Tag Archives: financial planning

Millions Of Americans Are Leaving Social Security Spousal Benefits On The Table

My Comments: Facing retirement without enough money is a frightening prospect. And leaving money on the table that you can claim doesn’t make much sense. These words from Laurance Kotlikoff might apply to you if you’re between ages 64.9 and 68.

by Laurence Kotlikoff \ October 15, 2018

Summary
• The 2015 Social Security amendments severely curtailed the ability to take a spousal or divorcee spousal benefit while waiting to take one’s retirement benefit at an increased level.
• What’s not generally known is that the new law grandfathered those who were 62 as of January 1, 2016.
• The cumulative free spousal benefits available to those grandfathered can range as high as $67,000.

I had dinner recently with friends I hadn’t seen for years. Darren is 67. His wife, Suzy, is 62. Somehow the topic of Social Security came up. Suzy, I learned, was already collecting her retirement benefit. Darren told me he’s waiting till 70 to collect his.

Within 15 seconds, I made them $15,000 in free Social Security spousal benefits.

I told Darren, “Tomorrow, file with Social Security, but just for your spousal benefit based on Suzy’s work record. You’ll receive half of her full retirement benefit through age 70.”

“But,” said Darren, “I thought they changed the law to keep people from collecting a spousal benefit while waiting to collect their retirement benefit.”

“They did,” I replied. “But they grandfathered those born before January 1, 1954. You were grandfathered! So get up early tomorrow and file a restricted application at the local office – just for your spousal benefit. Given the size of Suzy’s full retirement benefit, you’ll get an extra $425 per month for free and this will mean about $15K over the next 3 years. And, by the way, you’re paying for dinner.”

“Fantastic,” said Darren. “Order whatever you want.”

“I wish I had talked to you a year ago.” I bemoaned. “You should have filed just for your spousal benefit the day you turned 66. Or the other hand, it may well be that Suzy filed a year or two too early. In taking benefits early, she enabled you to collect a free spousal benefit. You didn’t know it, but she did. However, because she filed early, her own retirement benefit will be permanently reduced.”

“Well, $15K is just fine.” said Darren.

There are millions of couples who can do what Darren and Suzy are now going to do. And the amount of available free spousal benefits can be as high as $67,000. The strategy will, to repeat, only work if the spouse who was grandfathered has not yet filed for his or her retirement benefit and the other spouse has filed for their retirement benefit or is willing to do so.

How about divorcees? They too can collect a free spousal benefit (called a divorced spousal benefit) for up to 4 years (between full retirement age and 70) provided they were married for 10 or more years, their ex is over 62 and either a) they have been divorced for more than 2 years or b) their ex has started collecting their retirement benefit.
As we waited for the check, Darren asked, “Any other tricks up your sleeve?”

“There are. You may do even better by taking your retirement benefit earlier than 70 so that Suzy can start collecting an excess spousal benefit off of your record. Since your retirement benefit is much higher than hers, this strategy could produce more than the $15K in higher lifetime benefits.”

“Or,” I continued, “it may be optimal for Suzy to suspend her retirement benefit at full retirement age and restart it at 70 when it will be almost 30 percent higher. Once she suspends, her own retirement benefit will stop and she won’t be eligible to collect any benefits off of your record. Nor can anyone collect any benefit off of a suspended benefit while the benefit is in suspension. But, in your case, you’ll be 70 and collecting your own retirement benefit by the time Suzy hits full retirement age. So it may be optimal for her to suspend. It depends not just on your own full retirement benefits, but also Suzy’s birth date and the maximum ages to which you two might live.”

“So it’s complicated,” said Darren.

“Very.” I answered.

“How’s anyone supposed to figure out precisely what to do?” asked Darren.

“That’s where my company’s software tool comes in. Run it. You can afford the 40 bucks. It will consider thousands, possibly tens of thousands of alternative joint strategies to figure out precisely the one that maximizes your and Suzy’s remaining lifetime benefits.

