Quotulatiousness

May 30, 2013

Latest EU legal move may drive support to UKIP

Filed under: Britain, Europe, Law — Tags: , , , , — Nicholas @ 08:13

Mats Persson explains why Nigel Farage and UKIP may see a spike of support when the latest legal challenge gets going:

The European Commission will today take the UK to the European Court of Justice — the body meant to police the EU treaties — over its rules on EU migrants’ access to benefits. The Commission says the UK’s so-called “right to reside” test — a filter used to make sure that EU migrants are eligible to claim benefits — is illegal under EU law as British citizens pass it automatically. The UK Government is disputing this claim saying it is clear that the UK rules “are in line with EU law.” In other words, the folks in Brussels are about to throw a hand grenade into the already red-hot domestic EU debate.

The legal details around this case are hugely complex as are the rules governing EU migrants’ access to benefits […] But essentially, this is about the EU’s one-size-fits-all model sitting poorly with the UK’s ‘universalist’ welfare system, which is largely made up of means tested benefits rather than contribution-based benefits — unlike many other systems in Europe. The UK government feels it needs a filter — practically and politically — to make sure migrants come here to work rather than to claim benefits. Legally this is a grey area but it’s clear that the Commission is taking the strictest interpretation.

As I’ve argued before, claims that EU migrants come here in droves to claim benefits are widely exaggerated — and free movement of workers has been largely beneficial for the UK and Europe. However, it’s clear that the combination of immigration, Europe and benefits is one of the potentially most toxic ones in modern day politics, so needs to be treated with kid gloves. Even if all the evidence suggests EU migrants are less likely to claim benefits than British citizens, the perception of “benefit tourism” is still absolutely explosive.

May 17, 2013

Zoe Fairbairns’ Benefits

Filed under: Books, Britain, Media — Tags: , , , , — Nicholas @ 07:55

Neil Davenport talks about the recent re-publication of Zoe Fairbairns’ dystopian feminist novel, Benefits:

Written in the febrile political atmosphere of late-1970s Britain, Benefits is about a future state’s sinister attempts to control women’s fertility, and to encourage responsible parenting, through the introduction of a universal ‘wages for housework’ benefit.

Although rarely out of print since it first appeared in 1979, Benefits has recently been re-issued, with a new introduction by Fairbairns, for the e-reader age. It is now being marketed as a political attack on ‘anti-welfarist Tories’, yet as Fairbairns points out, anyone who views Benefits as simplistically ‘anti-Thatcherite’ is missing its key point: that welfare benefits can become a weapon of social engineering and control. On top of critiquing aspects of welfarism, Benefits lays into radical feminism’s self-defeating slogan, ‘The personal is political’, while passionately championing women’s liberation and equal rights — feminism’s one-time aims.

Like many dystopian novels, Benefits is rooted in the fears, the panics and the politics of the period it was written in. So although it is set in the dying days of the twentieth century, it rather charmingly echoes the late 1970s: all tower-block grime; politico slogans on walls; squats; communes; poorly designed radical pamphlets. It also speaks to the more alarmist rhetoric of that period of the mid- to late 1970s. From ecologists predicting Europe-wide famine to the New Right’s panic over single mothers to respectable racists complaining about ‘coloured immigration’, the political feeling in Benefits is unmistakably mid-Seventies.

[. . .]

Equally prescient in Benefits is the way its fictional state believes that ‘poor parenting’ can have a corrosive impact on the individual and society; this has become an unquestioned orthodoxy today.

Many dystopian novels hint at a future in which pornography has become staple entertainment. Benefits does that, too, and this also speaks to the reality of twenty-first-century life, especially to today’s increasing separation of sex from genuine intimacy (it talks about ‘all that sex and no babies’).

In Fairbairns’ nightmare vision, women who want to receive benefits must undergo ‘a programme of education for motherhood’. This sounds suspiciously like parenting classes, which are increasingly common today, especially for poorer families, or what David Cameron calls ‘chaotic families’. Also, in imagining a future in which parenting is redefined as a ‘national service’, Benefits hints at today’s creeping nationalisation of individual families. The novel even features a supra-sovereign state called Europea, where British politicians willingly offload their own parliamentary responsibilities. Sound familiar?

