May 26, 2009
Judge Sotomayor's Savings
Greg Mankiw (Harvard University, Department of Economics) takes Supreme Court nominee Sonia Sotomayor to task for saving little ($50,000 - $115,000) of her $179,500 yearly salary as a Second Circuit Judge:
I once wrote a short paper called The Savers-Spenders Theory of Fiscal Policy based on the premise that there are two types of people: Some save and intertemporally optimize their consumption plans, while others live paycheck to paycheck, spending their entire income as soon as it's received. Sometimes readers of the paper think of the two groups as rich and poor, but that interpretation is wrong. Some people with low incomes manage to scrimp and save (I always think of my grandmother), and some people with high incomes spend most everything they earn. ...
My grandmother would have been shocked and appalled to see someone who makes so much save so little.
Judge Sotomayor has only roughly $100,000 in savings, but look, she is (I gather) a single woman with no children. She has a life tenured position where her salary is paid by the United States and which she can be fired from only with serious cause. She makes only $179,000 per year but it is as secure as a job can be. She has a generous judicial pension plan that will kick in as soon as she has enough years of service .... [W]hen you take Sotomayor's human capital and circumstances into account, there is nothing wrong with her balance sheet. Sure, she could have another $500,000 tucked away, and that would be nice. But why should she? ... She has a guaranteed job for life with very generous retirement and health benefits, and any day she decides she wants to be a millionaire, all she has to do is pick up the phone. ... I think Mankiw should ease off.
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In NYC, $179,500 is a starvation wage.
Posted by: Jack Bog | May 26, 2009 4:13:34 PM
Professor Mankiw apparently does not know that federal judges do not disclose savings in the Federal Government's Thrift Savings Plan or the value of their primary residence on the required financial disclosure forms.
The instructions state:
You are not required to report:
Investments in the Thrift Savings Plan. Section 102(i)(1)(A).
Any property, real or personal, not held in a trade or business, or for investment or the production of income. As examples, you need not report a private residence or personal automobiles. Section 102(a)(3).
Judge Sotomayer has been a judge since 1992 and may have place a significant amout of money in the TSP. I have no idea if she has invested in purchasing a house, but if she may have significant assets tied up in a home that are not disclosed on the financial disclosure form. One cannot tell the total assets from the FDR.
Posted by: Tommy Miller | May 26, 2009 5:12:09 PM
This is what they're debating? Not her bizarre decision in Rudkin?
Posted by: s | May 26, 2009 5:23:14 PM
In NYC, $179,500 is a starvation wage.
No, it is not. Only for spendthrift Americans who don't know how to manage money.
Live in Queens or Brooklyn, not Manhattan.
Take the subway, not cabs.
Cook at home, and eat out rarely.
There is no city in America were $180,000 (97th percentile of income) is poor. Period.
Posted by: wombly | May 27, 2009 3:06:10 AM
Smith's "defense" amounts to insisting, "She could be prudent if she WANTED to!" Mankiw's point is, "She doesn't want to be prudent, and that tells us something about what kind of Justice she will make, not that she could make if she 'wanted to.'" Mankiw wins.
Posted by: Beldar | May 27, 2009 4:57:10 AM
But I thought Obama wanted somebody with empathy. How can somwone with no need to save any money have any?
Posted by: Jim O | May 27, 2009 10:35:07 AM
Wait a minute! I went to Yale, I have diabetes, and I can't manage my finances either. Does anyone know President Obama's e-mail?
Posted by: mike livingston | May 27, 2009 11:10:39 AM
Brad DeLong noted that the value of Judge Sotomayor's defined benefit pension is about $2.5 Million and that she has $1 Million in equity in her Greenwich Village townhouse. See here: http://snipurl.com/iwvnn [delong_typepad_com]. Not too shabby.
One thing that Mankiw also misses is that Judge Sotomayor is a single woman living in New York City who has, for most of her life, worked in the public sector. That means, in effect, that she has made far less than someone with her ability and training would make at even a lower-tier law firm.
Posted by: Stuart Levine | May 27, 2009 10:48:44 PM