This is a repost from Forbes. 
 
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A new report on retirement security from the Government Accountability Office contains what seems like a stunning finding: 48% of older households have “no retirement savings.” By “no retirement savings,” however, the GAO means only that they have no defined contribution plan, that is, an IRA or 401(k). As the report states in the next couple of lines, some of the 48% have a defined benefit plan (often called a pension). Of Americans nearing retirement, 29% have neither a DB nor a DC plan.

But by not stating clearly the issue about DBs, the new GAO report gave Andrew Biggs at the think tank, AEI, an easy opportunity to score a point in the debate between those who do and those who do not think Americans have enough retirement savings. Despite the GAO's inexact wording, Americans do not have enough retirement savings, even when considering DB plans.

True, if you have a DB benefit with enough years of service, it doesn’t matter so much that you don’t have what the GAO calls “retirement savings” (though even if you have a DB plan you may still need a supplement; some DB income levels are quite low). Everyone has a friend or relative who sacrificed relative wage increases for a generous teacher or union pension that is a lot more secure than someone’s 401(k).

On the other hand, people with lump-sum DC plans for retirement always worry about spending it down too fast—as they should. You need to save about 20% more in a DC plan than in a DB plan just to ensure you have enough money if we live to 90 (though most of us won’t live that long). People with DC accounts should be worried since they don’t have benefits-for-life, the longevity insurance that someone with a traditional plan has. Having a DC plan to insure against living to 90 is like having to fund your own kidney transplant. DB plans have longevity insurance; with DC plans you are on your own.

Although the GAO report is excellent—as are the previous entries in the series—the bigger picture is that the GAO understates the magnitude of the retirement savings crisis. This is because average DC account balances are wholly inadequate. A recent study from my research center at the New School found that the median DC account balance of workers aged 55-64 was $92,000—enough to provide an income of just $300 a month over the course of retirement. Including those with no retirement savings at all, the median account balance is a mere $15,000. 

These numbers make sense in light of the fact that most Americans do not expect to be financially secure when they retire. Stagnating wages make it difficult to save without getting ripped off, and both employers and the government have done next to nothing to help workers. Notably, there is no deep political divide on the issue of retirement income security. Seventy-six percent of Americans are concerned they won’t achieve a secure retirement; those numbers are 78% for Democrats and 76% for Republicans.

The widespread and bipartisan worry could have significant political ramifications, as Rachel Cohen reports in The New Republic:

There are signs that retirement will play a significant role in the 2020 race. In February, Bernie Sanders reintroduced the Social Security Expansion Act, with sponsorships from three other leading Democratic presidential contenders: Cory Booker, Kirsten Gillibrand, and Kamala Harris. They belong to a congressional caucus dedicated to increasing Social Security benefits. Formed last fall, it already has more than 150 Democratic members, and Sanders and Elizabeth Warren, another presidential candidate, are its co-chairs in the Senate.

Why not just expand Social Security to solve the retirement crisis? If we expanded Social Security to provide adequate retirement for the vast majority of Americans, workers' payroll taxes would rise to about 30% of pay—up from around 12% today. Rarely do nations secure pensions for all workers with a just a pay-go system. Nations that achieve widespread retirement security do so with both advance-funded and Social Security-type pensions.

Everyone needs an alternative to the crumbling 401(k) and IRA system, and something more than what is currently being proposed in Congress. An improved U.S. retirement system would mandate contributions, arrange for professionally managed investments, and pay out annuities. Blackstone Executive Vice Chairman Tony James and I have put together such a plan as a supplement to Social Security: Guaranteed Retirement Accounts.

The bottom line is that Americans do not have enough retirement savings. This is not because we drink too many lattes, as financial writer Helaine Olen has argued for many years, but because employers and workers are not required to contribute to retirement savings plans above and beyond Social Security. Many low-income workers once had some retirement security; janitors and ladies garment workers weren’t rich, but they had pension plans at work. Some gig workers, like job-to-job carpenters, also had pensions when they were in a union. What we need today is a portable universal pension system that supplements Social Security.

Some may still deny there is a problem. But the number of poor or near-poor people over the age of 62 is set to increase by 25% between 2018 and 2045, from 17.5 million to 21.8 million. If we do nothing in the next 12 years, 40% of middle-class older workers will be poor and near poor elders.  That is a problem.