April 28, 2013

Denmark re-thinks their generous social support system

Filed under: Economics, Europe, Government — Tags: , , — Nicholas @ 11:52

Denmark has a very liberal approach to welfare and social services … perhaps too liberal:

It began as a stunt intended to prove that hardship and poverty still existed in this small, wealthy country, but it backfired badly. Visit a single mother of two on welfare, a liberal member of Parliament goaded a skeptical political opponent, see for yourself how hard it is.

It turned out, however, that life on welfare was not so hard. The 36-year-old single mother, given the pseudonym “Carina” in the news media, had more money to spend than many of the country’s full-time workers. All told, she was getting about $2,700 a month, and she had been on welfare since she was 16.

In past years, Danes might have shrugged off the case, finding Carina more pitiable than anything else. But even before her story was in the headlines 16 months ago, they were deeply engaged in a debate about whether their beloved welfare state, perhaps Europe’s most generous, had become too rich, undermining the country’s work ethic. Carina helped tip the scales.

[. . .]

Students are next up for cutbacks, most intended to get them in the work force faster. Currently, students are entitled to six years of stipends, about $990 a month, to complete a five-year degree which, of course, is free. Many of them take even longer to finish, taking breaks to travel and for internships before and during their studies.

In trying to reduce the welfare rolls, the government is concentrating on making sure that people like Carina do not exist in the future. It is proposing cuts to welfare grants for those under 30 and stricter reviews to make sure that such recipients are steered into jobs or educational programs before they get comfortable on government benefits.

Officials have also begun to question the large number of people who are receiving lifetime disability checks. About 240,000 people — roughly 9 percent of the potential work force — have lifetime disability status; about 33,500 of them are under 40. The government has proposed ending that status for those under 40, unless they have a mental or physical condition that is so severe that it keeps them from working.

April 6, 2013

The old class system and the modern welfare state

Filed under: Britain, Bureaucracy, Government — Tags: , , , , , — Nicholas @ 09:34

A majority of Britons who are on state assistance now believe that the system is too generous and discourages recipients from seeking jobs:

In 2003, 40 per cent of benefits recipients agreed that ‘unemployment benefits are too high and discourage work’; in 2011, 59 per cent agreed. So a majority of actual benefits recipients now think the welfare state is too generous and fosters worklessness. Surely those well-off welfare cheerleaders, when shown these figures, would accept that perhaps they don’t know what they’re talking about. But no, they have simply come up with a theory for why the poor are anti-welfare: because they’re stupid.

Even more resented than those who abuse the system are those who run it:

Working-class mothers hated the way that signing up for welfare meant having to throw one’s home and life open to inspection by snooty officials, community health workers and even family budget advisers.

They didn’t want ‘middle-class strangers’, as they called welfare providers, ‘questioning them about their children’. They felt such intrusions ‘broke a cultural taboo’.

And the use of welfare as a way of allowing society’s ‘betters’ to govern the lives of the poor continues now. Indeed, today’s welfare state is even more annoyingly nannyish than it was 80 years ago.

As the writer Ferdinand Mount says, the post-war welfare state is like a form of ‘domestic imperialism’, through which the state treats the poor as ‘natives’ who must be fed and kept on the moral straight-and-narrow by their superiors.

Mount describes modern welfarism as ‘benign managerialism’, which ‘pacifies’ the lower orders.

Working-class communities feel this patronising welfarist control very acutely. They recognise that signing up for a lifetime of state charity means sacrificing your pride and your independence; it means being unproductive and also unfree.

