Oct 8, 2001
Many workers with 401(k) plans have seen tremendous losses in the value of the stock in their accounts. Stock prices were dropping well before the September 11 attack, and have continued to drop since.
Workers without 401(k) plans but who are covered by pension plans have also been caught by the collapsing stock market. These pension plans were considered fully funded a year ago – meaning they had at least enough money to meet all the future pensions of those now working. This was a fiction. The companies had not added more money into the plans. They had just watched the prices of the stock they held balloon up unrealistically. Now with the balloon punctured, many pension plans are suddenly under funded.
The stock brokerage companies and the financial “experts” tell us that stocks are a good investment because they rise in the long run. It’s “classical” economics, they tell us.
In the first place, even if this is true over a long period of time, workers can’t pick their date of retirement in the long run. They retire when they become eligible to retire. This could very well be during a period when the stock market is down. Workers who rely only on the stock market for their retirement in such a period would be in a trap. By the time stock prices rose again, they could be dead.
In any case, what happened in the last few years wasn’t the long range behavior of the stock market, but a classic bubble. The market frenzy particularly involved high tech and Internet stocks, which reached fantastic and ridiculous levels for companies now out of business. But the bubble carried almost all stocks up due to speculation. Now the bubble has burst, in the classic manner of all pierced bubbles, and the price of stocks has come plummeting down.
There is clearly sufficient wealth in this country to provide a secure pension for the all retirement years of every worker who put in a lifetime of labor contributing to the wealth of society. But a retirement built on 401(k) plans and pension plans invested in the stock market is not a guarantee for a secure retirement.
If we work to keep society running during our productive years, then society owes us a living in our later years. It’s that simple.