Monday, April 22, 2019

Systemic Problems, Individual Solutions

I've always been a bit of an asshole. While I try my best to be nice, to get along, sooner or later people realize that I'm actually kind of mean.

One of the biggest issues I deal with is being fairly intolerant of others' ideas.

Specifically, I'm really bad at accepting when other people have a different solution to a problem than I think is best. Because, you know, I like my idea.

So let's talk about that a bit today. Let's dig into systemic problems, and talk about the jagoffs who think individual tactics are the right approach to solving them.

When looking at systemic problems (rising student loan debt, stagnant incomes, growing inequality, discrimination) there seems to be two popular approaches when trying to find solutions.

The first I'll call the individualistic approach. You, you single person living in this unfair world, no one is going to care about your situation as much as you will. That's just the way it is.

That also means you're in the best position to improve your situation. You know the problems intimately. You know their nuances. You know yourself and what works for you, and what doesn't. And besides, help is probably not on the way. If you want this shit to improve, you're going to be the one who has to do it, right?

As an example, let's pretend our society has a problem of widespread stagnant incomes that barely keep up with the rising cost of living. Yes, let's pretend.

To the individualist, the answer is to hustle: work more hours, work smarter, get new skills, get a side hustle, get a new job. Do these things and you have a good chance of increasing your income.

It's straightforward. In many cases, this approach is effective, too. Just read some personal finance blogs for proof and don't worry if they're outliers, because survivorship bias smursmivorship shmias.

In a similar vein, if rising student loan debt now dwarfs that of prior generations, the answer is to work more while in school, save your tips from your summer job, and try to, somehow, graduate with no student loan debt. If you fail at that, maybe because you are bad at working hard, then you can still take the steps outlined above to pay off those debts. You know, hustle.

If there is a retirement crisis where huge swaths of the population have little or nothing saved for retirement, the solutions are, amazingly, again in the hands of the individual. Workers can learn to budget, to create more income, to cut their expenses with frugality, and invest that difference in IRAs, 401ks, HSAs, getting tax advantages all along the way.

In all cases, the problem is yours to solve but, luckily, thankfully, the individual always has the ability to solve all of her problems if she is willing to learn and work hard.

Sure, there are some widespread problems with society. But we can't wait around for those to be fixed (as if they would ever really be solved anyway), so it's kind of on you, kid.

The rub with this tactic is that it lays responsibility for solving systemic problems at the feet of individuals, passing over the harder-but-better approach of addressing the problems in the system that force all these individuals to work harder in the first place.

Systemic problems can also call for systemic solutions.

Let's look at those same problems again, but without chucking responsibility onto the individual.

Instead of asking workers to juggle the gig economy along with their anchor jobs just to increase household incomes, we could acknowledge the fact that wage stagnation is largely the result of policy decisions: that we decided to give greater benefits to capital, at the expense of labor. This tweak to the system is partly responsible for investors getting ahead while workers tread water. As explained by the Economic Policy Institute:
This dismal wage growth is the result of intentional policy choices made on behalf of those with the most income, wealth, and political power. As explained below, these choices fall into five broad categories: the abandonment of full employment as a main objective of economic policymaking, declining union density, various labor market policies and business practices, policies that have allowed CEOs and finance executives to capture ever larger shares of economic growth, and globalization policies. Collectively, these policy decisions have shifted economic power away from low- and middle-wage workers and toward corporate owners and managers.
If stagnant wages are seen as the result of policy decisions rather than, say, workers just not being as motivated as they used to be, we become less likely to embrace a solution like millions of citizens getting second jobs with Uber and Door Dash to get ahead. Instead, we might start considering policy positions like this one from Elizabeth Warren as potential solutions.

If we think rising student debt is not the result of students failing to work more at their ten-buck-an-hour jobs, but the result of the systematic defunding of universities by state legislatures, then certain obvious solutions end up on the increasing funding to prior levels, and clawing back tax cuts that states could clearly not afford.

Let's take another look at the retirement crisis: the sobering reality that one in three Americans have less than $5,000 saved for retirement. This is good ground for personal finance writers, and each of us writing blogs has some hope that we'll help a person or three open an IRA and start socking away money for the future.

But I'm not sure that hoping hundreds of millions of individuals learn enough about personal finance to plan for a comfortable retirement is really the best plan for success.