April 3, 2013

They “held the kind of attitudes that make the Daily Mail‘s headlines look positively Left‑wing”

Filed under: Britain, Economics, Government, Media — Tags: , , , — Nicholas @ 09:47

Brendan O’Neill on the vast gulf between the bien pensant supporters of Britain’s current welfare system and those who actually depend on that system:

Comfortably off liberal campaigners are always bemused to discover that the working classes and poor do not share their love of the welfare state. Where radical middle-class students bravely spend bitterly cold evenings on pro‑NHS demos, and Left-leaning newspaper columnists write heartfelt articles about the importance of maintaining welfare payments, the less well-off seem totally unmoved by cuts to welfare.

[. . .]

Agreement that “unemployment benefits are too high and discourage work” has risen steadily among the less well-off. Only 40 per cent of benefits recipients agreed with it in 2003, while in 2011 59 per cent did. Thirty-eight per cent of working-class respondents agreed in 2003 that welfarism discouraged work; 58 per cent agreed in 2011.

The lack of love for the welfare state among its supposed beneficiaries drives liberal campaigners nuts. Why, they wail, are those on the breadline so down about the glorious postwar system of welfarism, even though it has saved their ungrateful rumps from destitution?

In Monday’s Guardian, columnist John Harris, who regularly travels around Britain to find out what the little people think, bemoaned the fact that anti-welfare “noise” always gets louder “as you head into the most disadvantaged parts of society”. This echoes a recent Guardian editorial which complained that ordinary Brits have become “more Scrooge-like” towards welfare claimants.

Or behold the bamboozled Joseph Rowntree researcher Fern Brady, who was horrified to discover that the less well-off are not remotely “pro-welfare”. Earlier this year, Ms Brady interviewed 150 families who will be affected by benefits cuts and was alarmed to find that “the majority held the kind of attitudes that make the Daily Mail‘s headlines look positively Left‑wing” — that is, they were anti-welfarism, and stingingly critical of those who claim welfare, even though they themselves claim it.

February 20, 2013

Incentives matter (a lot) — the growth of “Disabled America”

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 09:40

Colby Cosh discusses the rise and rise of “Disabled America”, the increasing number of adults of working age who are claiming disability support:

Just looking at fiscal and demographic stats from California will cause a cold, invisible hand to clutch at one’s throat, but talking to an endless series of seemingly able-bodied people who casually disclaim any capacity for honest work is even more chilling. When I got home I found out it’s not just California’s problem. In the OECD’s 2010 “Going for Growth” report, the percentage of the working-age labour force (20 to 65 years) receiving any kind of disability benefit or worker’s compensation is estimated at around 5.1 per cent for Canada. For OECD nations as a whole, the figure is 6.7 per cent.

Northern European welfare states, amiright? But for the super-competitive U.S.A., land of the proudly threadbare social safety net, the number was 9.2 per cent.

[. . .]

There is a handful of economists working on the problem without ever gaining much traction in the popular press; the atmosphere of general crisis hasn’t made it any easier for them to be heard. Reading their papers and seeing them plead for the same reforms every few years is almost as depressing as contemplating Disabled America itself. Just as social security for the aged was devised at a time when workers could expect only a few years of life after clearing 65, social security for the disabled was conceived at a time when manual labour was the norm and “disability” denoted identifiable, incapacitating physical injury. No one envisioned a world in which clerical and “knowledge” work had taken over, but the number of people judged totally unable to work had skyrocketed, owing to vague musculoskeletal disorders, unverifiable chronic pain and an astronomical expansion in the definitions of mental illnesses.

If the system is set up to provide more income through disability payments than through a paying job, there will be a tendency for minor ailments to be parlayed into a disability. When the incentives are rigged to encourage a certain kind of behaviour, people will adapt to take advantage of those incentives. If the system will effectively reward you for being “disabled”, it should be no surprise that we get more people applying for disability support.

Even if the economic climate was better, it’s not likely that governments will crack down on those abusing the system for a couple of solid reasons. First, it’s a public relations nightmare waiting to happen and every government worker knows that you never want your name to appear in the media in this kind of context. Second, people on the disability programs don’t count as unemployed and therefore reduce the pressure on the government to “do more” about jobs. And third, it’s easier to just go with the flow and not try to create any ruckus.