This is a repost from Forbes. 
 
New York City, NY, USA - December 3, 2015: Byron Kaplan street coffee cart endorses Bernie Sanders for president.

New York City, NY, USA - December 3, 2015: Byron Kaplan street coffee cart endorses Bernie Sanders for president - GETTY

Americans, as a rule do not approve of people being judged by the color of their skin and the god they worship. So why do we allow prejudgment based on age? Day after day we allow age bigotry to infiltrate the presidential campaigns.   Just five days ago the Washington Post ran an op-ed entitled “Joe Biden and Bernie Sanders are too old to be President." Are Kamala Harris and Cory Booker too black to run? Are Elizabeth Warren, Amy Klobuchar, and Kirsten Gillibrand too female to run?

In her 2016 book Disrupt Aging, Jo Ann Jenkins, dynamic president of the AARP, aimed to challenge what she called outdated beliefs, and others called bigotry, calling out negative stories we tell ourselves and each other about growing older. There was hope the aging of the boomer cohort and the fierce demand for equality among younger people would see shifts in attitudes, behaviors, and culture calling out ageist attitudes that limit people of all ages. Instead, the presidential campaign is becoming fertile ground for the worse kind of ageism , the casual, accepted, unthinking kind.

Researchers at Boston College (Jacquelyn James, Marci Pitt-Catsouphes and Elyssa Besen) using data from the Sloan Foundation anticipated the age bigotry now on the national stage. They found that around the world, older adults being exposed to negative stereotypes and outright discrimination prevents the best from working.  Even worse, negative stereotypes can erode health.  Though negative stereotypes of older workers have in some cases been refuted by empirical data (more later), younger workers (and to my horror, older people themselves) still accept and spread age-based bigotry.  Age bigotry happens when people make claims about the capabilities of older workers because of their age the same way that bigots make claims that women or members of racial minorities are inferior because of their ethnicity and gender.

“Old man,” “gramps,” “geezer”-- degrading terms laid on day after day--have a negative impact on the well-being and the work-related outcomes of older workers. The Boston College researchers found in 2013, using data from the Sloan Center’s Age & Generations study, that negative attitudes toward older workers affected older workers’ engagement with their jobs and ultimately their mental health. This is a narrow study -- as all good studies are -- but the results are a direct link between age-bigotry and productivity.  And as an economist, I keep my eye on productivity.

Decades of research confirms that negative stereotypes about older people are entrenched.  And now, in 2019, the Presidential campaign is bringing the harmful bigotry to the forefront.

We may blithely think age-bigotry only harms Trump, Biden, and Bernie and helps Beto.  But that would be wrong. These celebrities are proxies and the language of the campaign perpetuates false assumptions about older workers’ limitations. How to stop age-bigotry?

Every hire (and an election is a hiring decision) is a judgement about the potential productivity of a candidate. Do we think a candidate will be engaged and enjoy the job? Does the candidate want the job? Will the job give them meaning? Does the candidate have the knowledge and talent to do the work? Those are the relevant questions in every hire and election.

Sanders is 77 and Biden is 76. Actor Glenda Jackson is 82 now playing King Lear on Broadway, a role that Ian McKellen calls “the most difficult thing I’ve ever done.” On the stage Jackson tells us in body and voice that the old can do any work, and a stage actor does it night after night (and twice a day on Wednesdays and Saturdays, with matinees!)-- 3.5 hours each time. And, cleverly, Glenda Jackson’s age becomes part of the play. Lear is a tragedy based on presumptions about age. At the end youth have risen up against Lear – and (spoiler alert!) in doing so youth annihilate themselves in the process. The last line of the play goes to young Edgar "we that are young / shall never see so much nor live so long."

Just drop the ageist bigotry and judge each candidate on their ability to be President of the United States.

This is a repost from Forbes. 
 
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How lifelong inequalities add up is one of the hottest issues in academic gerontology. A new book from Boston University professor Deborah Carr, the editor-in-chief of Journal of Gerontology, provides a much-needed reality check on the nation’s plans for dealing with retirement. Titled Golden Years? Social Inequalities In Later Life, Carr's book brings home a sobering message: Unless we do something about it, healthy retirement will be a reality only for the privileged few.

