The legacy and lessons of Paul Volcker

Do the right thing, do not put your trust in unbridled finance, and have courage

Martin Wolf




“Paul Volcker is the greatest man I have known. He is endowed to the highest degree with what the Romans called virtus (virtue): moral courage, integrity, sagacity, prudence and devotion to the service of country.”

Thus did I open my review of his memoir, Keeping At It: The Quest for Sound Money and Good Government, published last year. As Hamlet said of his father, “He was a man, take him for all in all. I shall not look upon his like again.”

That book was Volcker’s counsel to the world. It embodied the former US Federal Reserve chairman’s virtues and his values. With his passing this week, we need to dwell on both, while recognising how different the world is today.

Volcker’s virtues are eternal. It is impossible to enjoy a stable polity without public servants of his quality and, as important, without a public who know they need public servants of this quality. In no other way can what the Romans called res publica (a republic) — literally, “the public thing” — be sustained. We rely on the marriage of ability to character. We forget that truth at our peril.

No less important are Volcker’s values. He believed in good government, international co-operation, fiscal discipline, sound money and finance that is a servant, not master, of the economy. This credo is as valid today as it was during his long life of public service.

Volcker joined those virtues and values in the great fight of his life: the battle to defeat inflation. It is often forgotten how hopeless that cause had seemed before he was appointed chairman of the US Federal Reserve by a brave Jimmy Carter in 1979. The struggle was hard and the costs high. Many suffered greatly. But the battle was won, ushering the long period of stable inflation that later generations now take for granted.

While Volcker won on inflation, he lost elsewhere. He was uncomfortable with the fiscal and financial policies of Ronald Reagan’s administration. He was duly replaced in 1987 by Alan Greenspan, far more in tune with the administration’s ideology. Volcker diverged most clearly from his successor on the virtues of liberalised finance. Indeed, he remarked in 2009: “The most important financial innovation that I have seen the past 20 years is the automatic teller machine.”

The 2008 financial crisis vindicated this longstanding scepticism. Out of it came the “Volcker rule”, which aimed to prohibit US banking institutions from proprietary trading. When I was a member of the UK’s Independent Commission on Banking in 2010-11, Volcker came to talk to us about this proposal. We were not persuaded of its workability. But nobody could doubt the passion he brought to the cause of creating a more stable and useful financial system.

What, then, are Volcker’s legacies, apart from low inflation and an outstanding record of public service? He demonstrated the benefit of having independent central banks and — closely related but broader — of having first-class technocrats deliver on public mandates notwithstanding short-term pressures from politicians. These remain as relevant as ever. In our populist age, however, they are being challenged on both sides of the Atlantic.

In other respects, the world of today is almost the opposite of the one Volcker confronted, especially on monetary policy. In the first five decades after the second world war, the dominant monetary concerns were excess demand and inflation. Today, it is weak demand and deflation. In Volcker’s world, the job of monetary policy was politically difficult, but technically easy: to constrain demand. As one of his predecessors, William McChesney Martin, said, it was “to take away the punchbowl just as the party gets going”. That required tightening monetary policy in well-known ways.

When demand is weak and inflation low, however, central banks must ease monetary policy. But expansionary policy is technically difficult once short-term interest rates reach zero. Central banks have to consider various unconventional alternatives: expansion of balance sheets via “quantitative easing”; negative interest rates; and what the monetarist Milton Friedman called “helicopter drops” of money to the public through direct payments or permanent monetary financing of fiscal deficits. Choosing from these alternatives is complex and contentious. Some options awaken strong political resistance, albeit not in the intense way that deliberately causing recessions, to curb inflation, once did.

The unpopularity is most obviously true for negative interest rates. People tend to be furious about the idea of being taxed on their bank deposits. But, if negative rates are not passed on to depositors, they act as a tax on banks. That is unpopular with a powerful lobby and, some also argue, economically damaging.

Low long-term interest rates undermine the solvency of pension funds and some insurance companies. High asset prices are condemned by many for increasing wealth inequality. Finally, direct financing of government can be seen as a licence to fiscal irresponsibility and a way to subvert central bank independence.

In tackling today’s challenges, the details of what Volcker did are irrelevant. But his lessons are not: do the right thing even if the right choice is rather less obvious today; do not put your trust in unbridled finance; and have courage. The world is a complex and surprising place. But these truths abide forever.

Don't Mind The Correction: Why Gold Is Going Much Higher Long Term

by: Victor Dergunov



Summary

- Gold has been going through a correction for months now.