Should policy makers and corporations be left off the hook entirely? Pensions and Social Security started facing major problems when, whoops, demographic shifts happened. Those dang baby boomers made up a huge portion of the population and then didn't bother having as many kids as their parents did. The boomers up and decided they were going to live longer, too. With fewer workers supporting more-and-older retirees, the math no longer added up. Then those same demographic shifts put private pensions in a bind.

So governments and companies shifted away from the pension model and put the responsibility on individual workers to plan and save for their own retirement. Fair enough: I suppose these entities can't be blamed for demographic realities.

But when there's a huge change to the system, when you're going from a pension model with short retirements to an individual retirement model with long retirements, you can't just skip over the step of educating and training your citizens about the personal finance concepts they're now responsible for executing, dutifully, with each paycheck over the next four decades.

And if governments want to address the underfunding of Social Security, this looming financial crisis facing the one safety net available for retirees, they need to have the courage to address the ridiculous system of a "flat" tax with an income cap: resulting in the highest earners paying a lower effective tax rate into Social Security than the lowest income workers. If we're going to insist on a flat tax, then at least have that tax apply to all the income.

I'm a little sick of hearing the same refrain every time we are faced with financial crises: that we individual citizens are supposed to just figure it out. Dig deep and give more to this charity. Chip in to this kickstarter. Spin up a side hustle. Make more and deeper cuts to the household budget. Find a way to pay down those student loans. Make extra contributions to those IRAs. Find a way to get that money to work for you instead of you working for it.

These are the foundations of good personal finance and I really don't have an axe to grind against people who are just trying to help other people. But can we just step back and realize that people up and changed the game on us? That the systems aren't right and that all this hustling and scrimping and saving from individuals will not make a change to the system itself. That even if you win, that's just a win for you. That everyone else around you and the next generation just has to keep on playing the same messed up game, hoping to beat the odds.

Instead of blindly hoping we can teach everyone to win a rigged game, why not try to tweak the rules?

*Photo is from Uros_N at Flickr Creative Commons.


  1. SavvyFinancialLatinaApril 22, 2019 at 6:28 AM

    This is such a loaded topic. I have actually had serious arguments with my husband on this topic. I come from a low income immigrant family. He comes from an upper middle class family. Our different backgrounds means we also have different opinions on the class structure.
    Here is what I have sometimes seen/felt:
    I seriously had to work for everything. Yet sometimes it feels like it's wrong for me to be as successful as I am today. Why? Because sometimes people from an upper middle income class families or above aren't doing as well as me, and it's just not "fair." OR I had access to FAFSA or scholarships because I was poor. Somehow, being valedictorian, top student, studied every day, varsity athlete, didn't help at all.

    That's where I see the fallacy. It's ok for people with the individualistic mentality who have had privilege to say it's all about bootstrapping it and your success falls on you. And it's not society's responsibility to take care of other people. Especially through taxation. But the truth is grittier. I don't even think it's about taxes. I think as a society it's become very personal. It's become about class structure underneath it all. I have seen the resentment people get when they see people "under" them succeed. Suddenly, the system is unfair. Think new rich vs. old rich.

    I have told adult children who were raised in wealthy backgrounds, that they just need to get their act together and get working on it. Ummm...let's just say I wasn't seen in a good light. But that's exactly what I had to do as a poor person.

    Now, my thoughts are completely anecdotal. But I think this goes beyond taxation. Or maybe that's what certain puppetters wanted. To create a correlation for the middle class to fight over piddly taxes and benefits, while they benefit the most.

    1. SavvyFinancialLatinaApril 22, 2019 at 6:33 AM

      There are definitely systemic issues in our society that are helping the gap between the masses and the upper upper class grow.

    2. Thanks for that thoughtful comment, SFL.

      My mother was an immigrant and she raised us on the notion of hard work getting you ahead, too. I think there's a lot of truth to the notion and a lot of the time, it's exactly true. Still, she also taught me that things are going to be harder for certain groups: that the playing field is anything but fair.

      I somehow failed to mention class in the entire post, which is a pretty big oversight. I think you're on to something with that take: when people see a poor person succeed, they think the system helped them all of a sudden.