The seeds of late-life inequalities are planted early on. Childhood personality factors—such as being conscientious or not particularly cheerful—lead to increased life span. But childhood obesity, no surprise, has been linked to bad economic and health outcomes over one's life course. Various studies show that the zip code you were in can help predict longevity. Class differences at childhood also play a role. Between two billionaires living in Greenwich, Connecticut, the one who was poor in childhood is predicted to die first, all else equal.

Retirement inequalities also follow broader socioeconomic cleavages. Having lower levels of education, being black, and growing up in financially struggling families are all linked to adverse consequences in old age. These issues include major health problems, heightened risk of elder abuse, and insufficient income to cover even modest food, housing, and medication costs. Women, even if white and born rich, are especially vulnerable to late-life poverty. These inequalities stem in large part from the fact that the wealth accumulation process does not work for most people. Middle- and lower-income workers face more economic shocks throughout their life, from unstable jobs to family and health problems.

For most people in their sixties, working longer into old age to make up for low incomes may be harder than they hoped when they were younger. Work can be an important source of purpose, social engagement, identity and, of course, income for older adults. But the irony is that older adults who can afford to retire young are precisely the people who can and do work into old age, because they have enjoyed the privilege of good health and hold professional jobs that are a good “fit” for aging bodies. Those who control the pace and content of their work are more likely to enjoy their jobs, to be paid well, and to be able to work into their seventies, even if they have some aches and pains.

Most everyone else, more often with limited or no pensions, can’t afford to retire young. Yet many end up leaving the labor force because their employers don’t want them, their jobs are inflexible, or their jobs require young and vigorous bodies. For instance, Walmart is making its greeters be more active, with tasks requiring stooping and bending—a move that many presume is a way to squeeze out the aged and the disabled.

American retirement policy is built on the notion that everyone should enjoy a healthy, rewarding retirement. Yet back in the 1980s, Steve Crystal and Dennis Shea debunked the idea that life gets more equal and more democratic as we approach the most universal of all life processes, old age. When Social Security was expanding, wages growth was strong and pension programs were more robust, economic inequality narrowed in the US after age 65. Benefit programs replaced labor markets as principal income sources. Yet since the 1980s, inequality has been greatest among the aged. As Boston College economist Alicia Munnell has found, deeper income inequality is awaiting today’s workers when they retire.

Current research at the New School's Retirement Equity Lab finds wealth inequality to be growing immensely. Among workers approaching retirement in 1992, the lowest-earning fifth of the population held only 3% of retirement wealth while the top fifth held 49%. In 2010, the bottom quintile was down to only 1% of retirement wealth, with the top quintile at 50%. Economic advantages and disadvantages create inequality in old age. With no policy to alter the course, inequality among the elderly will only grow.

There is hope, however. Some components of the proposed Social Security 2100 Act, introduced earlier this year by Democrats in the House and Senate, would provide an added boost to low-income older adults by increasing the minimum benefit provided to beneficiaries and raising the annual cost-of-living adjustment to reflect older adults’ outsize medical expenses. That would go a long way in preventing retirees in low-wage work from falling into poverty.

Yet as Carr documents, the picture is not a hopeful one at present. As Carr writes, starkly summarizing much of the current research: “A long, healthy, and prosperous old age is the ultimate reward of economic and racial privilege.”

This is a repost from Forbes. 
 
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wrote yesterday about the uncanny level of agreement I recently witnessed at a gathering of influential economists over the need for a carbon tax. There is widespread recognition in the economics profession that a carbon tax could be an effective tool to fight climate change. The next question is what the policy would mean for businesses and consumers.

The bright entrepreneur would embrace a carbon tax in a heartbeat . Yes, a carbon tax is a tax on sin and aims to reduce carbon generation by lowering consumption. But getting prices right with a carbon tax would also create better investments, steering capital more towards alternative and renewable energy solutions.

Why not just use regulations instead of taxes, like mileage standards for cars? Economists know regulation is complicated. Regulations by nature have to sort between what is a target and what isn’t. The regulatory process contains numerous opportunities for lobbyists to get their particular interest excluded.