“That many?” asked Darren.

“Yes.” I said. “There is a ton of options given the different months in which you both can take particular actions and given the different benefits at play. This includes the widows benefit for which Suzy will be eligible once you die.”

“By the way,” I said. “The Social Security officials at the local office may not realize you are eligible for free spousal benefits. If they tell you that you aren’t, show them the PDF from my program. If they still get it wrong, ask to speak to a supervisor or call me from the office. I’ve talked to many a supervisor in real time. It’s amazing how quickly they change their tune when they realize someone speaks their language and may be on to their mistakes.”

“My other warning is this. Make sure you specify in the comments section of the application that you are filing a restricted application – just for spousal benefits and that you plan to wait to file for your own retirement benefit. If the staffer you deal with mistakenly files you for both your spousal and retirement benefit, your retirement benefit will start immediately and you’ll get a zero excess spousal benefit given you earned much more than Suzy.

This will reduce, not increase, your lifetime benefits. Our software will indicate the payment you receive. If it’s bigger than what the program says, they screwed up. The Social Security staff are well meaning, but they are overworked, underpaid and undertrained. This, by the way, is due to Congress not properly funding the program. In any case, the staff routinely get things wrong. And their mistake can become your mistake. If you don’t write precisely what you’ve told them to do in the comments section, you’ll have no way to appeal their mistake.”

After dinner, I wrote this column realizing that there are as many as 13 million Darrens and Suzys out there who may be leaving lots of free money on the table. This includes those who are grandfathered and have filed within the year for their retirement benefit. They still have the option of filing an application to withdraw their retirement benefit and repay all the benefits they’ve received. Once the retirement benefit application is withdrawn, one can file just for a spousal benefit.

I’ve written extensively in the past about free spousal benefits and the many other ways people can maximize their lifetime Social Security benefits. I’ve done so in my co-authored, best seller, Get What’s Yours – the Revised Secrets to Maxing Out Your Social Security and in my Forbes blog, Ask Larry. These are additional resources for figuring out what you, your friends, and your colleagues should do to max out their lifetime benefits.

Advertisements

One of the Oldest Rules for Retirement Saving Is Wrong, Experts Say. Here’s the Fix

My Comments: It’s Thursday when I post about RETIREMENT.

You’ve heard me say time and again that retirement planning needs to assume one of you (if you have a spouse) is going to be around until age 100. And in every one of those years between now and then, everything you buy will increase in price.

The only way to offset that need for additional funds is to have money invested in the stock market. Don’t count on extra money from Social Security. Don’t count on your bank steadily increasing the interest rate on your Certificates of Deposit.

by Elizabeth O’Brien \ May 1, 2018

You know that old rule of thumb to subtract your age from 100 to get the percentage of your portfolio that should be in stocks? Well as they say in Brooklyn, fuhgeddaboudit!

“You should not robotically reduce your equity allocation because you’re getting older,” says Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments. Instead, most investors should pick a stock percentage that feels comfortable and keep it constant throughout retirement, experts say.

The old rule might have made more sense back when people weren’t living as long. Today, many investors will need their portfolios to last well into their 80s, 90s and even beyond. And you’re not going to get much-needed growth if you stay too cautious with stocks.

Target-date funds are growing in popularity. At the end of 2016, nearly half of all Vanguard investors were invested in a single target date fund — and those with the bulk of their savings in one of these vehicles may be too conservatively invested without realizing it. Designed to be a one-stop-shop for investors, these funds adjust your asset allocation for you and become more conservative as retirement approaches. Once they reach the target year, “the vast majority of target-date funds hit a low [stock] percentage and just stay there,” says Jamie Hopkins, professor of retirement planning at the American College of Financial Services and author of Rewirement: Rewiring The Way You Think About Retirement.