September 28, 2012

Defending the welfare state … badly

Filed under: Bureaucracy, Europe, Government — Tags: , , , , — Nicholas @ 08:27

At sp!ked, David Clements reviews a new book by Asbjorn Wahl which inadvertently exposes some of the very real problems of the modern welfare state in the process of praising and defending it:

Asbjorn Wahl is a trade unionist, director of the Campaign for the Welfare State and Norwegian. While you shouldn’t judge a book by the biog of its author, far less his nationality, it is fair to say that when I opened his new book, The Rise and Fall of the Welfare State, I wasn’t expecting much.

He begins, as all defenders of the welfare state must, with a bleak account of the public; that is, of the welfare state’s helpless, vulnerable clients and potential clients. There is a ‘feeling of powerlessness and apathy among people’, says Wahl, a feeling of ‘tragic stories’ too numerous to mention. As well as discovering an ‘unexpectedly large number… of victims of workfare’, he finds other people suffering ‘bad health and ever-more demanding work’. He tells us ‘stories of people who struggle with their health, then their self-confidence and their self-image’. As I heard a man on a picket line tell a Sky News reporter recently, everyone is ‘sick and tired of being sick and tired’.

[. . .]

Wahl is critical of both the anti-democratic tendencies of the European Union and the imposition of the ‘economic straitjacket’ resulting from the attack on living standards in the Eurozone periphery countries. But his call for the ‘stimulation of the economy, investment in infrastructure and in productive activities’ can hardly be taken seriously given his doubts about the benefits of economic growth. While attempts by Europe’s governments to counter the financial crisis, and in so doing to create public debt crises, have, as Wahl says, been ‘exploited as an excuse to make massive, intensified attacks on the welfare state’, this does not in itself invalidate the attack. His view that capitalist excess is responsible for all of Europe’s ills is also his blind spot when it comes to seeing the damage done by an increasingly therapeutic welfarism. In truth, the welfare problem is not something dreamt up by neoliberals (whoever they are). Rather, it is symptomatic of a political culture that robs people of their agency, something that you might expect somebody like Wahl to be opposed to. Far from it. ‘Good social security’, he says, ‘gives people that much-needed self-confidence boost that enables them to become active players in society’.

As this back-to-front and patronising rationale makes clear, today’s welfare state infantilises people. It tells them that they are too damaged to function without its official hand-holding and belittling interventions. Any ‘progressive’ movement would surely endorse the contrary view that people should be treated as morally independent beings, responsible for their own actions? But to say as much is to invite the charge that you are horribly right wing and endorse ‘welfare-to-work’ policies (which, incidentally, sound rather more like the unforgiving and austere welfare state envisioned by its founders than that proposed by its supposed critics).

June 18, 2012

Who’s afraid of austerity?

Filed under: Economics, Europe, Government, USA — Tags: , , , , — Nicholas @ 08:17

At the BBC News website, Niall Ferguson on why young westerners should welcome austerity:

The heart of the matter is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn.

In this regard, the statistics commonly cited as government debt are themselves deeply misleading, for they encompass only the sums owed by governments in the form of bonds.

The rapidly rising quantity of these bonds certainly implies a growing charge on those in employment, now and in the future, since — even if the current low rates of interest enjoyed by the biggest sovereign borrowers persist — the amount of money needed to service the debt must inexorably rise.

But the official debts in the form of bonds do not include the often far larger unfunded liabilities of welfare schemes like — to give the biggest American schemes — Medicare, Medicaid and Social Security.

The most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly thirteen times the debt as stated by the U.S. Treasury.

Notice that these figures, too, are incomplete, since they omit the unfunded liabilities of state and local governments, which are estimated to be around $38 trillion.

These mind-boggling numbers represent nothing less than a vast claim by the generation currently retired or about to retire on their children and grandchildren, who are obligated by current law to find the money in the future, by submitting either to substantial increases in taxation or to drastic cuts in other forms of public expenditure.

[. . .]

It is surprisingly easy to win the support of young voters for policies that would ultimately make matters even worse for them, like maintaining defined benefit pensions for public employees.

