachusetts Financial Services — were the early creators of 401(k)’s. … The early mutual fund companies really were marketing to the very richest Americans. These were Americans that had wealth beyond their house and beyond their company plan.

And all they did was have this financial product that let rich Americans not have to pick on their own which stocks to buy but said, “Hey, we’ll give you a fund that has a little bit of everything, and then we’ll do a lot of that stock picking for you.”
And rich people thought that was a good use of their time and a good use of their money. They would pay a mutual fund manager to pick the stocks, and they would just get a rate of return from a diversified portfolio. So the mutual fund industry was an industry for older rich people. …

When one has a 401(k), you generally have this sort of Chinese menu of really fabulous-sounding options. … Can you give me a sense of what those products are and who makes money off of them?

… The people who have gotten a job and are asked to invest in their 401(k) are handed really two choices: How much do you want to put into your 401(k), and where do you want to put that money? And they’re given a menu of choices about where to put their money. …

We experts have actually analyzed the choices that people make. So one disturbing fact is that if people have 15 choices, they feel the most prudent thing to do would be to diversify their contributions — it makes actually a lot of sense — and they just put 1/15 of their contributions into all their funds. Or they’ll ask their co-worker, “So, buddy, what did you put your money in?” Or they just may be in a good mood to put their money toward things that sound like growth, or they may be in a mood to put things in that more sound like value.

There’s really no guidance that employers provide, and that makes sense, because if employers provided guidance, they’d be on the hook if they provided the wrong guidance.

So workers are really left on their own to choose among the Chinese menu, and because there’s no regulation, there’s often not a distinction about whether or not they’re even investing in a stock or a bond. And there’s nothing on that Chinese menu that reveals the price of that product.

So when they put their money in [these] “value” and “special” and “growth” funds, what happens to that pile of money?

So we know that 401(k) participants don’t invest like a professional would invest. They don’t invest in an appropriately diversified portfolio. They don’t invest in the lowest fee portfolios. …

Just asking the question, have 401(k) investors done as well as professional investors, done as well as defined benefit investors, or have done [as] well if they had put their money under their mattress, and the sad fact is that 401(k) investors perform the worst among all participants.

Here’s a fun fact. For many people who just put their money into a 401(k) and never looked at it again, and happened to have picked a low-fee diversified mutual fund, [they] would have done a lot better than the [401(k)] investor that watched the stock trading shows or followed the investment advice and responsibly tried to trade every quarter or every year, because the person who tried to be responsible and follow the advice on the news media or in a pamphlet would actually pay such high trading costs that it would take away from their returns.

So we know after 30 years of this 401(k) experiment that people do worse in 401(k) than they would have if their money was in a traditional plan or if it was in a plain vanilla retirement account.

Why do most people not know that?

Most people don’t know that the 401(k) products are toxic and their behavior toward a 401(k) product is toxic because no one has been responsible for providing a safe product.

The Congress has not put itself [out] as a responsible actor. Employers were told, “It’s up to your employees to choose,” and the banking industry and the mutual fund industry said, “Trust us.” …

So the reason why workers don’t know that their 401(k) products and the choices that they make won’t yield them enough return and that they’re paying high prices is because the products are dangerous, and nobody regulates them.

It almost sounds like … the mutual funds are mugging widows and grandparents, you know?

The mutual fund industry [is] doing what they’re supposed to do. They’re supposed to make money for their shareholders, so they’re providing a product to not just widows and our grandparents and older people, but they’re providing a product to workers. And the workers are responsible to find out the quality of that product.

There’s very little regulation, very little information about those mutual funds, and the mutual fund industry likes it that way, because the less information they have, the higher the fees they can charge. …

… In this world of [the Charles Schwab ad campaign] “Talk to Chuck” and Fidelity and T. Rowe Price and Prudential, who should I trust?

… In the 1950s and ’60s and ’70s, most Americans dealt with the bank because the bank gave them a mortgage; the bank gave them a savings account or a checking account. The bank might have given them a small business loan. And the banks started giving you credit cards.

At the time that the commercial banks provided these products, Congress kept up with them and regulated them. It wasn’t without some tension, but the American worker and the banking industry had a well-regulated, familiar relationship.

In the 1980s and ’90s, the part of Wall Street that really only interacted with rich people stepped down and expanded their market to the middle class and to ordinary workers, and they were able to expand their high-end business down-market because employers were shedding their traditional plans and providing a do-it-yourself pension plan.

“Most people don’t know that the 401(k) products are toxic and their behavior toward a 401(k) product is toxic because no one has been responsible for providing a safe product.”
So the changes at the workplace really matched up with changes in the mutual fund industry to expand their market. So the mutual industry started to sell a product that wasn’t appropriate for most Americans, and the players there became household names because they went retail. And the advertising budgets of these firms exploded, and they got those advertising budgets from fees that were named education fees or marketing fees or administrative fees.

And so a big part of the advertising industry in this country [has] moved away from cars and clothes and diamonds and [has] moved toward mutual fund products. There’s always been an effort of sort of luxury-good providers to make sure that the middle class would kind of grasp and reach, and kind of get those products. I think the mutual fund industry is just part of that down-marketing of a luxury good.

The problem is, it’s not just a frill. The problem is that the mutual fund industry has replaced products that all Americans need, which is a secure way to save [for] your retirement in an efficient way.

Is there a campaign that you think was more memorable than any other?

… The campaign that I thought was going to be the most effective … was the “Talk to Chuck” campaign. It was talking directly to younger people and to workers to say: “I am going to help you through this process. Just talk to somebody that could be your uncle or your dad,” or actually the local banker that used to tell you: “Hey, buddy, you really can’t afford that home. Go a little bit cheaper; we’ll put 20 percent down.”

So the “Talk to Chuck” was a campaign that referred to a world in which you could actually have a partner and a trusted adviser for your financial products, just like you had a trusted teacher that helped you through your education or through your career.

It was a campaign I thought would really take off, and it looks like it has. So I’ve seen that the mutual fund industry has kind of changed their tactics and are really locking into not the dreams of retirement, but to the anxieties of retirement. And they’re hoping that the worried worker will actually trust an adviser.

So I think it’s working for the industry, but it’s not working for the American public. Many people that I know are paying way too much to their adviser to buy products that are way too expensive for them.