  2. Okay, if you could not write posts where I want to quote the entire thing, that would be great ;)

    Looking forward to in person chats soon, friend!

    1. Yay! I'm excited, too.

      And you're too kind with that comment about the quotes, friend. The whole time I was writing this I was thinking, "This is a bunch of pretentious, preachy nonsense."

  3. Nice post, as always. I imagine if we lived in the same town, we'd get along swimmingly in person.

    Unfortunately it's just getting worse. The Trump Tax Con of 2017 was just a huge bitter pill for the working class to swallow (for those smart enough to see the con). Corporate tax breaks funded by a huge cut in government income (and thus services). And it was made to go down a little easier by TEMPORARY individual tax breaks, that expire in 2025, long after Trump and McConnell are out of office, perhaps even in the grave. Some other poor schmuck President will be the one that has to break it to the public that a) the current tax rates are expiring and b) we can't afford to extend them.

    I'm fortunate enough that I make enough to pay accountants and lawyers to actually have figured out legal ways for me to take personal financial advantage of the Trump Tax Con. Until the working class votes him out (or impeaches) I'm going to drive a truck through the upper class tax loopholes he created, almost all designed to profit people just like him (including interesting real estate loopholes). That's my vindictive side.

    1. Hi Tin!

      I agree, we'd get along great. Let me know if you're ever passing through the desert.

      Agree with your takes on the TCJA: this is short term benefits in exchange for long term pain. Someone else will clean it up, right?

      A great example of how we're going to face systemic problems (fewer govt services & larger government debt) due to changes to our tax system, and people will argue that individual families need to budget smarter or work harder in response.

      One day I'll have to hear more about these advantages your accountants and lawyers found. :)

  4. Have you read the book Winners Take All? If not, you should. Many of these themes and much, much more in there. It's quite eye opening.

    1. I haven't but I'm going to check it out of the library. Thanks for the tip. :)

    2. If you feel like it, post and let me know what you think. I have lived at every income level (grew up extremely poor but am now high income ... but still with a frugal orientation) and this book explains what I have seen happening the last 15-20 years. This is not noticeable to most, but he finally put to words what I have been seeing (and what you are touching on here). I hope more people will read this book. I think it has the possibility to change the conversation to the things you are discussing and more.

    3. Yeah, now I definitely want to read it. Thanks for the tip!

  5. I really appreciate this post! The other day a retiree asked me why young people don't invest more. "Is it because they are too risk averse?!" Well no, it's because the average net worth of a young person is negative, and they are mostly working on getting out of debt. They responded by going on and on about millennials and their cups of coffee..... I didn't want to get into it but it's way more about policy than individual failure.

    1. Hi there, Financial Mechanic!

      It's funny how people never mention stagnant/declining wages or the ever increasing cost of housing, education, and healthcare when we ask "why aren't people investing more?"

      Like, where do you think the money to invest is coming from, friend?

      As you said, it's about policy.

  6. You're right. As a society, we need to do both. Individual responsibility is important, but it's hard to win a rigged game.
    The minimum anyone should do is to learn about the issue and vote for the right representative. Many poor people still support the representatives that screw up their finances. Everyone needs to do their part.

    1. That's a good take, Joe, and I realize I set up a bit of a false dichotomy in the post. Individual tactics PLUS systemic improvements are the secret sauce to helping everyone do a bit better.

      And don't get me started on people supporting policies that hurt them. I could go on all day.

  7. Yep, individualistic solutions aren't going to address the underlying problems. Yes, new graduates (and not-so-new ones still struggling with college debt) can hustle, but that doesn't mean that there's not an underlying problem that needs fixing.

    I do think that people should be more responsible about saving for retirement, but it's also terrifying how clueless a lot of people are about their options (I'm barely literate on the subject myself). We need better education about their options, and as you said, we need to stop limiting Social Security taxes when the system is already stretched so thin.

    1. You said it better than I could, Abigail. Individuals figuring out hacks in this broken system doesn't do much to fix the system. And while we all could learn about these concepts on our own, a far, far better solution involves teaching these important concepts in schools, universities, workplaces, libraries, on public television and NPR, etc. etc.

