Ray Fisman

The $100 billion in tax breaks granted to holders of 401(k) plans every year may be a big waste of money, said Ray Fisman. Harvard economists looked at data from Denmark and found that a change in the law that sets savings incentives “had scarcely any impact on the rate at which Danes accumulated nest eggs.” Nearly 85 percent of them didn’t put away any more or less than they had before. It’s true that Danes “love herring, rye bread, and socialized medicine in a way that many Americans find puzzling,” but they’re surely no less attentive than we are to pension plans. The study suggests that instead of offering tax breaks to encourage savings, the government should harness “the incredible inertia that seems inherent to the human condition.” Simply establishing a hefty default amount that employees set aside from their monthly paychecks will do more than anything else to promote higher retirement savings. Most people “never get around to changing the amount of their monthly payments.” Nudge people to contribute and we’ll see savings increase. “No government subsidy required.”