So how much equity exposure is right in retirement? The exact answer will depend on your circumstances, and on who you ask. Weiss says the sweet spot for stocks in retirement is between 35% and 55% of the overall portfolio. People with healthy nest eggs, which he defines as containing at least eight times your ending salary, can afford to stick to the lower part of that range, since their portfolios don’t need to generate as much growth, he says.

Those with inadequate savings should consider sticking to the higher part of the range. Stocks can be volatile over the short term, but over the very long term they have historically delivered positive returns. The Standard & Poor’s 500 has not returned less than inflation during any rolling 40-year period, according to an analysis by personal finance site Don’t Quit Your Day Job. The best rolling 40-year returns were 10.3% annualized after inflation, according to the site. You’re generally not going to find such consistent growth with other assets, such as bonds, real estate, or gold.

Of course, stocks can decline over the short term, and the risk of a downturn is why you don’t want to put all your eggs in the equity basket. It’s also why many financial advisors suggest that retirees keep at least three-years’ worth of expenses in cash or cash equivalents, such as a short-term bond fund, so that they can weather a bear market without having to withdraw from their stock portfolio.

Once you’ve decided on a comfortable stock allocation, you shouldn’t fiddle with it much, if at all. If market volatility keeps you up at night, that’s a sign that you didn’t set the right allocation to begin with, Weiss says. Many investors have been conditioned to use their age as a proxy for their risk tolerance, but in reality, Weiss says, “It’s wealth, not age.”

When Is The Next U.S. Recession And Bear Market?

My Monday Comments: All my clients, at least those who haven’t left me for greener pastures, are all concerned about the future of their money. Like me, most of them are going to need their money to pay bills as their years unfold. Losing a big percentage in a market crash makes us nervous.

In my files I have an article dated July 30, 2016 by Jeffrey Gundlach where he yells “SELL EVERYTHING”. In retrospect that would have been a terrible idea. But the headline above still resonates since we know it’s coming sooner or later.

This is long and a little technical so if you are not inclined to worry about it much, you can stop here. On the other hand if you want to explore further, be my guest.

by Jesse Colombo, September 14, 2018

It’s been a decade since the Great Recession, so the obvious question that is now on many people’s minds is “when is the next recession and bear market”? As someone who is warning about a dangerous stock market bubble, I am asked this question quite frequently. Unfortunately, it is impossible to predict the timing of future economic events with a high level of detail and accuracy such as “the market will top on April 17th, 2019” or “the recession will begin in August 2020”, but there are certain tools that help to estimate where we are in the economic cycle. In this piece, I will discuss the U.S. Treasury yield spread and yield curve and how it is useful for estimating the approximate time frame when the next recession and bear market may occur.

Let’s start with a quick explanation of the Treasury bond yield curve: in a normal interest rate environment, bonds with shorter maturities have lower yields, while bonds with longer maturities have higher yields to compensate for the greater risk incurred when holding for a longer period of time (primarily default and inflation risk). The chart below shows an example of a normal yield curve. A normal yield curve takes shape early on in the economic cycle and lasts for the majority of the cycle. A normal yield curve is usually a sign that the bull market in stocks has further to run.

As an economic cycle matures and the Federal Reserve has raised interest rates quite a few times, the yield curve flattens (see the chart below for an example). The Fed controls the short end of the yield curve, and their succession of rate hikes causes the short end to catch up with the longer end. A flat yield curve is a signal to investors that the bull market is “middle aged” – no longer young, but not quite ready to die just yet.

Your 2018 Tax Guide

With all the recent attention from tax changes made by Congress recently, many of us are wondering how it will affect us. Here’s something you might find is useful. Just remember I’m not licensed or qualified to give tax advice so this is information only.

It comes from an insurance company called Athene. Technically, their full name is Athene Annuity and Life Company. They are my current company of choice when it comes to shifting some of your retirement reserves into a protected place.

Much of the money you have should be exposed to the markets so it will grow and be there in the future when you need it to pay bills. But in the meantime, you need a way to protect or insure yourself against a market crash. The insurance ‘policy’ or contract that I consider the best possible one on the market comes from Athene.