If young Americans knew what was good for them, they would all be in the Tea Party.

A second problem is that today’s Western democracies now play such a large part in redistributing income that politicians who argue for cutting expenditures nearly always run into the well-organised opposition of one or both of two groups: recipients of public sector pay and recipients of government benefits.

May 2, 2012

Demographics as destiny: China’s coming population bust

Filed under: China, Economics, India, USA — Tags: , , — Nicholas @ 08:00

Ramesh Ponnuru hits many of the same points that Mark Steyn has been making for the last several years, only he’s cut out all the jokes:

Today’s most important population trend is falling birthrates. The world’s total fertility rate — the number of children the average woman will bear over her lifetime — has dropped to 2.6 today from 4.9 in 1960. Half of the people in the world live in countries where the fertility rate is below what demographers reckon is the replacement level of 2.1, and are thus in shrinking societies.

[. . .]

As Eberstadt points out, we can make predictions about the next 20 years with reasonable accuracy. The U.S.’s traditional allies in western Europe and Japan will have less weight in the world. Already the median age in western Europe is higher than that of the U.S.’s oldest state: Florida. That median age is rising 1.5 days every week. Japan had only 40 percent as many births in 2007 as it had in 1947.

These countries will have smaller workforces, lower savings rates and higher government debt as a result of their aging. They will probably lose dynamism, as well.

[. . .]

The Census Bureau predicts that China’s population will peak in 2026, just 14 years from now. Its labor force will shrink, and its over-65 population will more than double over the next 20 years, from 115 million to 240 million. It will age very rapidly. Only Japan has aged faster — and Japan had the great advantage of growing rich before it grew old. By 2030, China will have a slightly higher proportion of the population that is elderly than western Europe does today — and western Europe, recall, has a higher median age than Florida.

H/T to Jon, my former virtual landlord, for the link.

February 25, 2012

Burger King latest corporation to pull out of UK work experience program

Filed under: Britain, Bureaucracy, Economics, Government — Tags: , , , , , — Nicholas @ 10:14

The British government’s work experience program for unemployed would-be workers loses another employer:

The fast food giant said it had decided to cease its involvement in the Get Britain Working programme because of recent concerns expressed by the public.

The scheme has attracted growing criticism in recent weeks with opponents describing it as a form of slave labour because young people worked for nothing, while keeping their benefits.

Burger King said it had registered for the programme six weeks ago intending to take on young people for work experience at its Slough headquarters, but had not recruited anyone.

It sounds like the program was well intended — allowing people without work experience to at least have something to put down on a resumé — but fails the PR test because the corporation is seen as “getting work for nothing”. And, without a doubt, some corporations will use the program in exactly that way. Despite that, on balance it seems that the potential benefit to young entrants to the work force is greater than the actual benefit to the companies that get that “free labour”.

The value of that “free labour” may well be lower than the costs to the employer for training them: new employees with no marketable skills are not the bonanza of profit that some seem to think that they are. Some people I worked with early in my working life could be proven to be a net loss for months after hiring …

February 13, 2012

SSDI “has transcended the usual ideological boundaries (as it was designed to do right from the start) and made tens of millions of Americans into wards of the state”

Filed under: Bureaucracy, Government, USA — Tags: , — Nicholas @ 11:38

Monty’s Daily DOOOOOM post at AoSHQ discusses the Social Security Disability Insurance program:

The SSDI component of Social Security is a perfect snapshot of how the welfare state both bankrupts and demeans our society. The program was meant to provide for people who were physically unable to work, but in practice it is simply another vast government program that can be gamed and cheated to provide a paycheck for no work at all. This is the welfare state in all its bureaucratic, amoral, spendthrift glory: rather than helping a relatively few who really need it, it instead enables millions of the able-bodied to avoid work. (Whatever you subsidize, you get more of. If you subsidize unemployment, you’ll get more of it.) Samuelson does a good job of explaining why this program will so hard to reform in any meaningful way, too:

    For starters, any crackdown could become a public-relations disaster. It might seem gratuitously cruel. Many recipients command sympathy. With low skills, their jobs prospects are poor. “People are driven into the program by desperation,” says Autor. Nor are they rolling in money; the average payment is about $14,000 a year.