- Yes, it is still all about the Fed.

- Gold could trade down to around the $1,400 before going higher again.

- Nevertheless, the Fed will still need to expand the monetary base due to America's massive national debt problem and the likelihood of an upcoming recession.

- Longer term, gold and gold related assets are likely going much higher.

 

Gold has been in a downtrend for more than three months now.

Ever since the yellow metal hit a price of roughly $1,566 in early September, gold has been melting, making lower highs and lower lows.

 

Gold is now roughly 6% below its recent highs and appears to be stuck in a prolonged downward sloping trading range.

 

Image Source: StockCharts.com

 

 

The problem?

 

The economy seems to be back in stable mode, the employment picture is robust, inflation is in the Goldilocks zone, and the stock market is back at new all-time highs.

 

Therefore, the Fed is not likely to cut rates any time soon, which is putting pressure on gold and other precious metals (PM) related prices.

 

However, this may be a short-term phenomenon, as the economy could start to weaken once again in 2020.

 

Furthermore, the economy has shown an inability to function effectively with interest rates at marginally higher levels.

 

Additionally, fundamentally not much has changed from a long-term perspective, as the U.S.’s national debt continues to spiral out of control and the inevitability of a recession are still on the horizon.

Despite the likelihood of a period of relative calm and subdued price action in the gold, GSM (gold/silver/miners) market, this segment is likely to do particularly well long term as prices are likely to appreciate substantially over the next several years as well as decades.

 

Yes, It’s Still All About the Fed

 

I recently wrote about the remarkable resilience of the U.S. economy, as the latest employment, inflation, and perhaps most importantly consumer data has been coming in stronger than expected.

 

The bottom line is that with an “official” 3.5% unemployment rate (lowest in about 50 years), inflation below 2%, and with the stock market raging on to new all-time highs, the Fed is not going to lower rates.

 

 

Unemployment Rate

Source: TradingEconomics.com

 

CPI Inflation

 

 

In fact, if we look at what market participants are expecting now, it’s that there is only about a 53% chance that the Fed will come through with any rate cuts next year.

 

The market provides about a 47% probability that rates will remain where they are today essentially throughout all of 2020.

  

Source: CMEGroup.com

 

 

This is not great news for gold, but on the other hand, it is not terrible either. It appears that the market has figured out that the economy is not likely to withstand higher rates, thus, no rate hikes are priced in for next year. We also saw a significant slowdown when rates were slightly higher in 2018.

 

In addition, there is the massive national debt that needs to be serviced continuously and would likely substantially weaken the U.S. economy in a higher interest rate environment.

 

Fundamentally, Long Term Nothing Has Changed

 

Longer term essentially nothing has changed. Despite the relatively robust economic image now, the economy could begin to stall and require more monetary stimulus at any time. In fact, rock bottom unemployment, and other metrics like sky high consumer sentiment are typical towards the end of an economic cycle. You can read in more detail about this phenomenon in my article here.

 

Gold Moves in Tandem with the Money Supply

 

Despite the dollar and the global fiat monetary system being decoupled from gold, gold prices essentially move in tandem with the U.S.’s ever expanding monetary base over time. You can read more about the correlation in this detailed analysis here.

 

It is not likely that the Fed will decrease the monetary base as it was previously thought the Fed would. QT and higher interest rates illustrated that the U.S. economy couldn’t grow effectively under such conditions in 2018.

 

Therefore, it is likely only a matter of time until the Fed is confronted with another round of easing as the current expansion cycle ultimately begins to show signs of fatigue once gain. This may happen sometime in mid to late 2020 in my view.

 

Thus, the Fed will likely bring rates close to or down to zero and will likely implement QE like programs to attempt to prevent a recession, then try and engineer a soft landing, and to ultimately attempt to stimulate the U.S. economy out of a recession.

 

Out of Control Government Debt

 

Another factor why the Fed will probably not raise rates and will instead have to lower them and introduce fresh rounds of QE is the enormous $23 trillion national debt.

 

The national debt is simply remarkable, as it is now at about 107% of GDP, and the “actual” federal budget deficit is roughly $1.3 trillion.

 

The servicing payment on this debt is going to be roughly $400-$500 billion just this year alone, as the national debt is largely comprised of 5-, 10-, and 30-year treasuries.

