How Increasing Retirement Saving Could Give America More Balanced Trade

Here is a link to my 62d column on Quartz, “The TPP would be great for America if Americans had been saving for retirement.”

“TPP” stands for the “Trans-Pacific Partnership,” the free trade deal currently very much in the news. The working title for this column was “Free Trade; Balanced Trade.” I tried to reflect that and to more accurately reflect my views in the title of this post. In taking the screen shot, I consciously cut off the kicker “Whoops” at the top of the column on Quartz, since I tend to think most free trade deals are a good idea in any case. But I think they would be a better deal if we had more balanced trade–something that is possible with a surprisingly simple and interesting policy change.

In the column, I write: 

Using back-of-the-envelope calculations based on the effects estimated in this research, they agreed that requiring all firms to automatically enroll all employees in a 401(k) with a default contribution rate of 8% could increase the national saving rate on the order of 2 or 3 percent of GDP.

Here is a rough idea of the kind of simple calculation that could back that claim up:

  • Suppose current 401(k)’s give only one-quarter or less of the amount of saving if everyone had an 8% contribution rate–partly because many people aren’t covered at all. Then if no one opted out, the new regulation would add 6% to saving as a fraction of labor income. Multiply that by 2/3 for labor’s share, that is 4% more of GDP if no one opted out. Then the opt-out assumption is that 25% to 50% of people opt out.