Americans have conflicting impulses about government action in the economy. The idea that government interference in markets usually is harmful is popular these days. Yet when there is a problem, the idea that the government ought to do something still has great resonance.
While some scholars laud anti-activists like Calvin Coolidge for the refusal to step in, most elected officials evidently feel it is better to be perceived as doing something than doing nothing. But the results certainly make economists shake their heads, especially when symbolic actions with no substance get great fanfare.
Take the My Retirement Account, or MyRA, announced in President Barack Obamas recent State of the Union speech. Warning sign: That it could be implemented without congressional action is an immediate indication there is no real substance involved. So dont expect any substantive results.
The program involves the U.S. Treasury administering accounts for individuals who dont have access to many other retirement options such as the 401(k), 403(b), SEP, Keogh, etc.
If they work for voluntarily cooperating employers, MyRA participants will be able to choose to have $5 or more deducted from regular paychecks, up to a maximum of $5,500 per year, and submitted to the account administered by the Treasury. These contributions are after-tax, so they dont embody the immediate effective federal subsidy of a 401(k) or other tax-advantaged plan. Because of this, contributions can be withdrawn tax free at any time; earnings generally can be withdrawn tax free after age 59 1/2, according to a Treasury Department fact sheet.
The Treasury will pay these plans some stipulated minimum interest rate. This interest is not taxable in the year it accrues, just as the interest earned on Series EE savings bonds is not taxable. Once the account reaches $15,000 or has been in existence for 30 years, the balance will be rolled over to a private-sector retirement account.
This is all fine. But it does little beyond what is already available. The Treasury has long offered small savings bonds, first the Series E that began as World War II war bonds and their successor, the current Series EE and Series I bonds.
At some employers, usually larger ones, they can be purchased by payroll deduction. And anyone can easily buy them at any bank. Interest on these bonds is not taxable until the bonds are cashed in. So up to the point of rollover, there is little difference between the new MyRA and plain-vanilla savings bonds.
The tax-free rollover is an innovation, as will be the Roth-like exemption of earnings if held past the age threshold. And the as-yet-unannounced minimum interest rate may be higher than the miserable level currently paid on savings bonds. So there are some benefits not available under the current system. But these will be pretty small potatoes.
Right now, any worker could buy bonds with small amounts of money and then roll the funds into a private Roth account once enough is accumulated to meet the minimums generally required for these. After that point, earnings would be identically tax free.
A good program? Yes, it may turn out to be of some advantage for a small number of people. Low-income people in jobs that dont offer 401(k) plan benefits also generally are less-well-informed about other existing options. So MyRA may solve an information problem. And the Treasury will take over some of the administrative hassle involved in achieving the same end with existing instruments. Aside from this, the much-touted plan is pretty thin gruel indeed. Dont expect it to dramatically improve the financial situation of many people.
For another example of empty symbolism, consider the letter to the president urging action to alleviate the ongoing propane crisis, signed by Gov. Mark Dayton and six other members of the Midwestern Governors Association. It asks that the federal government use every means of transport to move propane, that it ease any troublesome regulation and that the Small Business Administration make loans where that would help.
The problem is that the federal government does not own or control any propane transport equipment. Nor are federal regulations really much of a factor in any shortages. And the problem is not lack of available credit to businesses or local government.
The propane crisis is unfortunate, but it does not reflect any failure of markets or of government. Current high prices are a market-driven way of communicating both to suppliers and users that somebody needs to pay for more storage to deal with perfect storm situations like this year, with a late crop harvest, unusually cold weather and physical supply problems. There really isn't much that government can or should do.
There is some irony in that five of the seven governors calling for the feds to do something about propane woes are Republicans who decry excess government in the economy. Yes, their plea includes a request to suspend troublesome regulations, but they are not specified nor their importance quantified in any way.
Elected officials see obvious benefits in announcing largely symbolic actions. Tell the nation that you have created a new retirement plan and you are doing something, even if it really is a repackaging of existing programs and options. Send a letter to the president and you show the thousands of people facing real heating problems that you feel their pain.
History demonstrates that officials who take such symbolic acts do better in elections than the more honest ones who say there really isnt much government can do about this or unless Congress acts, I as president am powerless.
But once again, this all is evidence of our own ambiguous attitudes toward government. We are skeptical of what it can do and many think it already does too much. But when we are in a pinch, we want it to act.
Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at firstname.lastname@example.org.