There’s a lot in Obama’s SOTU address worth comment, but one proposal really caught my attention. Lamenting the low savings rate of low and moderate income families–and inferring an unfairness associated with recent stock market gains–the President offered a solution, the myRA. This interesting contraption is supposed to be a “simple, safe, and affordable starter account” that “guarantees a decent return with no risk” of loss. The myRa sounds nice, but it masks financial reality and doesn’t offer a real solution to a problem.<\/p>\n
The President is conflating issues here. Those who earn low or moderate incomes tend to save less for retirement by choice<\/em>. Saving more would be a good idea, but it’s really not difficult to open an IRA or purchase savings bonds. So why do we need a myRA? We don’t, except that existing alternatives require that we accept\u00a0risk<\/em> in order to achieve a competitive return<\/em>.<\/p>\n Risk and return go hand-in-hand when investing. The only way you can earn a competitive return is to accept some risk. The only conceivable purpose of a myRA is to guarantee savers a higher rate of return than they could get in other risk-free alternatives like savings bonds or CDs. Taxpayer subsidies would be necessary to pull this off, making the myRa just another wealth redistribution scheme.<\/p>\n But there’s a deeper problem here that is being ignored. Why do savings bonds and banks offer such low rates of return,\u00a0below<\/em> inflation? In a free economy, interest on savings accounts should exceed projected inflation because savers would always demand a return above and beyond what they expect to lose in a currency’s depreciation. But we don’t live in a free economy. Savings rates at banks are driven down by a Federal Reserve that makes money available for next to nothing. All of this is supposed to prime the economy by encouraging artificially high levels of business investment and consumer spending. Is it any wonder that savings rates are so low?<\/p>\n The most effective way to increase returns on guaranteed consumer investments is to get the Fed out of the interest rate business and let markets determine the rates. Of course, the President would have none of this. He favors the near-zero rates that the Fed creates and then proposes a program to raise returns for some Americans at the expense of others. This vicious cycle explains the failure of central planning. Once the process starts–and it’s in full swing now–government must continue to propose inefficient solutions for the unintended consequences of its previous intervention. Each one is designed to curry the favor of voters who fail to see the big picture and are attracted to the idea that they’ll get something for nothing, or from someone else. It doesn’t take long to realize that, as Reagan put it, government is not the solution to our problem; it is<\/em> the problem. Unfortunately, the President hasn’t figured this out yet.<\/p>\n","protected":false},"excerpt":{"rendered":" There’s a lot in Obama’s SOTU address worth comment, but one proposal really caught my attention. Lamenting the low savings rate of low and moderate income families–and inferring an unfairness associated with recent stock market gains–the President offered a solution, the myRA. This interesting contraption is supposed to be a “simple, safe, and affordable starter […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts\/744"}],"collection":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=744"}],"version-history":[{"count":0,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=\/wp\/v2\/posts\/744\/revisions"}],"wp:attachment":[{"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=744"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=744"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/battle4liberty.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=744"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}