If you click on the ‘tax’ image just above, you can download a copy and save it somewhere as reference material.

 

Why Britain needs the immigrants it doesn’t want

My Comments: As someone born on British soil, I am more than casually interested as Britain comes to terms with it’s choice to leave the European Union. Immigration is but one of several areas with huge economic implications for Britain in the coming years.

There are parallels between what is expressed in this article by Ivana Kottasova and what the United States is moving toward in terms of immigration. The immigration fault lines in this country and the efforts of the current administration to curtail immigration will significantly influence the economic well being of your children and grandchildren in the years to come.

by Ivana Kottasová / Oct 18, 2017

Britain has a problem: It wants fewer immigrants, but its economy desperately needs more.

The British government is seeking to slash the number of immigrants from the European Union following its departure from the bloc in March 2019.

It’s planning tougher controls despite warnings that more EU workers are needed to harvest the country’s crops, build homes for its citizens and build its next startup.

The risks are especially pronounced in health care.

The National Health Service says there are over 11,000 open nursing jobs in England, and another 6,000 vacant positions across Scotland, Wales and Northern Ireland.

The overburdened system, described by the British Red Cross as facing a “humanitarian crisis,” already relies on 33,000 nurses from the EU.

“We would describe the NHS as being at the tipping point. There are huge staffing problems,” said Josie Irwin, head of employment at the Royal College of Nursing. “Brexit makes the situation worse.”

Jason Filinras, a 29-year old from Greece, was recruited last year to work as a front line nurse at a hospital just north of London.

Filinras joined the hospital’s acute admissions unit, where he runs tests and determines how to treat patients after they have been stabilized in the emergency room.

“If you have a patient who is not able to take care of themselves, you have to do all the basic things for them — from helping them with washes, helping them with toilet, feeding them,” he said.

Heis just one of 250 nurses recruited from the EU by the West Hertfordshire Hospitals Trust over the past two years to work in its three hospitals. EU citizens now make up 22% of its nursing staff.

The trust didn’t have a choice. The unemployment rate is at its lowest level in four decades, and there simply aren’t enough British nurses.

The shortage of workers cuts across sectors — from agriculture to education — and across skill levels. There aren’t enough fruit pickers and there aren’t enough doctors.

The political impetus to reduce immigration from the EU can be traced to 2004, when Britain opened its borders to workers from eight eastern European countries that had joined the bloc.

Government officials expected 5,000 to 13,000 people from the countries to come to Britain each year. Instead, 177,000 came in just the first year.

Critics say that increased immigration has changed the fabric of local communities, and undercut the wages of British workers.

It’s an argument that has currency with voters. Immigration was the most important issue for voters ahead of the Brexit referendum in June 2016, according to an Ipsos Mori poll.

Theresa May, who became prime minister in the wake of the EU referendum, has promised to bring annual net migration below 100,000. The figure was 248,000 in 2016.

It had been difficult to meet the target because EU rules allow citizens to move freely around the bloc. May says that Brexit will mean an end to free movement.

“The government is putting politics above economics, which is quite a dangerous game,” said Heather Rolfe, a researcher at the National Institute of Economic and Social Research.

Labor economists say that a radical decline in immigration would hurt the British economy.

The Office for Budget Responsibility, the government’s fiscal watchdog, said that 80,000 fewer immigrants a year would reduce annual economic growth by 0.2 percentage points.

“To lose these people would be pretty tough and it would mean that some sectors might find it very difficult to survive,” said Christian Dustmann, professor of economics at University College London.

Some EU workers, upset over political rhetoric and a lack of clarity about their legal status, are already leaving Britain. Net migration from the EU fell to 133,000 last year from 184,000 in 2015, according to the Office for National Statistics.