And so we have a system in which in order to be responsible, you’re supposed to hire your own adviser, when in the past it was just all you had was a way for you to take your hard-earned money, maybe 5 percent, 10 percent, set it aside, and you knew that you would actually have a stream of income for the rest of your life.

Let’s talk about … the financial adviser that a lot of people get. Who is this person? How qualified are they generally? What are their conflicts of interest and their fiduciary responsibility over the advice they give you?

Many middle-class workers are consuming a product that was once only a product that very rich people bought, and that was a personal adviser. The big difference is that the rich people would hire a financial adviser that had just a very high fee and knew a lot about taxes and estate planning. Now middle-class workers are getting a product where the adviser is really just a broker or a salesman, so it looks like the kind of product that rich people have, but it’s a very different product.

So when you hire a guy, or you have a financial broker, that guy is most often attached to a big financial company. Many people are getting their financial advice from an American Express adviser. They’re getting their advice from somebody who they find in a small room at their local bank, who are selling products for their individual retirement account. Or they’re talking to a financial adviser that’s connected to Charles Schwab or Fidelity or another mutual fund aggregator. And this guy works for that financial company, just like the person who sold you a car works for the dealer or for the auto industry.

Now that guy — and often it’s a gal — does have some professional standards they have to meet. They have to pass a couple of licenses, and they have to know something about you — not very much about you, but they want to know if you’re a high-risk investor or you want a secure amount of money, and they probe you a little bit.

There’s always the standard questions. Do you want to preserve your capital, or do you want to make as much as possible? And based on those questions, they have some rough standards about what kinds of products to put you in. But after that, everything they tell you is really not regulated.

They have a professional standard to their profession, and they have a loyalty standard to the company. They have to make as much money as possible for their company, and their company rewards for selling you the most high-priced, high-profitable standards.

Let me contrast that guy with the guy, the investor that people have in a traditional plan. … When you put a dollar into an ERISA plan or [in]to a traditional plan, that money was protected by a standard called the fiduciary standard. That standard requires everybody running your money to be professionals but also to have loyalty only to you, to the beneficiary. …

They can’t put a penny toward an investment that might benefit somebody else or take that benefit into consideration. Even if that investment would save the auto company or the steel company, the investor, the professional has to say, “Does it help my worker or my retiree?”

A professional standard that your guy is guided by is a much lower standard than a duty of loyalty or fiduciary standard. Basically your guy is out for himself to maximize his sales, and the way he does it is to be loyal to the mutual fund. And they try to sell you the most profitable products. …

… So they’re the broker-dealer?

They’re the broker-dealers. They’re the financial adviser. … There’s no difference, but they certainly don’t present themselves to you as a broker-dealer. That’s the function they serve in the industry.

But you as a worker, or you as a saver in an individual retirement account, you’re presented with this guy. In another name, he calls himself, or she calls herself, an adviser. Many people in the industry think that we’re going to see a wave of lawsuits against these advisers for even violating their low-level professional standards, because these advisers have only been pushing high-fee products. And as people find out that there’s really not enough in their nest egg, they’re going to have notes. They’re going to have records of the kinds of advice that they were given, and we probably will see a lot of lawsuits to actually push the boundaries of what professional standards mean.

… The Pension Protection Act [of 2006]: Why was this passed, and did it make things better or worse?

The Pension Protection Act is a lovely sounding name of a law, but it in fact did the opposite of what the name implies. The Pension Protection Act really put the final nail in the coffin of defined benefit plans.

The Pension Protection Act continued the severe and tight regulation of the traditional pension system and gave a lot of leniency to the IRA and to the 401(k) industry. So it continued the asymmetry of regulation.

And what it did was tell defined benefit plans that they had to fund their promises to a much higher degree than they ever had before. It accelerated the payments into the pension plan.

Now, that all sounds good, but the Pension Protection Act did to traditional plans what a law that would say, “Hey, you might have a 30-year mortgage; you now have to fund your mortgage in five years,” would do to homeowners.

What it did was accelerate the full funding of many plans, and it forced a lot of plans to terminate, to go bankrupt, because they weren’t planning on funding their plans to such a high degree, just like somebody who took out a 30-year mortgage would not be able to fund it all in just five years. …

… Why weren’t they regulating where the problem was, which was 401(k)s? Why not have any provision that would protect people that were putting their money in these?

The Pension Protection Act focused its attention on traditional plans but did not focus its attention [on] the defined contribution world of individual retirement accounts and 401(k) accounts, because the lobbyists for the 401(k) industry was very powerful, and the lobbyists for the traditional pension plans were not as powerful. …

Who’s the lobby?

The lobby for the 401(k) industry is the Investment Company Institute of America. They are called the ICI, and they are growing in Washington, and they are very well funded because their clients were growing and were taking in money from an aging population.

Skip ahead two years later. I believe you testified before a committee. … Talk to me about that day. What happened in that room?

I testified in Congress in October in 2008. If people remember that period of time, the month before Lehman Brothers had just gone bankrupt, and we had the biggest slide in the financial markets in a couple of decades. And we were just collecting data on what happened to people’s 401(k) accounts, and those accounts fell by a trillion dollars.

Everybody overnight who had a 401(k) or an IRA saw their accounts drop by 25 percent on average. But many people saw their accounts drop by half. The 401(k) in October of 2008 had become a 201(k). … I had just published an op-ed in The New York Times that said we need to save pensions in the same way that we need to save housing and we need to save the banks.

So I testified in Congress that something drastic had to be done to make sure that people’s retirement accounts did not fall any further, and to move forward so they could accumulate enough money in their retirement accounts.

And I said to Congress, “We now have seen that the 401(k) experiment was a failed experiment.” This was the event that exposed the flaws in the 401(k) system. And I was right, but the industry pounced on me. And in fact, the lobbyists made jokes with me that I had just helped their business because I could be the one person that personified all the criticisms of the 401(k). I could be the big target, and so they could tell their clients, “Oh, you’d better give us more money as lobbyists, because Congress is going to regulate you once and for all.”

Well, they were right. It took four or five years for Congress to regulate them, but now we’re seeing that the 401(k) industry has to reveal some of their fees.

What did they criticize you for?

