Sunday, June 10, 2007

Unprepared for the Rainiest of Days

HEY! Good news! I’ve thought of some new things to worry about. Let’s run through some of the threats hanging over our economy:

First, there’s that gigantic trade deficit, approximating $800 billion a year and growing. The deficit tab for oil alone is almost $1 billion a day.

The only way we can square it up with our creditors is to sell them chunks of our country. We are like a rich drug addict who sells off the family heirlooms to finance his habit. Our habits are oil and Japanese and German cars and French wine and Bolivian tin and Chilean copper, and, little by little, we are transferring ownership of our nation’s wealth to pay for it.

Some sour day, the world will look at our deficits and at our dollar and say it doesn’t want to hold our greenbacks as reserve currency any more. It will say, “I will take the euro instead,” or a basket of currencies — which is already happening. Then the dollar will fall, maybe drastically, and the trade deficit will soar. After all, we’re addicts who can’t stop buying foreign resources and products. When that happens — if it does — the inflation will be staggering.

And then, of course, we end up as the world’s leading industrial basket case, a ward of China in matters economic, our freedom of maneuver hemmed in drastically because foreigners own so much of us and of our labor to service the debts.

Then there is Medicare, which has an unpaid liability of about $34.2 trillion over the next 75 years, and more like $75 trillion over a longer period. This is perilously close to the value of all of the physical assets of the United States. That has certain implications for whether we can really count on Medicare as we age.

Topping all of these worries is the endless supply of people who hate America and want to blow themselves up to hurt us in many corners of the world, including the energy heartland, the Middle East. And of course, there’s Vladimir V. Putin’s Russia, with a stranglehold on Europe’s energy needs. Mr. Putin’s Russia has more power over Western Europe than Stalin ever dreamed of. Is this good for a stable world economic order?

Then there’s the apparent — yes, apparent — need to cut back on hydrocarbon use to keep the earth from overheating, and the strain that this puts on the economy.

But here’s the new one (Did you think I forgot?): the nation’s average hourly wage per worker, adjusted for inflation, has not grown since my old boss, R.N., was president.

One big reason is that we have a labor force that includes a big lump of low-paid people, and that this lump is growing as fast as they are willing to work. Possibly, the composition of the labor force predicts that the growth of the average wage will be sluggish for some time. This has an effect on consumption of consumer goods, a vast swath of the economy. Eventually, it might change, but it might not. This will have an impact on our ability to compete with other nations in terms of labor-force productivity.

As Lenin famously asked, “What is to be done?” Many years ago, my dad told me a fine aphorism: “In troubled times, it’s better to have more money than less.”

The future I see is possibly economically shaky. I hope I am wrong. But if I am not, we will need even more money than we ever dreamed if we want to retire.

When gasoline is $10 a gallon, when the dollar is worth one-third of a euro, when we have had to raise interest rates sharply to defend the dollar, when the government tells us that anyone with income of over $60,000 doesn’t get Medicare any more, when the bill for national defense requires a major tax increase — we are going to wish we had saved a lot more for retirement.

The world is a troubled place. To my old eyes, it does not look as if it’s getting any less troubled.

In such times, it is extremely good to have large savings. This seems basic. We should all own lots of foreign stocks, lots of diversified exchange-traded funds and index funds and very carefully chosen annuities. But very few of us do. Forty percent of boomers have no savings for retirement. Median savings for retirement among the boomers is barely $25,000. Much of the savings is concentrated among the wealthy.

It will be too late when we’re 75, or even when we’re 65. We have to start now. I visited an elderly friend in the hospital in Redwood City, Calif., two weeks ago.

“What wisdom do you have to offer ?” I asked him.

“It’s better to be rich and healthy than sick and poor,” he said.

Start saving, right now.

Ben Stein is a lawyer, writer, actor and economist.

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