Fuel economy standards are a perfect example. The miles-per-gallon rules first applied to motor vehicles in 1978 (Corporate Average Fuel Economy or CAFE) were subject to massive lobbying by automobile companies, who succeeded in having light trucks (mostly pickups) given a lower standard. This exclusion meant less effective reduction of pollution, and also helped feed the growing market share of pickups and SUVs while helping to kill off station wagons and other car models.

Carbon-producing industries have successfully lobbied for lots of benefits, not just reduced CAFE standards for trucks. Despite the logic compelling a carbon tax, the federal government has instead devoted billions of dollars of subsidies to the oil, gas, and coal industries. We could cut a lot of carbon production and help steer investments to alternative energy just by taking away costly tax and regulatory subsidies, forcing fossil fuels to compete more fairly in the market. In the U.S. alone, we spend more than $27 billion annually in subsidizing fossil fuels, mostly through tax subsidies.

It is economically rational for fossil fuel companies to hire expensive lobbyists, provide campaign contributions, and work to capture regulatory agencies. Between 2000 and 2016, the fossil fuel industry spent an estimated $370 million just in federal lobbying. Companies spend so much on lobbying because they see ways to “buy” regulatory advantages. Individual industries care deeply about subsidies, while consumers and voters are focused on other issues economically and politically. Over time, this “rent-seeking” distorts tax and regulatory policy, shaping where investment goes and how political decisions are made. As Nobel laureate Joseph Stiglitz points out, this means that markets are shaped by politics, not economics.

Incidentally, major fossil fuel companies including Exxon Mobil and BP have thrown their support behind the carbon tax, perhaps seeing a way to avoid more costly regulations of their business. But that doesn’t mean they won’t continue to fight for their own privileges

When it comes to ordinary people, taxes are simply unpopular. Gas taxes hit consumers every time they fill up their tank, and they don’t like it. A carbon tax that would affect a much broader range of products could be even less popular. The state of Washington has twice failed to pass a carbon tax by statewide citizen vote. Thus the suggestion, in another part of the letter signed by more than 3,500 economists, that tax revenue be rebated to consumers, who can then use that rebate for their own spending.

Of course, this call to action and taxation by economists doesn’t encompass all economic ideas. Many economists think a carbon tax won’t be enough to halt or limit the increasing damage from carbon. They want more aggressive steps on climate change, including calls for a Green New Deal.

The Green New Deal is more a set of aspirations than a list of specific policies. Its framework aims to deal with two wicked problems: the long term costs of climate change and under-investments in health and education caused by wealth, income, and power inequality. Needless to say, that discussion goes far beyond that of the carbon tax. 

This is a repost from Forbes. 
 
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Last week I met with 25 economists, including a number of Nobel Prize winners, to ponder the next recession. I am sworn to Chatham House rules, so I can’t tell you who was there or what they said. We spoke freely. What did we learn from the last recession? Do governments have the right tools to fight the next one? Fur was flying, as you can imagine. Opinions about interest rates and jailing rogue bankers were all over the place.

But at one point a strange hush and murmuring of agreement came over the group. We all agreed on one thing, one tax that would make the world better: a carbon tax. Right now. Last month, more than 3,500 economists—a record number—signed an open letter calling for a carbon tax to fight climate change. Several of the economists at the meeting told me something to the effect of, “I never signed a letter before but I signed this one.” 

Signers included 27 Nobel Prize winners, the four living former chairs of the Federal Reserve (from Janet Yellen to Alan Greenspan), and all but one of the former heads of the President’s Council of Economic Advisers, Republicans and Democrats alike. (Note: I signed it too!)

Many economists distrust government action and prefer markets to work out problems, so the breadth of agreement on the use of a carbon tax to address climate change is striking and rare. President Harry Truman once asked (perhaps apocryphally) for a one-handed economist who wouldn’t always say, “on the one hand, on the other hand.” But if he were advised on climate change, there wouldn’t be a problem.

Why the agreement between left wing and right wing, downbeat and upbeat, political and non-political economists? In part, the carbon tax letter reflects the virtually unanimous scientific consensus that humans are causing climate change. Reducing carbon will massively limit economic, social, and political disruption. Social and natural scientists stand apart from climate change deniers, like the House Republicans who recently forced adjournment of a hearing on climate denialism. There is virtually no debate among scientists that climate change is caused by humans unleashing carbon and methane.