They criticized me I think for saying that the 401(k) industry is exposed, and here are the list of reasons why the 401(k) industry was always a failed system, was always a flawed structure for ordinary people to save their money.

But help me understand. How is it possible that 2008 happens? People lose half their retirement savings. … Did Congress, did the president, did nobody stand up and say, “Wait a minute, this is a problem”? Silence?

… The reason why Congress responded to the mortgage crisis, responded to failed banks, was because there were stronger voices for homeowners. There were stronger voices for communities that were facing a bankruptcy of their auto industry. And there wasn’t a strong voice for people who were really afraid about their retirement futures.

“The 401(k) in October of 2008 had become a 201(k).”
People [who] were afraid for their retirement futures are dispersed. They’re older workers who also might be losing their home and also might be losing their job. So the undercurrent of not having enough money for retirement, that pending crisis just took a back seat to the more immediate crisis of rising unemployment or home loss. But it doesn’t mean it’s not as important, and it doesn’t mean that it won’t strike people when they’re most vulnerable. …

So there was silence in Congress because I actually think a lot of congressional representatives, even senators, though they may care, were one step removed from what was happening in the lives of workers. They had better things to do, and the lobbyists for the mutual fund industry were really loud and convincing to say, “Lookit, we’re down; if you regulate us or scrutinize us, it’s just going to cause more confusion and more lack of confidence.” …

“We’re not a financial product that needs to be regulated”? …

I really was a minority voice in Congress that said these 401(k) products are a financial product just like all the financial products. People use these products for a very particular financial goal, and it should be put under a consumer protection agency.

But I lost that battle. The lobbyists for the mutual fund industry were just too strong and too well funded. But these products should be regulated like a financial product. They were never appropriate for the vast middle-class consumption that they are now. And the financial crisis of 2008 just showed that these products need more regulation, and that they’re very risky, and they can blow up. …

… In 2009 a company called BrightScope was created. Is this a good thing?

BrightScope is a for-profit company, and it saw an opportunity to help out employers that really wanted to do the right thing and provide their employees with a choice of products that would be appropriate for them. …

BrightScope does reveal the quality and the fee structure of a particular product in a mutual fund, but it can’t help people do the most important thing they have to do when they look at the Chinese menu of choices in a 401(k) system, and that’s how to put these pieces together to actually provide a secure retirement income for the rest of their lives. …

As I understand, it only actually looks at 50,000 programs, leaving 600,000 other 401(k) programs without any –

BrightScope is in the beginning stages. It’s looking at all the products in the 401(k) industry. It hopes to look at all of the products. It only looks at a fraction of the products, the most popular products. And as it looks at one, the products change, so they have a very big job. …

In 2010, I guess sometime this year, your friend Phyllis Borzi, [the assistant secretary for employee benefits security in the Employee Benefits Security Administration of the Department of Labor], finally did something about getting some transparency. What did she do, and how did she get there?

One of the bright lights in this 30-year history of 401(k) growth and the lack of regulation has been the Obama administration’s assistant secretary for pensions, Phyllis Borzi. She came to office … and said her top priority was to regulate this fairly unregulated industry, that at least workers would be able to find out what the price of their product is. They might not be able to find out the quality of their product, but at least they’ll be able to find out the price.

So starting in 2010, she wrote regulations. She wrote rules about what the mutual fund industry would have to reveal to workers about how much their 401(k) fees cost.

And it’s taken two years for those regulations to come into effect. So in the last months of 2012, employers are going to have to reveal to their employees what the price of their product is.

It goes in the right direction, this regulation, but it doesn’t go all the way, because even though people will be able to know in some uniform way what their fees are, they won’t be able to know the quality of the product, and they won’t actually have all the fees revealed. They won’t know all the things that they do that actually cause those fees to go up, like buy and sell the product too frequently.

… What was the opposition that she faced?

So Phyllis Borzi, her brilliance was to actually not go to Congress and ask Congress to change the law to make fees revealed. … What she did was just pass a regulatory rule. …

So she just did it as a matter of course?

Yeah, so Phyllis Borzi just did it as a matter of course in regulating these funds and figured out a way not to have to go to Congress. It took a long time, because even trying to implement a new rule can be slowed down by the lobbyists.

When this rule was enacted, what impact did it have?

It activated the lobbyists to actually try to slow down the implementation. So when this rule was enacted, there was a change in how it would be rolled out, and we haven’t seen what the reaction to the rule will be yet. We’re talking now in the fall of 2012, and not all workers have seen the documents that revealed the fees.

I think that it will have some effect, but not the kind of effect that we need to make these 401(k) plans work better for workers. It’s a step in the right direction to regulate these products as a financial product, but it doesn’t go as far as the rules that regulate mortgages or other financial products.

You also have a student, Robert Hiltonsmith. Talk to me about his work and what significance it’s had.

So Robert Hiltonsmith authored a study on 401(k) fees. It’s one of those studies that actually expose[s] a product. … This study really unpacked the kinds of hidden fees and direct fees that workers pay.

And what it did finally is to show that these fees add up, that if you pay these fees and these retail products, you’re going to erode your retirement savings by 20 to 30 percent, even if the stock market behaved itself, and even if you saved according to the advice to save 5 to 10 percent of your income without doing anything untoward at all. …

So what this report showed is that the 401(k) fees are corrosive over time. They look small at the very beginning. They’re hidden at the very beginning, but the product itself is too expensive for retirement savings. …

What was the reaction when that report came out?

The high-fee report came out in the summer, and the reaction has been explosive. The consumer activists, the consumer reports finally started paying attention to these 401(k) products as just another financial product. Oh, my gosh! We should be paying attention to these as we paid attention to high credit card fees or to subprime mortgages.

And so there’s a lot of popular exposure in publications that go to middle-class workers to say: “Be aware. These products may not be delivering the kinds of service that they promise.” …

The reaction I hope would be not better products from the industry but a wholesale restructuring of the way Americans save for their retirement accounts.

When we talked to mutual funds, their managers tell us that the fees are justified. They work really hard to figure out how to invest people’s money.

… The mutual fund industry [is] filled with lots of earnest people who do want to help people save for their retirement. But they’re actually selling a high-speed racecar to people who just want a secure car to get them to retirement.