 

Source: Times.com

 

Just for reference, national debt to GDP was at about 35% in 1980, and was at 55% in 2000. Now, at 107%, it is starting to impact the ability of the U.S. economy to grow. Furthermore, the higher the debt to GDP ratio grows, the more pressure the debt and its servicing will weigh on the U.S. economy. It’s a good thing that rates are relatively low.

 

Let’s imagine for a second that the 10-year was at around 3%, the 5-year was at about 2.5%, and the 30-year was at 3.5%, not very high by historical standards, yet that would imply the servicing payment on the U.S. national debt would be roughly $700 billion in one year, and that’s if we use the current $23 trillion figure.

We can see that with higher rates, the picture with the national debt could quickly get out of control and possibly create a prolonged low or no growth economic environment much like we’ve seen in Japan for decades now.

 

Therefore, the Fed will likely need to lower rates not only to try to avert (engineer a soft landing) and stimulate the economy out of its next recession, but also prevent the U.S. from defaulting on its national debt.

After all, the Fed can print as many dollars as it wants, lower rates to zero if it pleases, and essentially inflate the debt away eventually. This scenario appears like it will probably need to play out within the next 5-10 years, which is extremely bullish for gold and the entire PM complex.

 

 

Gold to Silver Ratio

 

Another factor I wanted to mention was the gold to silver ratio. Despite recently coming down from an unprecedented level of nearly 95, to around 87, the ratio is still extremely elevated by historical standards. This implies that we are still likely in the early stages of the current bull market cycle in gold and other GSM related assets.

 

We’ve seen extremely high gold to silver ratios lead to major rallies or bull markets in the past, like in the early 2000s, around 2009, in early 2016, and most recently several months ago. It is possible that the ratio may have topped out earlier this year, and the next wave higher in gold prices may be coming relatively soon.

Source: GoldPrice.org

 

 

The Bottom Line

 

It appears like the Fed and other favorable factors have stabilized the U.S. economy for now.

 

Despite it being late in the cycle, the employment picture looks strong, inflation is not too hot nor too cold, the consumer still appears relatively healthy, and stocks are at all-time highs.

 

Thus, the Fed has no reason to continue to lower rates or increase the monetary base substantially by providing QE right now or possibly any time in the next 6-12 months.

 

Therefore, gold is likely to trade around for a while. We’ve seen about a 6% correction, but it would be nice to see a real pullback of around 10%. This would be healthy for the market, would bring gold down to around the $1,400 level, and would likely create a very compelling long-term buying opportunity in my view.

 

Nothing material has changed long term. The U.S. still has a huge national debt problem it will need lower rates to service effectively. The recession may have been put back a few quarters, but it will still likely arrive within the next year or two. Also, many market participants likely realize that the “new normal” economic reality is an economy with much lower rates.

 

Furthermore, the Fed will likely substantially increase the monetary base through QE like programs to stimulate the economy before, during and after the next economic slowdown and to “help” with the national debt problem.

 

Regardless of short-term gyrations, gold is very likely moving a lot higher over the next several years, and likely decades.

Is Tech a New Frontier for Sustainability?

Financial institutions must address the issue of technological sustainability, especially with regard to data, robotics, and artificial intelligence. Although these new technologies have vast potential, businesses also need to understand their risks, social impact, and ethical implications.

Bertrand Badré , Philippe Heim




PARIS – Discussions about “sustainability” usually center on a company’s environmental and social commitments, and for understandable reasons. But the financial sector in particular should consider two other, less obvious, dimensions of sustainability.

Regulatory sustainability is essential for addressing the systemic risk that the financial sector poses to our societies. In addition, the emerging new frontier of technological sustainability is having an increasing impact on business models and strategies.

Data, robotics, and artificial intelligence are on everyone’s minds. But although these new technologies have vast potential, financial institutions also need to understand their risks, social impact, and ethical implications.

Regarding data, the numbers are striking: 90% of all data worldwide have been created in the last two years, and we generate an estimated 2.5 quintillion bytes of it every day. In this context, it is essential for financial institutions – which are both key producers and users of data – to address issues concerning data creation and protection.

Regulations in this field are becoming stricter, as the European Union’s General Data Protection Regulation (GDPR) illustrates. Fortunately, banks and insurance companies continue to benefit from their reputation for being trustworthy. Their challenge is to honor and maintain that trust despite the growing temptation to monetize their data “assets” by selling them or using them for marketing purposes.