Calling for a carbon tax follows the very principles taught in Economics 101. Markets fail if prices aren’t right. Much of the price paid for carbon use is paid not by the user but by someone else—other humans besides the users and those not yet born. Fossil fuel use imposes an externality, a problem in which a market transaction occurs but the parties don’t pay or recognize the full cost. If the price is artificially too low, too much will be used. One example is vices like cigarettes and alcohol, whose costs spill over to society. So-called sin taxes on cigarettes and alcohol aim to discourage their use.

A carbon tax is the new sin tax. And economists are on record opposing sin.

This is a repost from Forbes. 
 
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Earlier this week I recounted the strange, sad tale of how Amazon jilted New York City on Valentine's Day, reneging on a promise to build part of its second headquarters in Queens over opposition from community groups and politicians. The actual costs of that decision may never be known. But the public subsidies and handouts that generated such an uproar around Amazon will remain a fixture in local U.S. politics. That might not be such a great thing.

New York wasn't the only suitor for Amazon. Indeed, many cities had offered Amazon more than New York's $3 billion, coming mostly in the form of lowered future taxes. After Amazon dumped New York, New Jersey renewed its $7 billion subsidy offer and other cities among the 20 finalists also held renewed hopes. (These were dashed when Amazon announced they would proceed only with the Virginia project while expanding employment in existing locations, most likely including New York—they just won't build the big new headquarters complex.)

Given the amount of money being thrown at Amazon, and the prevalence of these strategies nationwide, you might think subsidies are effective economic development tools, and that using them to lure new business is an effective growth strategy. But economists of all political stripes disagree; over 20 years ago, mainstream economists at the Minneapolis Federal Reserve called on Congress to ban subsidies and “end the economic war among the states.” The consensus is that firm-specific subsidies are bad policy, draining public coffers while not producing promised benefits. Growth is better enhanced by investments in infrastructure, public education, and other amenities, especially those that can attract a highly-skilled labor force; some economists would add that cities should compete over their general business climate, including taxes and regulation.

Research shows that incentives may have a slight impact on business location decisions in some cases, although they are much less important than labor force quality, reliable public services, and proximity to customers and networks of supporting businesses. A recent comprehensive review concluded that subsidies are “excessively costly and may not have the promised effects,” affirming the long-standing consensus among economists.

Firms—and their location consultants, now a thriving industry—sometimes get deep subsidies in one state, use them up, then move on to another state and repeat the process, in what Greg LeRoy of Good Jobs First (the nation’s leading critic of subsidies) calls “the job-creation shell game.” In 2007, Applebee's restaurants cashed in subsidies and moved their headquarters from one Kansas City suburb to another (both on the Kansas side). Then in 2011 they moved across the state line, still in the Kansas City metropolitan area (and only about one block from Kansas), to get millions more from Missouri on a five-year deal. When the five years were up, having milked everything possible from Kansas and Missouri, the company moved its headquarters to Glendale, California (getting still more subsidies in the bargain).

Why do politicians use subsidies so much, if the research says they don't work? First, many politicians (and the public) continue to believe that subsidies work. Second, even for those who are skeptical of subsidies’ value, there is competition with other jurisdictions. In 2003, Indiana Democratic governor Joseph Kernan (full disclosure: Joe was a friend of mine when I lived in Indiana) justified a multimillion-dollar offer to United Airlines by saying, “I understand the argument that taking jobs away from Boston and putting them here is nationally a zero-sum game… But Indiana, like virtually every other state, is not going to unilaterally disarm.''

So reducing your city’s future revenue may not be worth it, in spite of the glowing promises from politicians, businesses, and consultants. For sure, tax money is better spent on public goods that allow all businesses to grow and attract skilled workers, retain retirees, retrain displaced workers, and help develop more equal economies that increase local buying power. Attracting a big company may be worth it if other knock-on benefits are forthcoming, such as developing an area that otherwise would not be developed, or providing good-paying jobs to poor and excluded workers. But such benefits must be verifiable and payments tied to the verification. For example, Amazon is a dedicated non-union employer. Although New York unions potentially could have broken through and shown that Amazon could live with a union, these kinds of benefits require verification.