So even though they’re trying to sell a racecar, a high-end luxury car at the lowest fee possible, and they’d be able to justify that a high fee is necessary for this high-performance product, it’s not the product that most people need. …

Why is this a product that’s not working? What exactly is wrong with the product?

The product was always really built for a different kind of consumer. A mutual fund is really there for people who have already saved enough for their retirement and in an institutional long-term investment product, who have already paid off their house and want to take their money and top off their [security] base for retirement.

It’s not an appropriate product for people who need to save a part of their paycheck every paycheck in order to have money for a long-term need for the rest of their lives.

Is an IRA a better product?

An individual retirement account is very similar to a 401(k) except it’s worse. The IRA is one of the worst places to save your money. At least the 401(k) has some scrutiny by an employer and has a more sophisticated buyer than an IRA buyer has. …

Both places are appropriate for people who want to top off their retirement savings or want to play with their savings to maybe earn a little bit of money. But it’s an inappropriate vehicle to provide a base of support for long-term savings. The IRA and the 401(k) do not have low-cost, long-term savings vehicles in them.

Anybody listening to you would say, “I might as well just put my money under my mattress.” Is that a good idea?

Many people don’t have any choices but to go to a 401(k) or to an IRA. Hiding your money in a piggy bank or under your mattress is not a good idea. You’re going to lose money just because of inflation.

So if you are going to save your money in an individual retirement account and a 401(k), the best thing to do is to demand from your investment adviser that you want a passive index account. These are [the] kind of accounts that Vanguard [has], … that has a loyalty to make money but doesn’t have any shareholders.

But the problem is, the person who wants to save their money in the lowest fee possible [is] going to be met with resistance from their guy. Their adviser doesn’t make any money if you put your money into a passive account. So anybody listening to me will just have to be strong, just like you’re strong when you buy a used car. You have to go armed with this sentence — “I want a passive index account” — and just say that sentence over and over and over again. Your guy, your broker-dealer, your adviser is not going to like what you demand. But at the end of the day, you have to buy only that product that’s appropriate for you. That’s not going to be easy. …

Why is a passive index fund better than a 401(k)?

A passive index fund is a more appropriate fund because what an index fund is, [it] just takes a little piece of the companies that are in an index. So there’s a Standard & Poor index of 500 companies, the S&P 500. But there are even indexes that are larger. The Russell 3,000 — that’s 3,000 companies.

And basically a computer chooses a portion of those 500 or 3,000 companies and puts it into your account. And a computer doing that automatically doesn’t have a mortgage to pay or a vacation home to pay or doesn’t require a salary. It doesn’t have a sales force attached to it, and it doesn’t have a big advertising budget.
All it does is take a little piece of the market and puts it into your account at a very low fee. And for over 30 years that we’ve been able to compare active managers to a passive manager, the passive manager does better over a period of time. ….

Let’s talk about your op-ed. … Tell me about writing this piece, how you came up with the idea and what impact it had.

I wrote a piece that was called “Our Ridiculous Approach to Retirement,” and that piece was just written out of frustration about the 30-year history of our retirement policy in this country, and also real empathy with people who were telling me that they were very afraid of retirement.

These were low-income people, these were middle-class people, and these were even rich people who said, “I don’t think I have enough.” And they were talking about something that was very basic to their needs: “I just want to know that I have enough money to live until I die.”

“It’s not the fault of people that they don’t have enough savings in their individual retirement account or their 401(k)s. It’s the fault of the system, and the whole system needs to be reformed.”
And the form of their worry came about in different ways: “I don’t have enough money now. How could I possibly have enough money when I retire?”; or, … “I know my employer is going to fire me because I’m too old, but I also know that I have to work longer.” Or the anxiety about retirement comes out among healthy, rich people that says, “Hey, I think I’m going to live until 100, and I don’t have enough money for that.”

… It’s not the fault of people that they don’t have enough savings in their individual retirement account or their 401(k)s. It’s the fault of the system, and the whole system needs to be reformed. People who are worried should not be victims and blame themselves. … Human beings are not the problem in this system. It’s the system that’s not appropriately structured for the human beings that are in it.

The banks will say, “People are just not saving enough.”

The industry, the banks, the mutual fund industry pivot the concern of workers by saying: “Well, you victims have your own selves to blame for not knowing what a stock and a bond was early on in your life, for not realizing when you were a young worker forming a family that you also had to save for your retirement along with your house, along with your unemployment, along with your child’s education.” …

So the banks are wrong when they tell workers, “You just haven’t saved enough.” Before the mutual fund industry took off and the 401(k) industry was able to protect itself from regulation, people did save enough for their retirement.

When people were in traditional pension plans, they saved 5 to 10 percent in their retirement accounts, along with saving for their house and saving for their child’s education, because the system was well structured for them to save for their retirement account.

It’s a false accusation that people didn’t save enough, or can’t save enough, because they want to live like grasshoppers and just consume all of their money now. It’s just not true. People will save appropriately if they’re in the proper vehicle. …

What we need in this country is not a voluntary, do-it-yourself saving system. It’s completely inappropriate for the way we live. We need a structure that expands upon our Social Security structure, that puts on top of Social Security kind of a Social Security plus, where we can save and have a guaranteed retirement account. …

Who’s listening to you?

I hope that people who are now struggling with keeping their jobs, over the age of 45, and are also struggling to save for their retirement, that they know that it’s not their fault that they don’t have enough money. …

When you talk about these workers, … there was a shocking statistic there about how much you needed to have when you retired.

… You need eight to 10 to 20 times the amount of your annual income when you retire in your retirement account to live comfortably.

In my article, I gave a top number of about $1 million to $2 million. But for a middle-class worker, having a million dollars when you retire will keep you comfortable for the end of your life. Having $2 million will keep you very comfortable with no risk at all of falling below your retirement living and have some inheritance left over.

How is the average middle-class worker going to amass $1 million by the time they retire?

Well, the average middle-class worker who had a traditional plan actually amassed close to the equivalent of a million dollars, but it never was expressed as a million dollars. It was expressed as a defined benefit for the rest of your life. Most of us actually are amassing a quarter of a million dollars, half a million dollars in our Social Security accounts.

Our Medicare account, our Social Security accounts, are worth almost a million dollars. We could amass a high-value asset when we’re in these guaranteed insurance products fairly easily. All it is is a contribution every paycheck.