The impact is already being felt: The Nursing and Midwifery Council said that roughly 6,400 EU nurses registered to work in the U.K. in the year ended March, a 32% drop from the previous year. Another 3,000 EU nurses stopped working in the U.K.

“It’s all this uncertainty that will make us leave,” said Filintras. “I can’t say that I am 100% sure that I won’t think about leaving.” If he does move home, he will be hard to replace.

Irwin said the British government has made it less attractive for new British nurses to enter the profession by scrapping college scholarship programs and capping salaries. Applications for nursing courses are down 20% as a result.

Nurses make an average of £26,000 ($34,600), while German supermarket chain Aldi offers college graduates a £44,000 ($58,500) starting salary and a flashy company car.

Trouble also looms in other sectors.

A third of permanent workers supplying Britain with food are from the EU, according to the Food and Drink Federation.

The British Hospitality Association, which represents 46,000 hotels, restaurants and clubs, has warned that the sector faces a shortfall of 60,000 workers a year if the number of EU workers is sharply curtailed.

KPMG estimates that 75% of waiters and waitresses and 37% of housekeeping staff in Britain are from the EU. British farms are heavily dependent on seasonal workers from the bloc.

“If you cannot harvest your strawberries anymore … then supermarkets might buy the strawberries directly from Poland,” said Dustmann.

Business groups and labor unions have repeatedly called on the government to moderate its negotiating position. But May has shown no signs of backing down.

“The government is interpreting the vote to leave the EU as a vote against immigration … and to some extent that is true,” said Rolfe.

Boston, a town on the east coast of England, shows why: According to census data, the town’s foreign-born population grew by 467% in the decade to 2011. In 2016, the town had the highest proportion of voters choosing to leave the EU.

How to Get Medicaid for Nursing Home Care Without Going Broke

My Comments: Politicians apparently have no earthly idea what getting old does to your finances. Of the 50 state Medicaid directors, red states and blue states, all 50 came out in opposition to the most recent attempt by Congress to repeal the ACA or ObamaCare.

None of us are willing to allow the elderly to die in the streets for lack of care. That means programs like Medicaid must be properly funded.

We can argue till the cows come home about the need for rules to prohibit unfair advantages and you’ll get my approval for such rules. There will be competing agendas but does that mean we should give up?

And somehow, these rules must be written to allow intelligent financial planning. Rules that include how to be cared for without losing your financial sanity. Gabriel Heiser’s ideas have value for all of us.

Gabriel Heiser 9/21/2017

Well-off people can easily go broke paying for sky-high nursing home care: First they deplete their own funds and then, eventually needing Medicaid, spend down nearly all the rest of their assets to qualify for that government program designed for low-income individuals.

The way to avoid this terrible situation is to put in place a Medicaid asset-protection plan early on. One powerful solution is to buy a single-premium immediate annuity, says attorney K. Gabriel Heiser, an elder care Medicaid expert, in an interview with ThinkAdvisor.

For 25 years, Heiser focused exclusively on elder law, and estate and Medicaid planning. He is author of “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets” (Phylius Press 2017-11th updated edition).

Sixty percent to 70% of nursing home patients are on Medicaid, says Heiser.

In determining eligibility, Medicaid differentiates sharply between “assets” and “income.” The potential Medicaid recipient is permitted to have only $2,000 in assets, though they can still receive certain income under certain circumstances.

In the interview, Heiser discusses a number of techniques — all of them legal — to shelter or reduce assets to qualify for nursing-home Medicaid.

One of the best, he says, is a so-called Medicaid-Friendly annuity, which essentially converts “countable” assets into income, which is exempt.

The average cost of nursing home care is $92,000 a year and much higher in New York and Hawaii, among other states. The average stay is two-and-a-half to three years. Care for a person with Alzheimer’s disease in a locked unit can come to more than $450,000 annually and is typically for a period of at least five years, Heiser says.