      An even better solution than teaching personal finance to citizens might be to create systems that help people even if they didn't learn (universal healthcare, a more fully funded social security pension, free university, etc, etc)

  8. I'd venture to guess that if I went back and read everything you've written, this would be my favorite post of yours. I felt like it was written to the 'me' of five years ago. To the 'me' that grew up in the Midwest where you tough it out and figure it out on your own with the mindset that no one is out to get you, but no one is helping you either.

    I think this is why I find you particularly perplexing. I see tinges of the DB40 you self-describe in the first two paragraphs and at first I turned away.

    But then I came back, and back. Like you, I am/was firm in my beliefs of what was best. However, I'm doing my best to open up. I find myself still holding tight to the Individual Solutions to my own issues (like paying off debt), but am trying very hard to keep open as much as possible the ideas for systemic changes that will make things better for the next in line.

    That's why I like reading what you have to say. The person that I was when I grew up would have hated it. The person I was a few years ago didn't like it. The person I am now may not agree with all of it, but I aim to read it, consider it, and challenge my own beliefs with it.

    Sorry for the long comment, but wanted you to hear it.

    1. Hi Debt Ascent. Thanks for that thoughtful comment -- I know I rub people the wrong way sometimes.

      I grew up in the midwest as well (well, Pittsburgh so depending on who you talk to that may not count. We can throw a rock into Ohio though.) The ethos of self sufficiency is actually fine, but I think it's only half of the puzzle in a well functioning society. Like you said, it's our responsibility to make things a little better for the next in line.

  9. I am so on board with this perspective. Lately, I've been struggling with what I perceive to be a conflict between my own pursuit of FI and the current state of much of America. I'm simultaneously frustrated by an economic system that taxes the middle class nearly as much as the wealthy, yet more than willing to find all the tax breaks I can to get around this and become richer in the process.

    Perhaps I have become so hardened by the years and years I've had without seeing change that I have given up and started to play into the system. No matter how strongly I feel, or how often I share my opinion with others, I feel so miniscule in a world governed by others. So, my question for you: while we both agree that change is essential, how would you recommend adopting this viewpoint into one's daily life? Barring a run for office, how might we as individuals be key players in this systemic change?


    1. Thanks for that comment and the great question, Elise.

      I think our participation in elections and putting pressure on elected officials is a good start. I'm quite fond of the policy ideas of Warren: she is the candidate I believe has the right blend of big ideas for systemic change as well as the wonkiness that has a plan for how to get the things paid for and executed.

      I think another actionable step we can take is to frame our conversations in terms of systems (what could be done to improve the retirement system?) rather than individual tactics (how can I save for retirement?). I think the distinction, if more widely accepted, will over time lay the groundwork for systemic approaches to be accepted.

      For example, the topic du jour, Warren's plan for debt forgiveness, is in some ways a debate about systemic solutions (just forgive all the debt and pay for it with taxing the rich) versus individual tactics (shouldn't that millennial find a way to earn more money & pay back her debts, just like I did 10 years ago?). So just talking about these problems in the terms of what we thing the best overall solution is, rather than from a moralistic/philosophic view, is another step we can take right now.

  10. I have to point out the other side seeing that I am one of I think 3 right leaning readers. Having free university, health care for all and who knows what else, will ultimately fail the math test just like pensions did. The math simply doesn't work. I have benefited greatly and will continue to do so from the tax cuts but it hits a nerve when people act as if that money I pay for taxes wasn't mine to begin with.
    If I gave you (government) $15,000 in 2017, but only $12,000 in 2018, I didn't steal $3,000 from took $3,000 less.
    I am sending 3 kids to college, and the dorms are better than hotels I stay in. The money at both the high school level, and college level are not being used well as I see it currently. More equipment, more teachers pensions, more waste.
    Also interesting one of the commentators above made reference to their own struggle of wanting change but wanting/minimizing their own taxes for pursuit of FI. Everyone wants to pay less, but wants things to be better as long as someone else is paying it instead of them. Countless blogs about how to get ACA for free for people of net worth of 7+ figures. Think about that. That's sort of my mic drop moment.