But the 401(k) requirement is to amass it all in liquid accounts, and that’s nearly impossible. So what we need to do is to amass a million dollars’ worth of a promise of payment for the rest of your life into accounts that are more like insurance products.

So you believe in annuities?

Annuities are products that provide a stream of income for the rest of your life. They’re provided by the government, and they’re also provided by employers in a traditional plan, and they’re also provided commercially in the private market.
They’re provided by the government through the Social Security system. When we put 6 percent of our pay, another 6 percent and some change [that] our employer puts on our behalf into the Social Security system, we are buying the right to an annuity for the rest of our life. We don’t call it an annuity; we call it a Social Security benefit.

When we work for an employer that has a traditional pension plan, we’re putting 5 percent of our pay, 7 percent, 10 percent of our money toward a promise to pay you for the rest of your life.

When we try to go buy an annuity from an insurance market, we’re trying to take a hunk of money, $50,000 or even a million dollars, and go out into the market and say: “Hey, insurance company, here’s a lump sum. In return, give me the promise that you’ll pay me a stream of income for the rest of [my] life.”

The problem with going to the commercial annuity market with our 401(k) or IRA assets is that the insurance company doesn’t provide annuity to everybody else. They only provide annuities to people who want it, and they’re suspicious.
If you take your million dollars and want a stream of income for the rest of your life, they know that you know something they don’t. They know that you think that you’re going to live a very, very long time. People that have terminal cancer don’t go to an annuity company and say, “I want money for the rest of my life.” They know they’re going to die sooner than the average person.

So the private annuity company has to charge you for that risk of living too long, and therefore they’re giving you a bad deal because it’s a private annuity market. It’s a lot like sick people having to go out and having to buy private health insurance. The cost is way too high.

So I do not recommend that people take their 401(k) money or their IRA money and buy a commercial annuity. But what I’m saying is that everybody should have access to a low-priced, fair annuity product. But you can’t do that in the private market.

When you think about 10,000 baby boomers that are retiring every day, what scares you the most?

I’m really worried about that, because 10,000 baby boomers, 8,000 baby boomers are going to retire per day for the next 15, 17 years. We’ve done projections about how much money each of these people [is] going to have for the next 15 years, and we’re dismayed — actually much more. [We're] really panicked that many of these people will not have enough money to stay out of poverty.

Half of middle-class workers will be poor or near poor the day they hit 65, … because they don’t have enough money saved in their retirement accounts and because their house values have fallen so severely.
Those folks are going to try to work longer, and they’re meeting a labor market that is much more hostile to older workers than it has been in the past. They’re also meeting a labor market with very high unemployment. …

So we are finding that cities and states are now becoming aware that they have an older, vulnerable population on their hands. …

Are you optimistic?

I am, because of all the attention paid to this problem by state legislatures and by governors and by state treasurers. In fact, just last month the California Legislature and the governor decided they can’t wait for the federal government to do something about it, and they just passed legislation that will make it easier for all workers to save in a guaranteed retirement account.

Now, those accounts will be a competitor for Wall Street. But these are systems that will make 401(k)’s and IRAs just much more high-performing vehicles, so everybody should benefit. … So if the federal government won’t do something about their citizens’ retirement crisis, there are other local governments and state governments that will. …


President Barack Obama Weekly Address August 16, 2014 (Video/Trascript )

President Barack Obama
Weekly Address
The White House
Saturday, August 16, 2014
Hi, everybody. Over the next couple weeks, schools all across the country will be opening their doors. Students will suit up for fall sports, marching band, and the school play; moms and dads will snap those first-day-of-school pictures -- and that includes me and Michelle.

 And so today, I want to talk directly with students and parents about one of the most important things any of you can do this year -- and that’s to begin preparing yourself for an education beyond high school.

We know that in today’s economy, whether you go to a four-year college, a community college, or a professional training program, some higher education is the surest ticket to the middle class. The typical American with a bachelor’s degree or higher earns over $28,000 more per year than someone with just a high school diploma. And they’re also much more likely to have a job in the first place – the unemployment rate for those with a bachelor’s degree is less than one-third of the rate for those without a high school diploma.

But for too many families across the country, paying for higher education is a constant struggle. Earlier this year, a young woman named Elizabeth Cooper wrote to tell me how hard it is for middle-class families like hers to afford college. As she said, she feels “not significant enough to be addressed, not poor enough for people to worry [about], and not rich enough to be cared about.”

Michelle and I know the feeling – we only finished paying off our student loans ten years ago. And so as President, I’m working to make sure young people like Elizabeth can go to college without racking up mountains of debt. We reformed a student loan system so that more money goes to students instead of big banks. We expanded grants and college tax credits for students and families. We took action to offer millions of students a chance to cap their student loan payments at 10% of their income. And Congress should pass a bill to let students refinance their loans at today’s lower interest rates, just like their parents can refinance their mortgage.

But as long as college costs keep rising, we can’t just keep throwing money at the problem -- colleges have to do their part to bring down costs as well. That’s why we proposed a plan to tie federal financial aid to a college’s performance, and create a new college scorecard so that students and parents can see which schools provide the biggest bang for your buck. We launched a new $75 million challenge to inspire colleges to reduce costs and raise graduation rates. And in January, more than 100 college presidents and nonprofit leaders came to the White House and made commitments to increase opportunities for underserved students.

Since then, we’ve met with even more leaders who want to create new community-based partnerships and support school counselors. And this week, my Secretary of Education, Arne Duncan, announced a series of commitments to support students who need a little extra academic help getting through college.

This is a challenge I take personally. And to all you young people, now that you’re heading back to school, your education is something you have to take personally, also. It’s up to you to push yourself; to take hard classes and read challenging books. Science shows that when you struggle to solve a problem or make a new argument, you’re actually forming new connections in your brain. So when you’re thinking hard, you’re getting smarter. Which means this year, challenge yourself to reach higher. And set your sights on college in the years ahead. Your country is counting on you.

And don’t forget to have some fun along the way, too.

Thanks everybody. Good luck on the year ahead.


