[R-G] [BillTottenWeblog] The End of Retirement

[Bill Totten]

by John Michael Greer

The Archdruid Report (March 04 2009)

Druid perspectives on nature, culture, and the future of industrial society


I suppose I shouldn't have been surprised by the flurry of responses to
last week's Archdruid Report post on the twilight of investment. "Men
will forgive the murder of their fathers sooner than the loss of their
patrimony", Machiavelli wrote a long time ago, and the principle can be
applied more generally: if you really want to rile people, threaten the
money and property they think is securely theirs.

Unfortunately the word "security" can be applied to any financial asset
in today's economy only in the most ironic of senses. The entire system
of economic value that underlies the possibility of investment broke
down completely in the speculative excesses of the last thirty years,
drowned in a flood of unpayable debts - public, corporate, and private -
that were mistakenly classified and then sold as financial assets. The
face value of these paper debts vastly exceeds the value of all human
economic activities on Earth; the huge majority of them can thus never
be paid off, and so they are effectively worthless.

That awkward fact, if honestly faced, would likely bring the world's
economies to a shuddering halt. Thus we can be confident that it will
not be honestly faced. Instead, governments around the world are playing
a high-stakes game of make-believe, pretending that the global economy
is not bankrupt in the hope that the losses can be spread out over years
rather than hitting all at once. For all I know, they may succeed - but
even so, the downside will not be pretty.

One aspect of that downside was on many of my readers' minds last week,
to judge by the comments and emails I fielded. People nowadays invest
for many reasons, but one of the most common is retirement. Ever since
the American pension system and its government equivalent, Social
Security, began to shed their reputation for stability and adequate
funding, a growing number of Americans - pushed that way by large and
lavishly funded ad campaigns - have placed their hopes for a comfortable
old age on investments. The result is a huge fraction of Americans who
are emotionally as well as financially invested in the hope that a big
payoff from their assets will enable them to have the retirement of
their dreams.

If you are among the people who cling to that belief, I'm sorry to say I
have bad news. Over the next decade or so, the huge overhang of paper
wealth that now floods the world economy is going to lose nearly all its
value. As it goes, it will take your retirement funds with it.

It's anyone's guess exactly how the process will play out. One
possibility is a long deflationary spiral in which markets slump,
bankruptcies soar, and the legacy of bad debt suffers the death of a
thousand cuts. Another is hyperinflation, in which the dollar value of
the bad debt still holds good but a cheeseburger costs US$150,000 and
workmen take their salaries home in wheelbarrows. Another is a credit
crisis in which efforts by governments to fund deficits via borrowing
exhaust the world's dwindling pool of credit, and nations are forced
into default. Still another is a political decision on the part of a
major debtor nation to default on its foreign debt, leading to panic
selling of offshore assets and the collapse of international trade and
investment.

What makes this devastating for those who hope to retire on their
current investments is that most current asset classes are part of that
overhang of unpayable debt, and the rest are priced at levels that
assume that much of the unpayable debt is still boosting the global
economy's net worth. One way or another, those assets will sooner or
later move toward their real value, which in the case of most financial
assets is nothing, and in the case of most nonfinancial assets is a lot
less than they're worth on paper right now. This means that no matter
where you put your investments, you're likely to lose most of your money.

Interestingly, this is likely to be true even of commodities such as
crude oil which are subject to declining production curves for hard
geological reasons. Last year's price spikes in oil and other energy
resources were only partly a product of geological limits on production.
The soaring demand growth of an overheating economy, and speculative
money flooding into any asset that was gaining in price, both played
major parts. Prices collapsed when the speculative money flowed back
out, and slumping demand has helped keep prices low since then. As the
economy unravels further, the chance of further downside action can't be
dismissed. It has, I think, too rarely been noticed in peak oil circles
that there are at least two ways to price oil out of the market; the
first is for the price per barrel to soar out of reach, the second is
for the economy to contract so sharply that even a modest price per
barrel is more than most people can pay.

For the next decade or so, then, there's unlikely to be any asset class
that will give prospective retirees the income they've come to expect.
Nor will private pensions, most of which are dependent on investments
and vulnerable to corporate bankruptcies, fare much better during that
time. Nor are government pensions immune; most governments are
hemmorrhaging red ink right now, adding to unsupportable debt loads, and
the pool of credit available for government borrowing is far from limitless.