    1. With all due respect, you're very much making DBF's point, you focused on the niche examples (almost all requiring more nuanced details than you've provided) and ignoring the systemic. I'd like to ask you about two though, because I'm curious:
      1) What is wrong with dorms being better than hotels? First of all that is not always true, at all. Second of all, it is where your kids live, it SHOULD be better than an (average) hotel. I personally wouldn't send my kids to any dorm that is a pit, and I will pay full price tuition soon. Schools (should) know this. Also, there are health and safety concerns they must consider else kids die, lawsuits happen, etc.
      2) Please link me some of these "countless blogs"? I have a net worth of 7+ figures. I'd like to check them out. I suspect it's a bunch of "mic drop" hyperbole. The ACA has been especially targeted by the "individualists" as a mechanism to attack the "systemic thinkers". Quite often I've found they purposefully avoid mentioning the details of their hyperbole. Regardless, the bigger (systemic) picture is that if we as a nation all had a baseline (not luxury, you can buy that as an add on) health system, there would be no individualistic gaming ("Medicare for all"). You wouldn't have to get all riled up at people you "perceive" are gaming the system. It's really not a stretch. Although I'll give you the recent Tax cut package makes it much harder to do (or to provide many essential services).

    2. Chris! One of my right leaning readers! I'm glad we liberals haven't chased you off.

      I think we might be talking about different things here.

      I'm not calling for free universities, free healthcare, etc. in this post. Rather, I'm trying to make a distinction about the types of solutions we call for when discussing systemic problems. Do we call for individual solutions (e.g. - each person figure out how to make things work for them) or do we try to make improvements to the system (this certainly doesn't mean we go full socialism: this could be something as simple as making a tweak to the social security system to make it a flat tax, which I know conservatives love, rather than a regressive tax, which no one actually likes).

      The things you're describing, like widespread waste or overspending in university dorms as schools all engage in a tragedy-of-the-commons style competition for students, IS a systemic problem.

      So, would we rather hope for individual solutions (i.e. - hope each school does the right thing and spends less on their own, possibly losing students to schools that spend more) or would we do better trying to organize a systemic solution (e.g. - a compact among public universities where they all agree not to engage in spending more on X per student on dorms for the next ten year, akin to a free trade agreement of sorts).

      Or take the case of people with 7 figure net worths getting ACA subsidies. This can be seen as a systemic problem: a problem in the group of FIRE bloggers. The solution in an individualistic approach is trying to convince each individual person who COULD take an ACA subsidy not to do so, perhaps appealing to their morals. I think very few people would do so though. A systemic solution approach would address the flaw in the ACA system: the fact that subsidies are means tested (i.e. - based on income) rather than based on assets. So a systems based approach might do a test for income AND for assets.

      Anyway, I hope you see where I'm coming from here.

  11. Well so far there hasn't been name calling so I enjoy reading the other side of these debates. I don't quite follow Tin's comment but respectfully offer goccurrycraker and financial samurai as 2 of my favorite blogs who often reference 200%-400% of poverty level for ACA subsides. I don't even think they have ACA, as much as they did the analysis on how much income you could have while still qualifying.

    As far as the moral side, I think if I were say 55-60 retired, and could make my income qualify I would probably do it as most people would because the alternative is so expensive it's simply not practical.

    As for the dorm comment, yes, I do pay for a state school for my 3 children. I decided bank of dad would pay for a state school. I know countless families that want jr to go the best of the best and then jr comes out with 100k-150k in debt because he wasn't mature enough to actually work while in school, or maybe get done in 4 years, or maybe pick a major that had real jobs behind it. I have zero interest in forgiving that debt while I paid for mine and now my kids more modest life choices. I dunno maybe that makes me a bad guy in others eyes, but I really can't figure out why. All things have cost. Don't treat loans like monopoly money, it's real money.

    I agree we have society type problems, and I would love to pitch in if I heard a good solution to any of them. The difference in my mind is, I haven't heard any good solutions so far from the left or the right.

    1. One additional comment on the moral side of not taking ACA for high net worth individuals. It first hit me as immoral but as most things it's easy to argue the other side.
      I can see someone that has 7 figures say, I think it's moral to take ACA for low cost since I haven't been to the doctor in a few years. I would have a hard time saying they are acting immoral.

    2. I hear what you're saying Chris but I still think we're debating different issues.

      You're making a moral/philosophical comment on a specific plan about student debt forgiveness, and ACA use, that aren't actually mentioned in my post.

      Is it your position that I'm suggesting those as systemic solutions? To clarify, I'm not. I'm really talking about the limits of the individualistic approach in general, and the merits of a systemic approach as an alternative.