The Way We Live Our Lives in Stories

A Conversation with
Jonathan Gottschall
Source: Edge 

We think of stories as a wildly creative art form but within that creativity and that diversity there is a lot of conformity. Stories are very predictable. No matter where you go in the world, no matter how different people seem, no matter how hard their lives are, people tell stories, universally, and universally the stories are more or less like ours: the same basic human obsessions, and the same basic structure. The structure comes down to: stories have a character, the character has a predicament or a problem—they're always problem-focused—and the character tries to solve the problem. In its most basic terms, that's what a story is—a problem solution narrative. 

JONATHAN GOTTSCHALL is a Distinguished Research Fellow in the English Department at Washington & Jefferson College. He is the author or editor of six books, including The Storytelling Animal: How Stories Make Us Human (a New York Times Editor’s Choice Selection and a finalist for the LA Times Book Prize). 

There's a big question about what it is that makes people people. What is it that most sets our species apart from every other species? That's the debate that I've been involved in lately.
When we call the species homo sapiens that's an argument in the debate. It's an argument that it is our sapience, our wisdom, our intelligence, or our big brains that most sets our species apart. Other scientists, other philosophers have pointed out that, no, a lot of the time we're really not behaving all that rationally and reasonably. It's our upright posture that sets us apart, or it's our opposable thumb that allows us to do this incredible tool use, or it's our cultural sophistication, or it's the sophistication of language, and so on and so forth. I'm not arguing against any of those things, I’m just arguing that one thing of equal stature has typically been left off of this list, and that’s the way that people live their lives inside stories.

We live in stories all day long—fiction stories, novels, TV shows, films, interactive video games. We daydream in stories all day long. Estimates suggest we just do this for hours and hours per day—making up these little fantasies in our heads, these little fictions in our heads. We go to sleep at night to rest; the body rests, but not the brain. The brain stays up at night. What is it doing? It's telling itself stories for about two hours per night. It's eight or ten years out of our lifetime composing these little vivid stories in the theaters of our minds.

I'm not here to downplay any of those other entries into the "what makes us special" sweepstakes. I'm just here to say that one thing that has been left off the list is storytelling. We live our lives in stories, and it's sort of mysterious that we do this. We're not really sure why we do this. It's one of these questions
—storytelling—that falls in the gap between the sciences and the humanities. If you have this division into two cultures: you have the science people over here in their buildings, and the humanities people over here in their buildings. They're writing in their own journals, and publishing their own book series, and the scientists are doing the same thing.
You have this division, and you have all this area in between the sciences and the humanities that no one is colonizing. There are all these questions in the borderlands between these disciplines that are rich and relatively unexplored. One of them is storytelling and it's one of these questions that humanities people aren't going to be able to figure out on their own because they don't have a scientific toolkit that will help them gradually, painstakingly narrow down the field of competing ideas. The science people don't really see these questions about storytelling as in their jurisdiction: "This belongs to someone else, this is the humanities' territory, we don't know anything about it."

What is needed is fusion—people bringing together methods, ideas, approaches from scholarship and from the sciences to try to answer some of these questions about storytelling. Humans are addicted to stories, and they play an enormous role in human life and yet we know very, very little about this subject. There's an important growth area here for new understanding.

Storytelling is great, we all love stories, but do we need empiricism, too, or can we let stories run away from us and lose track of empirical reality? That's certainly a danger.

One of the major problems that I dealt with in my academic career coming out of the humanities was a tremendous frustration, to the point of almost paralysis, with the lack of an empirical foundation for any of the work that gets done in the humanities.

There are all kinds of storytelling. You have a question about X, Y or Z, and it's very easy for a talented PhD-wielding, high IQ person to tell a wonderful and engaging story about it. The story is often very credible, and very plausible, and very good, but the problem is that scholar B and scholar C have their own very plausible excellent stories as well.

A great deal of my work, especially earlier on in my career, was about going into the sciences and ransacking them, and trying to hijack the methodologies that are used to help scientists choose between competing stories. Scientists are telling stories, too. That's what a hypothesis is. You have the question, and you make up a story about how to account for the phenomenon. The advantage that sciences have over the humanities (one of them) is that science has methods for helping winnow down the field of competing hypotheses.

The argument has always been that none of those methods work in the humanities. That idea is bunk. It's like saying before people went to the moon, "You can't get to the moon because no one has ever been there." But no one had ever tried really before. It's not like people had tried desperately to make empirical methods work in the humanities, and then failed, and then moved on to something easy like string theory. They didn't put their shoulder into it and give up. We just have a thought habit that this is a field where it's strictly qualitative, and quantitative methods can't work, but that's false. You can find a lot of proof of concept studies that have been done. There's empirical work in the humanities that's quite good.

The main fear people have about importing empirical methods, scientific methods into the humanities is that somehow what's special about the humanities would be vaporized. It would become just like robotic, literary scholars would come to work in lab coats or something and the field would be sterilized. But it's really easy for the two things to co-exist. You need good scholarship, you absolutely do. You need good historians, and good literary theorists, and good literary critics, and none of that work is at odds with work that is methodologically scientific. There will be certain questions that can be addressed in a fairly rigorous scientific manner, and some questions that really can't.
I got to this place—this place between the sciences and the humanities—close to 20 years ago when I just started out in graduate school. I went to graduate school in literary studies, English. I wanted to be a scholar when I grew up, and a scholar I thought was someone who discovered things, or made some sort of small contribution to human self-understanding. Then I got into graduate school, and at the time the academic humanities were still quite firmly in the grip of postmodernism.
I would go to work as a graduate student every day, and I was told by my professors that, okay, we'll read, we'll write, but it's all kind of hopeless. The odds of us ever understanding anything are vanishingly small. It's a dog chasing its tail forever. I was frustrated by that; I wanted to try to find something like more reliable and more durable answers to the questions that I was addressing because I thought they were important questions.

I started looking around and thinking about, how do we do this? What's a good model for generating more reliable knowledge? I didn't have to think about it very hard. I said, "Well, the sciences seem to do this. The sciences seem to do a nice job. They have their mistakes, they backslide, they go in circles now and then, but most people allow that over time there's a gradual improvement in our understanding of the universe that wasn't there before." The humanities, in large part, have trouble making the same claim.

My career, especially in the early part, was about seeing how far I could get applying a more scientific model to the sorts of questions that I wanted to ask about art, those questions about literature in particular.

