The key to fixing the sour U.S. economy could be in the hands of the consumers.
Americans may need to increase consumption to help solve America’s current economic problems, said Roger Ferguson, the president and CEO of the Teachers Insurance and Annuity Association-College Retirement Equities Fund.
“I don’t know how we can get out of this without having inflation four of five years down the road,” he said.
Ferguson discussed the limping economy and sinking retirement funds in the Old Capitol Senate Chambers on Wednesday as a part of the UI’s Howard R. Bowen Lecture Series.
TIAA-CREF was a Fortune 100 company in 2008. Ferguson said the organization, which helps individuals and institutions meet financial needs, has remained successful during the economic crisis because employees prosper when the company does.
“We have a base salary and a variable compensation,” he said. “It is performance-driven.”
Despite the country’s weak financial situation, he said, he remains optimistic about the future.
“The U.S. economy is very resilient,” Ferguson said. “Within a couple years, those out of work now will find new jobs and start their own businesses.”
UI first-year M.B.A. student Anil Ramchandani — one of the roughly 60 people at the lecture — said his goal to start a business may be deferred until the economy strengthens.
“I would wait to start my own business,” he said. “After five years, things may be slightly improved.”
One of Ferguson’s ideas on how to revitalize the economy is to keep tabs on executive compensation.
Ramchandani agreed, saying overpaid company leaders could be hurting already poor economic conditions, and shareholders should have more influence on keeping their salaries in check.
Ferguson noted that the United States’ current 401K plans — a system that allows workers to save for retirement while deferring income taxes on the saved money — are not producing sufficient retirement savings.
He said he thinks the U.S. needs a retirement system that includes new savings vehicles and gives better portfolio advice to Americans.
“We need automatic enrollment savings,” he said, referring to a system in which companies automatically sign employees up for their 401K plans.
According to a 2008 McKinsey Global Institute study, two-thirds of Americans between the ages of 54 and 63 have not accumulated enough money for retirement.
“What people need is a portfolio explaining how their retirement will unfold,” Ferguson said.