Only national policy can block subsidies. Yet subsidies are now so deeply embedded in the DNA of state and city economic development practice that a federal change is very unlikely. Instead, cities and states must become better negotiators and educate their voters as to why subsidies could be a waste of money if not negotiated carefully. Promised benefits must be independently verifiable and periodic payments tied to the verification.

How can cities build their negotiating capacity? The answer is with power. Local groups need to build long-term coalitions advocating coherent and united development strategies, to help counter the pressure companies can and will put on their political leaders. Organizations like the Los Angeles Alliance for a New Economy, itself part of an ongoing coalition in southern California, can point the way for others, with a history of broad alliances, productive negotiations with companies and government, and actual benefits for the workers who need them the most. Otherwise, cities that can't resist giving away their precious tax base will continue to be whipsawed by firms.

This is a repost from Forbes. 
 
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We got left on Valentine's Day. New York City was abandoned by Amazon when the company broke its promises to build its second headquarters in Long Island City, across the East River from Manhattan.  City leaders, advocates, and pundits are still trying to understand what happened. One of the possible explanations is that Amazon always had the upper hand and the city was not able to counter its superior bargaining position. Perhaps Amazon pulled out because it wanted to show that no city, not even New York City, can out-negotiate Amazon.

To review the chain of events: last year the mega-firm, Amazon, launched intense competition between twenty cities who fell all over themselves to be the site of the firm’s second headquarters. Last November the company (cannily, it turns out) split the "HQ2" choosing two winners--New York City and northern Virginia. But on Valentine’s Day this year, Amazon abandoned its plans for New York City, and all of its headquarters investment will happen in one place, northern Virginia, part of the metropolitan area where Jeff Bezos lives.

At the announcement last November of New York's win, city politicians hailed the announcement, with Amazon promising up to 25,000 jobs in New York along with the physical revival of the city’s rundown Long Island City neighborhood.  The city has tried for years to create an office center there to take some pressure off of Manhattan, and as Josh Barro has pointed out, Amazon would have helped jump-start that effort.

In return, the company would have received cumulative tax breaks, making their tax bill around $3 billion less than official rates would generate, along with government development of infrastructure in and around the site.  Mind you, the subsidies were not to be paid in the form of a $3 billion check, a point many critics seemed to misunderstand.  The subsidy was in terms of foregone taxes not collected that otherwise would be there to collect if the company paid its full bill.  So the city was still going to be net positive on revenue. It seemed like a win-win.

But on February 14, after several months of contentious politics, Amazon pulled the plug on New York (the Virginia project will go forward).  Some advocates and politicians celebrated the decision, saying they always thought it was a bad deal. One of those politicians, who was always a critic -- U.S. Representative Alexandria Ocasio-Cortez -- said it was a victory because Amazon lost. She said Amazon's decision to not come was a defeat for “Amazon’s corporate greed, its worker exploitation, and the power of the richest man in the world.”  New York’s Mayor Bill DeBlasio, who enthusiastically sought the project from the beginning and celebrated the win, reversed course and implied that Amazon acted in bad faith when he said, Amazon “took their ball and went home.”

But Governor Andrew Cuomo, the main supporter of the project, called Amazon’s withdrawal “the greatest tragedy that I have seen since I have been in government,” dismissing political opponents as “ignorant.” Labor leaders and people yet to be heard from seem to be more on the side of Cuomo's view than AOC's.  And critics are asking what the opposition's plan is for putting 25,000 high-paying jobs in Long Island City.

Opposition centered around the tax subsidies, which some opponents seemed to misunderstand.  New York was not proposing to give Amazon $3 billion in cash, but to lower future taxes, saving the company money.  This type of subsidy—although not at this scale--is common practice in state and urban economic development, and $900 million of New York City's share was not discretionary--it would have tapped an existing as-of-right program available to any firm that creates new jobs.

New York is licking its wounds, and politicians are circling each other, trying to assign blame.  The jobs lost are enormous, along with the potential jump-start to office development outside of Manhattan.  Although some on the left see Amazon's departure as a victory, we don't yet have enough information to assess the costs versus the benefits.