What about after that, when the overhang of debt has been cleared one
way or another and this crisis, like all economic crises, finally comes
to an end? Well, once again, I have bad news.

Retirement as a social habit was entirely a product of the zenith of the
age of abundance now sliding backwards in our collective rear view
mirror. For a brief window of time - rather less than a century - it
made financial and political sense for nations in the developed world to
pay their elderly citizens to stay out of the work force, in order to
keep unemployment down to politically bearable levels. All this
unfolded, in turn, from an industrial economy so lavishly supplied with
cheap energy that human labor was worth replacing with machines wherever
the state of technology permitted, and so greedy for new markets that
every part of human life was made subject to market forces.

Before that period began, something less than half of all economic
activity even in the industrial world had anything to do with the market
at all. Most women, and many men outside the age of regular employment,
worked in a household economy governed by custom and intrafamily
exchange rather than market forces. This included essentially everyone
who would be eligible for retirement by the standards of the age that
has just ended. Outside the market but not outside the demand for
skilled human labor, elderly people typically provided household goods
and services to a household somewhere in their extended family. That was
their full-time job; by contributing the value of their labor and
skills, they earned their keep.

The end of the age of cheap energy means that such household economies
will once again be viable. It also means that they will once again be
necessary. When the limited energy and resources of a contracting,
deindustrial society have to be prioritized for urgent needs, takeout
meals and convenience foods will sooner or later draw the short straw;
in their absence, most food will once again be made at home from raw
materials. When the energy cost of the global network of sweatshops that
keeps Americans clothed can no longer be met, a great deal of clothing
will once again be made at home from raw fiber, as it was not so long
ago, and so on. All this requires human labor. Thus a society no longer
supplied with nearly unlimited amounts of cheap abundant energy will
have every incentive to keep elderly people in the household labor
force, and neither the incentive nor the resources to keep them in
comfortable idleness.

Now of course it's true that we will not be landing in such a society
overnight. It's also true that the clout of the retiree lobby in most
industrial nations is such that public and private pensions will be
gutted only when every other option has been exhausted - though in the
United States, at least, the vast tide of red ink currently flooding out
of Washington DC is likely to bring about this eventuality sooner rather
than later. Still, it's quite possible that at least some of today's
retirees and soon-to-be-retirees will manage to cling to that status, at
least for a while.

If I were asked for advice about retirement, then, it would probably go
something like this. If you're already retired, or within a few years of
retirement, it's probably worth your while to try to get any investment
money you have left into a stable investment, if you can find one.
Still, it's probably unwise to assume that your investments will be
worth anything in the long terms, and having a Plan B in place would be
a very good idea. If you're more than a decade or so out from
retirement, having a Plan B in place is essential. If you're thirty
years out or more out, as I am, forget about Plan A for now; you can
look into the options for investment later, once the wreckage of the
last few decades has been hauled away and a new economic order has begun
to take shape, but you probably will never retire.

What sort of Plan B might work best for you depends on so many local and
personal variables that specifics would almost certainly be misleading.
If you've got a large family with whom you're on good terms, bone up on
your home ec skills; ten years from now, when four of your grandkids,
their spouses, and their children all live in one rundown McMansion,
having Grandma and Grandpa there to cook the meals, tend the children,
and keep the garden going will likely be worth much more than your keep.
If you don't have a family or can't stand them, cultivate relationships
with younger friends, or get ready to take up a second career that you
can continue into advanced old age.

No matter what you choose, it's not going to be as fun as sitting on a
lawn chair in a Sun Belt trailer park. Still, history is under no
obligation to give the options we'd prefer, and a great many pleasant
options are going away for a time, or forever, as the industrial age
draws to a close.
_____

John Michael Greer has been active in the alternative spirituality
movement for more than 25 years, and is the author of a dozen books,
including The Druidry Handbook (2006) and The Long Descent (2008). He
lives in Ashland, Oregon.

http://thearchdruidreport.blogspot.com/2009/03/end-of-retirement.html


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