When I was in graduate school I saw several problems with the business model in academic literary studies: bad theory, bad method, bad attitude, bad ideology.
On the bad-theory front, what we had was a domination by Freudian theories, psychoanalytic theory, and very rigid versions of social constructivism, this idea that everything is pure nurture and no nature. I knew those models were out of date, so part of what my work was about was updating the model—the theory—to make it consistent with the best thinking in the sciences of the mind.

The other problem was a problem that I discussed a little earlier, this idea of, okay, so you have better theory to guide your research, and you will come up with ideas, but how do you know if your idea is true? I wanted to see if there were ways of quantifying some of the questions that you approach in the humanities, and submitting them to statistical analysis, and scientific testing, and falsification, and all of that stuff.

In the early days—the late ‘90s, early 2000s—I was doing things like having teams of readers, students, and together we would content-analyze folktales from all around the world. We would get a corpus of folktales from maybe 100 different cultures, hundreds of tales from every culture. This would be much easier to do now because you would have the computer tools to automate a great deal of it. We had to go out in the libraries, get the collections, scan them laboriously, and we'd ask questions that were very, very simple, and very, very basic.

For example, a question: Are female characters underrepresented in literature? Are there fewer female characters in literature? At first glance, just from your normal reading, you say, "Yes, it seems that way." And then you would say, "Well, what about in, I don't know, Elizabethan plays, and what about in folktales? What about on TV? What about in films? What about in other cultures? What about in other centuries?"

The argument had always been, yes, female characters are underrepresented because of sexism in the West. We said, "How do we find out if that idea is true?" What we did is we got this big body of folktales, and we'd look to see if we'd find the same relationship. We had a couple different ways of looking to see whether or not females were underrepresented in those samples. One thing you could do, is to read tales, and have the coders literally code: Who is the main character? How many characters are there? How many males? How many females? We also had the computer count pronouns: he/him versus her/she et cetera. We found very, very little evidence for the sort of Western patriarchy argument because what we found basically all around the world was that female characters were underrepresented across the board. We did not find cultures where you had parity. We did not find cultures where you had more leading female characters than leading male characters.
Often times, with a very simple question like this, the response will be this is the humanities, this is about books, this is about words, and there is no way of ever knowing the answers to these questions for sure, so all we can do is argue about it forever. But this study showed that with a little bit of elbow grease and a little bit of ingenuity, there's a way to go out and get something like an answer to this question.
The tension between the humanities and the sciences is old, and it's ongoing. So you have the "two cultures" clash that has been ameliorated in some areas, and people on the sciences side and the humanities side have all been trained to say the right things now, but the tension is still there. I'm in a somewhat interesting position to evaluate the arguments on both sides. People in the sciences are frustrated, and they think the people in the humanities are sort of thick skulled, and recalcitrant. People in the humanities think that the sciences are cocksure, and hubristic and intent on colonizing everything. They are afraid that what the sciences really want is to take over the whole shebang. They want their science building and they want the humanities building as well.

I do think that the people in the sciences, people in my camp even, could do a better job of talking about things, and dealing with some of the concerns. The humanities people are concerned with a feeling of evaporation—what science really does is it explains away magic. The humanities, and art, especially, can be viewed as the last bastion of magic, this unexplainable thing, this truly mysterious thing. We don't know how it works, we don't know why it works, we just know it works. Part of the reason humanities people haven't wanted science involved in this effort to understand art is this feeling that it would be explained, and if it's explained, it would be explained away.

Then there's a lot of misunderstanding, and it's basically an either/or mentality. You can either have scientific tools, approaches and methods, or you can have traditional scholarship where, of course, what's needed is a toolkit that has both things. You would have certain problems that would yield to this set of tools, and you had other problems that would be more appropriate for that sort of tool.

Another major concern in the humanities has to do with determinism and reductionism, the sense of reductionism, the idea, again, that something like Shakespeare would be dismissed as a drama of selfish genes, just boiled down to selfish genes. What's the answer to Shakespeare? "Oh, selfish genes". Part of what's going on there is a confusion about what the word "reductionism" means. The word has that sense of reducing—grandeur or greatness would be reduced—where that's not really what scientists mean by that. "Reduction" means explanation. It's not really such a scary concept. But I do think that there's been an effort from the science side possibly to conquer the opposition. And it hasn't gone very well. Probably a stronger diplomatic push is called for.

I was certainly in the warrior camp earlier on in my career. I wrote some angry things, "angry-young-man" type books, manifestos, and while I don't take anything back it was not a good strategy. People got their hackles up, and they got their claws out, too, and nothing really happened.

Was I too pugnacious in my earlier work? To some extent, yes, I was. The question is what do you hope to achieve? In my case what I hoped to achieve was a sea change. In the manifesto-type book that I wrote around 2008 I said that what I was aiming for was "totally disciplinary upheaval." I was going for a revolution. I argued the case just that boldly the whole way through, and with quite a lot of polemical strength. It was a very tough polemic. I'm proud of that book, but it didn't achieve much. It did not produce total disciplinary upheaval. What it did was strongly marginalize me within the field.

A few years later I wrote another book—my most recent book—about the same questions about the relationship between science and art and I just wasn't as aggressive as I was before. And it was fine. I got to make the same points, but people didn't see me as scary, people didn't see me as off-putting. I didn't sound like the type of guy that you maybe wouldn't want to have in your department because he was too aggressive. That book will do a lot more to push the sort of agenda that I'm interested in. Playing nice in that case seemed to have been a better strategy for getting what I wanted.
If I were to build my own English department from scratch, what would that department be like?

A lot of it would be very similar to how it is now. You would still read the great authors, and the new authors, and you would still have literary criticism, literary theory. But you would also have courses in human psychology. You would have courses that would address this big question: Why do we even have literature at all? Why do we have stories at all? Why do we care so much about fiction? These are the kind of things that are so big and basic, and so obvious that most people in literary studies don't even think about them. Or if they do think about them, it's in a vague sort of way.

I would have courses that were cross-listed with the math department: basic classes on statistics, basic classes on research methods for the social sciences. A lot of the questions that literary scholars are addressing are very basic psychology questions that can be addressed in a lab.