Though Medicaid wasn’t created for middle-class people “to pass their money on to their children at taxpayers’ expense,” Heiser writes, he reasons that it makes sense and isn’t unethical to “avail yourself of the laws” in order to minimize expenditures on nursing home care and indeed “pass those savings on to your children.”

Most folks make the mistake of waiting too long to plan for asset protection, says Heiser. They should begin at the first sign that their spouse, parent or sibling likely will need nursing home care.

Heiser was formerly chair of the estate planning committee of the Massachusetts Bar Association and an adjunct professor of the College for Financial Planning at David Lipscomb University. A professional version of his book, “Medicaid Planning: From A to Z,” is directed at attorneys, financial advisors and CPAs.

ThinkAdvisor recently spoke with the semi-retired Heiser, 68, on the phone from home in San Miguel Allende, Mexico. He revealed some of his Medicaid secrets and how they can help clients shelter their assets. Here are highlights:

THINKADVISOR: What’s critical to know about Medicaid?

GABRIEL HEISER: To qualify, you can’t have more than $2,000 in Medicaid-countable assets. So if you have cash in the bank or any other assets that aren’t on the exempt list, they’ll count toward the $2,000. That’s not a very high amount — but the point of Medicaid is that it’s supposed to cover the poor.

You write that hiding money and not reporting an asset on a Medicaid application is fraud.

Yes, fraud against the government. You’ll be disqualified for Medicaid, and there are also criminal penalties.

What about having income?

You can still qualify if you have, say, pension income. But there’s a cap of $2,205 a month for Medicaid recipients. However, some states have a rule that if your income is over that figure, you can direct your Social Security or pension into a trust — a Miller Trust, also known as a Qualified Income Trust.

The trustee pays the money to the nursing home, and Medicaid pays the difference. Typically, the bills are going to be more than $2,000 a month. So even though you have income over the cap, you can still qualify by setting up that trust.

Note: there are three more pages of Gabriel Heiser’s words of wisdom on this topic. To read the rest, click HERE.

X Marks the Spot Where Inequality Took Root: Dig Here

My Comments: You’ve heard me say that income inequality is the greatest existential threat to our society going forward. If we allow the disparity between the haves and the have nots to become wider and wider, it’s only a matter of time before chaos will reign.

People want what money will buy. Companies will manufacture and produce what people want to buy. But if you allow the want to overwhelm the ability to pay for it, it’s only a matter of time before chaos will reign.

In order to survive, companies will find ways to cut costs, not just to increase profits, but to assure they remain competitive in a shrinking market place.

But the trajectory is not infinite; sooner or later they will stop manufacturing and producing stuff if there aren’t enough buyers to justify the fixed costs.

How many hat makers are there these days compared with 100 years ago? I grew up in a time when every male owned a hat. I had one when I was in high school. When was the last time you saw a male person wearing a dress hat when entering a restaurant or going to church?

We need to identify who, among our future political leaders, those who understand economics. It’s not about empowering the existing poor; it’s about making sure there are enough of us with money left to spend.

by Stan Sorscher \ August 5, 2015

In 2002, I heard an economist characterizing this figure as containing a valuable economic insight. He wasn’t sure what the insight was. I have my own answer.

The economist talked of the figure as a sort of treasure map, which would lead us to the insight. “X” marks the spot. Dig here.

The graphic below tells three stories.

First, we see two distinct historic periods since World War II. In the first period, workers shared the gains from productivity. In the later period, a generation of workers gained little, even as productivity continued to rise.

The second message is the very abrupt transition from the post-war historic period to the current one. Something happened in the mid-70’s to de-couple wages from productivity gains.

The third message is that workers’ wages – accounting for inflation and all the lower prices from cheap imported goods – would be double what they are now, if workers still took their share of gains in productivity.

A second version of the figure is equally provocative.

This graphic shows the same distinct historic periods, and the same sharp break around 1975. Each colored line represents the growth in family income, relative to 1975, for different income percentiles. Pre-1975, families at all levels of income benefited proportionately. Post-1975, The top 5% did well, and we know the top 1% did very well. Gains from productivity were redistributed upward to the top income percentiles.