Robotics, meanwhile, is transforming all industries and the job market. According to some estimates, between one-quarter and one-half of the financial sector’s total workforce could be replaced by robots and AI over the next decade. True, studies of German manufacturing workers have found no evidence that robots reduce overall employment: although each robot eliminates two manufacturing jobs, it creates additional jobs in the service sector that fully offset this loss. But robots do affect the composition of aggregate employment.

In fact, we are probably experiencing another episode of Schumpeterian “creative destruction.” Robotics and AI will change the types of jobs on offer, their location, and the skills required to fill them. This disruptive effect must be managed carefully. Banks and other financial institutions should therefore focus on anticipating these technologies’ impact on their employees, and invest in training and career counseling to help them during the transition.

AI technologies are probably the most difficult for the finance sector to address, owing to their complexity and ethical implications. Although financial institutions have been criticized since the global financial crisis, they have in fact long taken ethical considerations into account. But with AI, we are moving to another level, where firms must anticipate potential ethical risks and define the mechanisms to ensure control and accountability.

Two major issues stand out. The first is algorithm bias (or AI bias), which occurs when an algorithm produces systematically prejudiced results owing to erroneous assumptions in the machine-learning process. In 2014, for example, Amazon developed a tool for identifying software engineers it might want to hire, but the algorithm incorporated the biases of the male engineers who created it.

As a result, the system soon began discriminating against women, leading the company to abandon it in 2017. More recently, Apple and Goldman Sachs launched a credit card that some have accused of being sexist. For a married couple who file joint tax returns and live in a community-property state, Apple’s black-box algorithm gave the husband a credit limit 20 times higher than that of his wife.

The influence of the conscious or unconscious preferences of algorithms’ creators may go undetected until they are used, and their built-in biases potentially amplified. Fortunately, algorithms can be reviewed and monitored to avoid unfair outcomes. For example, a bank employee may unconsciously consider an applicant’s gender when making a loan decision.

But with an algorithm, you can simply exclude a gender variable and other closely correlated factors when computing a score. That is why it is crucial to implement the right safeguards when developing the model.

The other big ethical concern relates to the transparency and “explainability” of AI-driven models. Because these models will increasingly be used to make recruiting, lending, and perhaps even legal decisions, it is essential to know their critical features and the relative importance of each in the decision-making process. We need to open the black box to understand the processes, procedures, and sometimes-implicit assumptions it contains.

Regulation also will increasingly push us in this direction: the GDPR, for example, introduces the right for individuals to obtain “meaningful information about the logic involved” in automated decision-making that has “legal or similarly relevant effects.”

Today, we still have more questions than answers regarding technological sustainability. That is probably fine for the time being, because we are proceeding into uncharted territory with care and concern. After all, developing a more comprehensive approach to climate and the environment has taken many years, and we probably still have a long way to go.

We now must start a similar journey toward technological sustainability and ask ourselves how well equipped we are to discuss the practical, social, and ethical implications of new and powerful digital tools.

Because these questions touch upon anthropology and philosophy as much as economics and politics, we must respond to them with open and inclusive debate, interdisciplinary frameworks, and well-coordinated collective action. This shared effort should bring together the public and private sectors, as well as consumers, employees, and investors.

Although technological progress comes with risks, it ultimately improves everyone’s lives. By managing these advances responsibly, we can ensure that humanity and digital technology combine to produce a more sustainable future.


Bertrand Badré, a former Managing Director of the World Bank, is CEO of Blue like an Orange Sustainable Capital and the author of Can Finance Save the World?

Philippe Heim is Deputy CEO of Société Générale.

RETIRING

The Decade in Retirement: Wealthy Americans Moved Further Ahead

Prospects for most Americans’ retirement security haven’t improved. For affluent households, however, the odds of a successful retirement have gotten much better.

By Mark Miller


Credit...Sam Kalda


Retirement in America has become a tale of two very different realities in the decade now drawing to a close.

In 2010, the economy was just beginning to recover from the worst recession and financial crisis in recent memory. The unemployment rate was high, the stock market was coming back and millions of workers were worried that their retirement plans were ruined.

Since then, a robust economic rebound has put some Americans back on solid footing for retirement, but progress has been uneven. Despite the gains made in employment, wage growth has only recently begun to recover — and remained flat for older workers. Retirement wealth has accumulated almost exclusively among higher-income households, while middle- and lower-income households have only held steady or lost ground, Federal Reserve data shows.

Trends in Social Security and Medicare also are troubling. The value of Social Security benefits — measured by the share of pre-retirement income they replace — is falling, and the cost of Medicare is rising.