      I did suggest some specific ideas for improvements to the system in the post (like removing the income cap for Social Security, so it's at least a flat tax).

    3. I guess my position is, every time I hear of a systemic solution, it sounds like it won't work. So I wouldn't say I'm for/against it, as much as skeptical someone can come up with systemic solutions to our problems based on "solutions" suggested by some, such as loan forgiveness. I also would rather rely on my self than others. Still love the blog
      -Right Leaning #3

    4. Fair enough.

      Honest question: if not with an improvement to systems, how do you stop the tragedy of the commons style competition between universities for making the nicest dorms?

    5. I don't think it will stop in the short term. Long term, I think the recent college grads, say 22-28 year old young adults, will think twice before sending their kids to expensive colleges as they will still be paying off their own loans. Possibly they will look for commuting colleges, or community colleges to help minimize the cost. I also think online learning will continue to grow and can be a viable option at minimal cost. But it take a very disciplined self starter type of personality. I think an eager high school student could get better programming job skills using pluralsight or a similar online tools. This will only continue to grow and be a viable option in the future. That said none of this is mainstream today so I send my youngest to state school in the fall....11 years of paying for kids college (3 kids, 1 overlap year) $$$$, sigh

    6. Not to point out the obvious, but you're also actually describing what I think is a systemic solution: that is, leveraging alternative schools & paths to employment to put pressure on traditional universities to keep costs down.

      An individualist solution says: I'm going to keep costs for me and my family. A systemic thinker says, wait, can we do something that makes things work better for a larger group.

      So there's that middle ground.

  12. I think you touch on something that is a conundrum for the FIRE movement. FIRE is very much an individualistic journey, but for it to become a true "movement" it has to have wide influences, not only on getting individuals to move forward, but also systematic changes. That is why I have been thinking about writing a post if the FIRE movement needs to do more in terms of financial literacy? I don't know the answer, but it seems to me if we want to live in a better society that we do.

    Moreover, I actually agree with some of your implied solutions here to solve these systematic issues b/c individual responses will not do. For example, lifting the income caps on Social Security will solve the funding crisis for good. That's all you have to do. Increasing the medicare tax from 1.45% to 2% across all incomes will create greater solvency.

    Greater funding for state universities is certainly part of the problem, but we also need to teach kids to pick schools that they can afford (e.g. a private school that they don't need). Now I might be biased because I teach at a state university, but I am a private school kid. I loved my education, but mine was also less expensive than others (a driving factor for me back in 1992 when I started). I have others, but will leave it at that.

    1. Thanks for that comment, Jason.

      Vicki Robbins spoke on the Fairer Cents podcast recently about the need for the FIRE community to be, well, more community minded if it's really going to be a movement.

      Do you have a blog or another place you write? I've clicked on your profile here but didn't find a link. Would love to check it out as you're always such a great supporter here.

      Agree on the changes to Social Security if only to make it at least a little more fair and, yes, to immediately solve the issue. (I have a post on this in the works: the Dem proposal is really disappointing.)

      I certainly agree also that fixing funding to public universities is only part of the solution. Individuals still need to make good financial choices even with good systems around them. It's a point that I didn't make all that well in this post.

    2. I also worked at a state university for almost a decade -- small world!

    3. I do. I blog over at I haven't posted as much in the last couple of months b/c my wife and I just adopted a little baby boy. I am just trying to keep my grading up. My academic writing and my blog writing has suffered. Here is to the summer.

    4. Thanks for sharing that, Jason. Will check out your Jan post.

      And here's to hoping we both can write more this summer.

  13. Hi, I've had this bookmarked for a long time and encourage you to share it with your readers. It's an interactive tool that shows how all different types of changes to Social Security will correct the funding issue. There are many types of things that can be done; basic, easy things. Some politicians act like it's a catastrophe coming. Use this tool and make your own decision.

    1. I will check that out. Maybe I can use it for next week's post!


  14. Not sure what more I can add to such a fascinating comments section. Just keep it up, DBF. I'm rooting for you individually and systemically. :-)

    Side note - I don't think you're an asshole.

    1. You just don't know me well enough. ;)

      Thanks for stopping by, friend.

  15. Your posts are getting better and better. Not much to add really just keep it up! :)