This de-coupling of wages from productivity has drawn a trillion dollars out of the labor share of GDP.

Economics does not explain what happened in the mid-70s.

It was not the oil shock. Not interest rates. Not the Fed, or monetary policy. Not robots, or the decline of the Soviet Union, or globalization, or the internet.

The sharp break in the mid-70’s marks a shift in our country’s values. Our moral, social, political and economic values changed in the mid-70’s.

Let’s go back before World War II to the Great Depression. Speculative unregulated policies ruined the economy. Capitalism was discredited. Powerful and wealthy elites feared the legitimate threat of Communism. The public demanded that government solve our problems.

The Depression and World War II defined that generation’s collective identity. Our national heroes were the millions of workers, soldiers, families and communities who sacrificed. We owed a national debt to those who had saved Democracy and restored prosperity. The New Deal policies reflected that national purpose, honoring a social safety net, increasing bargaining power for workers and bringing public interest into balance with corporate power.

In that period, the prevailing social contract said, “We all do better when we all do better.” My prosperity depends on your well-being. In that period of history, you were my co-worker, neighbor or customer.

Opportunity and fairness drove the upward spiral (with some glaring exceptions). Work had dignity. Workers earned a share of the wealth they created. We built Detroit (for instance) by hard work and productivity.

Our popular media father-figures were Walter Cronkite, Chet Huntley, David Brinkley, and others, liberal and conservative, who were devoted to an America of opportunity and fair play.

The sudden change in the mid-70’s was not economic. First it was moral, then social, then political, ….. then economic.

In the mid-70’s, we traded in our post-World War II social contract for a new one, where “greed is good.” In the new moral narrative I can succeed at your expense. I will take a bigger piece of a smaller pie. Our new heroes are billionaires, hedge fund managers, and CEO’s.

In this narrative, they deserve more wealth so they can create more jobs, even as they lay off workers, close factories and invest new capital in low-wage countries. Their values and their interests come first in education, retirement security, and certainly in labor law.

We express these same distorted moral, social and political priorities in our trade policies. As bad as these priorities are for our domestic policies, they are worse if they define the way we manage globalization.

The key to the treasure buried in Figure 1 is power relationships. To understand what happened, ask, “Who has the power to take 93% of all new wealth and how did they get that power? The new moral and social values give legitimacy to policies that favor those at the top of our economy.

We give more bargaining power and influence to the wealthy, who already have plenty of both, while reducing bargaining power for workers. In this new narrative, workers and unions destroyed Detroit (for instance) by not lowering our living standards fast enough.

In the new moral view, anyone making “poor choices” is responsible for his or her own ruin. The unfortunate are seen as unworthy moochers and parasites. We disparage teachers, government workers, the long-term unemployed, and immigrants.

In this era, popular media figures are spiteful and divisive.

Our policies have made all workers feel contingent, at risk, and powerless. Millions of part-time workers must please their employer to get hours. Millions more in the gig economy work without benefits and have no job security at all. Recent college graduates carry so much debt that they cannot invest, take risk on a new career, or rock the boat. Millions of undocumented workers are completely powerless in the labor market, and subject to wage theft. They have negative power in the labor market!

We are creating a new American aristocracy, with less opportunity – less social mobility and weaker social cohesion than any other advanced country. We are falling behind in many measures of well-being.

The dysfunctions of our post-1970 moral, social, political and economic system make it incapable of dealing with climate change or inequality, arguably the two greatest challenges of our time. We are failing our children and the next generations.

X marks the spot. In this case, “X” is our choice of national values. We abandoned traditional American values that built a great and prosperous nation. Our power relationships are sour.

We can start rebuilding our social cohesion when we say all work has dignity. Workers earn a share of the wealth we create. We all do better, when we all do better. My prosperity depends on a prosperous community with opportunity and fairness.

Dig there.