For members of the baby boomer and Gen X generations, the odds of success are mixed. The Employee Benefit Research Institute has developed a model that simulates the percentage of households likely to have adequate resources to meet retirement expenses, considering household savings, home equity and income from Social Security and pensions.

The model shows that the highest-income households have seen their odds of a successful retirement improve sharply during this decade, and have very high odds of success. Middle-income households, meanwhile, have seen some gains, but still have only 50-50 odds of success. And the lowest-income households have seen their retirement prospects diminish sharply — among these boomers approaching retirement, their odds of success have fallen during the decade from 26 percent to 11 percent.

“Retirement prospects improved significantly for higher-income workers who were fortunate enough to work for employers that sponsor retirement plans,” says Jack VanDerhei, the organization’s research director.

Let’s consider how the retirement landscape has changed during the decade now ending.

Retirement savings: Up for the affluent

The stock market bottomed out in March 2009 — and it has more than quadrupled since then. Most retirement savers did not abandon equity markets during the crash, says Jean Young, senior research associate with the Vanguard Center for Investor Research. “Some did, but the vast majority stayed the course.”

But the recovery has seen retirement wealth accumulate almost exclusively among affluent households that had access to workplace retirement plans and the means to make contributions.

For example, Vanguard reports that the average balance for plan participants with incomes over $150,000 in 2018 was $193,130, compared with just $22,679 for workers with income of $30,000 to $50,000.

Just 52 percent of American households owned retirement accounts in 2016, according to Federal Reserve data, not much changed from 2010, when that figure stood at 50 percent. Racial gaps in account ownership are especially pronounced — 58 percent of white households owned retirement accounts in 2016, compared with just 33.6 percent of black households and 27.8 percent of Latino households.

Federal efforts to expand the availability of retirement accounts foundered during the decade. During the Obama administration, Congress refused to enact a system of mandatory auto-enroll I.R.A.s that President Barack Obama had proposed for workers lacking access to workplace plans; since then, 10 states have enacted similar plans of their own and several have launched.

Among households that had workplace retirement plans, the gains have been substantial. Average account balances jumped 22 percent from 2006 to 2018, according to Vanguard data.

More workers are contributing to plans as a result of widespread adoption by plan sponsors of automatic enrollment features. Equally important has been a major shift toward the use of target date funds, which add a level of professional management by automating asset allocation between equities and fixed income, adjusting the mix as retirement approaches.

Last year, 52 percent of participants were using a target date fund, up from 13 percent in 2008, according to Vanguard — a figure the company expects to reach 70 percent in 2023.

Health insurance: ‘How will we pay?’

Workers who lost their jobs in the recession often lost not only their incomes, but also their health insurance. Older jobless people who were not yet eligible for Medicare were at the mercy of the individual insurance market, where the likelihood of pre-existing conditions meant that they paid much higher premiums — and higher deductibles — if they could find coverage at all.

But the passage of the Affordable Care Act in 2010 changed that, and the number of pre-Medicare older Americans without health insurance has dropped during the decade.

This year, 9.4 percent of adults ages 50 to 64 were uninsured, a decline from 14 percent in 2010, according to the Commonwealth Fund. The decline would have been much greater if 14 states had not rejected the law’s Medicaid expansion, according to Commonwealth — in states that expanded, the rate for this age group has fallen to 6.4 percent.

“People in that age group have much better protection now,” says Sara Collins, vice president for health care coverage and access at Commonwealth. “If they have to leave a job, or elect to leave to do something different as they approach age 60, they can buy a policy in the individual market — that used to be quite risky and often out of reach due to pre-existing conditions.”

Are you a retirement nerd?

In Medicare, the decade has been marked by sharp increases in enrollment and federal spending — and privatization.

This year, 61 million Americans are enrolled in Medicare, 33 percent more than in 2010. Program spending will be $749 billion, up 47 percent compared with 2010. And an aging population means there are just 2.9 workers contributing to the system for every Medicare enrollee this year, down from 3.4 in 2010, according to a Kaiser Family Foundation analysis of Medicare data.

The standard premium for Part B (which covers outpatient services) in 2020 will be $144.60 — 31 percent higher than it was in 2010. And Medicare’s trustees project annual increases of nearly 6 percent over the coming decade.

“The numbers speak to an underlying question and challenge that we have yet to embrace: How will we pay for a growing and aging population?” says Tricia Neuman, director of Kaiser’s program on Medicare policy.