Just to give one more example, my colleagues and I, including Joseph Carroll and a couple psychologists, were interested in some questions about how people respond to literature. There's a whole field of literary studies called reader response literary studies. Reader response is what it sounds like. It's basically how do people respond to literature? What happens? What's going on in their heads? What's going on with them emotionally? The way that work has typically been done is by a scholar sitting in an armchair and telling you the answer. This is how people respond. But it's an empirical question, it's a lab question.

What we did was we asked people. In concert with this team of psychologists, we got people, avid readers, to tell us how they responded to these literary works. We were able to get a whole bunch of data, and answer a whole bunch of questions about this basic question, what is going on with people as they read and respond to literature?

One of the big questions revolves around the question I suppose of whether or not the author is dead. This is this famous mantra, this idea that the author is dead. One thing that the mantra suggests is that the author doesn't have very much power, that power resides with the reader. In most literary theory courses you learn that response to literature is highly idiosyncratic. It's going to strongly reflect your biases, whether you're a man or a woman, how old you are, what your background is, and so on and so forth. There's a lot of truth in that. And we did find that.

But for the most part what we found in a survey of maybe 600 people, was that the main story is by far uniformity. People agree on what's going on in a story, and they agree on what a story means. They have the same sort of emotional reactions to the characters, and they hate the same characters, they like the same characters.

If you have a big group of people all reading the same book, what you're seeing is not a diversity of response, a great deal of idiosyncratic response, what you're seeing is a mental and emotional attunement among those readers.
Now, from a common sense point of view I can see a lot of people listening to this and saying, "Well, of course, I knew this already." But we didn't know it already. This was a question that was very much in dispute, and most people in the academic humanities would have voted the other way, more towards idiosyncratic response. That would be one example.
The question, "why fiction?" has very much been on my mind lately, and it's one of these things that, again, is so big, and so obvious that most people just don't think about it. It seems obvious to people that human beings love stories. But if you think about it, it's not at all obvious that human beings should love stories, especially fictional stories. If you imagine us, as hunter-gatherers out on the savannah, life is very hard, narrow margins, and you would think that you're better off going without story. It's a lot of time and a lot of energy spent on story.
What might the benefit be to outbalance the costs? There are a whole bunch of different competing theories for this idea, and not a lot of data yet to help us decide between them. The main thing about these different theories for why we have fiction is that they are largely compatible with each other, it's not an either/or situation. If you ask yourself, "What's my hand for?" You would say, "My hand is a tool I use to grab stuff; it's a tool I use to communicate; it's a tool I use to reach out and caress people; it's a tool I use to reach out and punch people. It's a multipurpose tool; it does a whole bunch of different things." The same is probably true of story. Story has probably been shaped by different evolutionary pressures to do different things.

One of the ideas that I've been thinking about a lot is whether you can develop a hypothesis about one likely function of fiction by focusing on the form of fiction. What is fiction like formally? One of the most interesting things to me about stories is that we think of stories as a wildly creative art form, but within that creativity and that diversity there is a lot of conformity Stories are very predictable. No matter where you go in the world, no matter how different people seem, no matter how hard their lives are, people tell stories, universally, and universally the stories are more or less like ours: the same basic human obsessions, and the same basic structure. The structure comes down to: stories have a character, the character has a predicament or a problem—they're always problem-focused—and the character tries to solve the problem. In its most basic terms, that's what a story is—a problem solution narrative.

Why are stories that way? On one hand, it may be obvious to you that stories are that way, that they're problem focused. That's the first thing you would learn in your first day of creative writing class. You get there, your teacher would say, "Hey, your story has to have a problem, a crisis, a dilemma, otherwise no one's interested." But if you think about it, it's not at all obvious that stories should be that way. You might really expect to find stories that really did function as portals into hedonistic paradise. Paradises where there were no problems and pleasure was infinite. But you never, ever find that.

Why are stories so trouble-focused? You have quite a bit of convergence among scholars and scientists who are looking at this from an evolutionary point of view, and what they're saying is that stories may function as kind of virtual reality simulators, where you go and you simulate the big problems of human life, and you enjoy it, but you're having a mental training session at the same time. There's some kind of interesting evidence for this, that these simulations might help people perform better on certain tasks.

So in the same way that children's make believe helps them hone their social skills, it seems to be true of adult make believe, too. If adult make believe is novels and films, it seems they're entering into those fictional worlds and working through those fictional social dilemmas actually does, as hard as it may be to believe, enhance our social skills, our emotional intelligence, our empathy. That's kind of a neat finding. Maybe stories have a function as a simulation of the big problems of life that helps us cope better with those problems when we do experience them.

What about stories that are an exception to this rule? You will find them, but you will have to scrape your brain to find them, to find examples, and they will be very much exceptions that prove the rule. They will be extreme statistical outliers. You will find stories that don't have that structure, that character facing a problem and attempting to solve it.

You will note, though, that most of those examples, the things that will spring readily to mind are not the things that most people consume. Stories that depart from that basic structure have a tremendous amount of difficulty finding audience. They typically find an elite academic-style audience. For instance, Joyce's Finnegans Wake or something, it explodes the structure of story. But Joyce, of course, was setting out on purpose to explode the structure of story. A lot of 20th century writers realized, "Holy cow, I'm working inside a prison, I'm working inside the prison of this structure, and I'm going to blow it up, and I'm going to make everything new." These were interesting as artistic experiments, and I adore some of them, but they're exceptional, and importantly, they do not do a very good job of seizing human attention and riveting human attention. People read them when their professors force them to read them.


I have two daughters, and the question is what would I advise them if they wanted to pursue study in the humanities? I would be for it. The more interesting question for me is, and I get this question in my e-mail box a couple times a week, from some student out there who asks, "I like your work, I'm impressed by your work and I want to do the same thing. I want to tie together humanities work and scientific work. I have these questions about literature, or about painting, or about music that I'd like to pursue from a scientific point of view. Where do I go? Where do I go for a good undergraduate degree? Who can advise me in a PhD program?"

Those are sort of heartbreaking letters to get because there's not many very good places to send them. Typically I have to say with regrets that there's a couple people I can mention, but after that, I have to say that if you are in between the humanities and the sciences, the best way to go is to go to the sciences because you will not get pushback on this path of inquiry from people in cognitive science, or people from neuroscience, or people from psychology. But you will face quite a bit of resistance probably if you try to go at this from an academic humanities program.