Another striking trend has been the growth of privately offered Medicare Advantage plans, the all-in-one managed care alternative to original fee-for-service Medicare. This year, 34 percent of enrollees are in Medicare Advantage plans, up from 24 percent in 2010, according to Kaiser.

The growth comes despite studies that raise doubts about Advantage plans. For example, a report last year by federal investigators found a pattern of inappropriate denial of patient claims; other studies have questioned their quality of care. And this week, a report released by the U.S. Department of Health and Human Services Office of Inspector General raised concerns that Advantage plans were overbilling the program by improperly adding conditions to patient records.

“The growing role of private plans — Medicare H.M.O.s and PPOs — stands out as perhaps the most significant change to Medicare over the past decade,” Ms. Neuman said. “This growth has occurred without an explicit policy debate or major change in policy.”

Employment: Gains but some permanent damage

The last decade of work is especially important for any retirement plan — it’s the time when many workers enjoy peak earnings. In some cases, working longer helps people increase Social Security income by claiming benefits later, and by adding to savings.

But the surge in joblessness during the recession damaged the retirement prospects of millions of older Americans — and many have not recovered.

Unemployment for workers age 55 and older soared to a peak of 7.1 percent in the third quarter of 2010 from 3.1 percent in the first quarter of 2007, according to the Schwartz Center for Economic Policy Analysis at the New School. But a broader measure of unemployment tracked by the center that includes people who were underemployed or had given up looking for jobs peaked at a much higher level: 14.6 percent in the first quarter of 2011.

The economic recovery has pushed those figures down dramatically — unemployment for workers 55 and older was 2.6 percent in the third quarter this year, and the broader unemployment measure that includes discouraged workers stood at 5.5 percent.

Older workers also are having an easier time regaining employment now than during the recession. The typical unemployed person over age 55 needed 21 weeks to find a new job during the third quarter this year — far less than at the peak of the recession, when they needed 35 weeks. 
.
Despite this improvement, median weekly earnings of full-time workers age 55 to 64 have not risen appreciably during the recovery, standing at $872 during the third quarter of 2019, compared with $861 in the third quarter of 2008, adjusted for inflation, according to Census Bureau data.

And for many workers who lost a job in the recession, the damage was permanent, says Teresa Ghilarducci, a labor economist and the center’s director. “People who were 55 or older during the recession have never quite recovered — they are far behind in building up wealth again, and when they did find another job, it probably paid much less than they were earning before the recession.”

Housing: It’s a big part of security, and it’s wobbly

For most Americans, homeownership is a crucial part of retirement security. “Retirement accounts are one of the important ways people save for retirement — and the other is paying off the mortgage in retirement,” says Alicia Munnell, director of the Center for Retirement Research at Boston College.

But homeownership rates for older Americans have fallen sharply since the recession, according to the Joint Center for Housing Studies of Harvard University. And an already-substantial racial gap in ownership rates has widened significantly during the economic recovery — for example, ownership rates for black households age 50 to 64 fell to 54 percent in 2018 from 62 percent in 2004.

The ownership trends are worrisome because homeowners can tap the equity in their homes by borrowing against it or by downsizing. Moreover, owners enjoy greater housing security and more predictable housing costs than do renters.

The researchers at Harvard also found that a growing share of older households are carrying mortgage debt, or that they are burdened by their housing costs — which the center defines as paying more than half of income for housing.

“Many of the indicators have not improved since the recession — and in fact many have become more negative,” says Jennifer Molinsky, a senior research associate at the center.

Social Security: Net benefits are down

Social Security remains the linchpin of retirement security for most Americans 10 years after the crash — but the value of benefits has fallen during this decade, and will fall further in the years ahead.

That has nothing to do with economic cycles. Changes enacted in 1983 are gradually pushing up the program’s full retirement age — that is, the age when claiming gets you 100 percent of your earned benefit. That age is gradually increasing to 67 for workers born in 1960 or later.

A higher retirement age acts as a benefit cut, since it raises the bar for receiving full benefits.

Net benefits are shrinking further because of rising Medicare Part B premiums, which typically are deducted from benefits. What’s more, a rising number of Social Security claimants owe income taxes on at least part of their benefits.

The Center for Retirement Research calculates that an average earner retiring at age 65 could expect to replace 37 percent of pre-retirement income in 2010; that dropped to 35 percent in 2018 and will fall to 29 percent in 2035.