Any attempt to tie off this spouting artery will bring howls of outrage, and not just from the left. To a large extent the welfare state has transcended the usual ideological boundaries (as it was designed to do right from the start) and made tens of millions of Americans into wards of the state. The end of the welfare state means the end of their monthly checks; it means the end of the “free” money they’ve been getting. Young or old, rich or poor, sick or healthy: it takes a rare soul to forgo “free” money in the face of some purely theoretical economic emergency. The welfare state will continue until this nation fails because, deep down, Americans don’t really want to give it up. Americans still — mostly — feel that if we just tweak this knob that way and pull that lever just so, it will all come out okay. It’s not so much good old American optimism as it is a deep and inchoate terror: the instinct of many an animal in dire peril is neither to fight nor run, but to crouch trembling where they are and pray that the danger passes them by.

January 4, 2012

A call to reform the welfare state … from the pages of the Guardian

Filed under: Britain, Economics, Government — Tags: , , , , — Nicholas @ 09:27

Brendan O’Neill links to Liam Byrne’s column in the Guardian, suggesting not only is Byrne right, but that he doesn’t go far enough:

The Left won’t thank him for it, but in the Guardian Liam Byrne has tried to kickstart a potentially interesting debate about the welfare state. For many well-off Liberal commentators — who, notably, have no interaction with the welfare state, except in the sense that buddies of theirs probably manage huge chunks of it for a fat wage packet — the welfare state is a sacred thing and criticism of it is the equivalent of blasphemy. Yet Byrne surely has a point when he says the welfare state is in need of “radical reform” and we should seriously explore how to get “communities working again”. Indeed, I would go further and say that the expansion of the welfare state into more and more areas of less well-off people’s lives is one of the worst developments of recent years, seriously zapping resourcefulness and social solidarity from working-class communities.

Byrne’s mistake is that he seems motivated by a narrow desire to save the state money. The financial cost of social welfare is “simply too high”, he says, and we should “bring down [the] benefits bill to help pay down the national debt”. That is a Scrooge’s approach to the problem of the welfare state. The really terrible cost of ever-expanding welfarism is measured not in cash, but in the impact welfarism has on working communities, on those who have been made increasingly reliant upon the charity, largesse and therapeutic meddling of the massive and monolithic welfare machine. Relentless financial and therapeutic intervention by the state into poor people’s lives has, not surprisingly, had a pretty devastating impact both on social interaction and individual aspiration.

When people come to be more reliant on the state than they are on each other, community bonds fray and social solidarity falls into disrepair. When the struggling mum looks to the state for help, rather than turning to family, friends, neighbours, the end result is that she becomes more isolated from her community. When a 17-year-old school student short of cash turns to the state for a weekly handout, he never really develops skills of self-sufficiency or dependency on friends and neighbours.

October 16, 2011

“We have reached a point where the average earnings of a two income family can barely support the spending of government”

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 11:38

Canadians have an addiction problem. They’re addicted to government:

Consider the following:

  • The Government of Saskatchewan alone spent over $11 billion last year (April 2010 to March 2011) to provide services for its citizens. That works out to nearly $11,000 for every man, woman, and child in the province, or $44,000 for a family of four.
  • The average wage for a person in Saskatchewan is about $44,000/year.
  • If the provincial government relied solely on the income tax of its citizens, then a family of four would have no choice but to have both parents work . . . one to provide for the family and one to provide for the government.

Now consider what other levels of government spend.

  • At the municipal level, the City of Regina has an operating budget of about $2500/person. Federally, the Government of Canada spends about $8,000/person.
  • All together our three levels of Government spend over $21,000/person . . . or $84,000 for a family of four.

We have reached a point where the average earnings of a two income family can barely support the spending of government . . . let alone pay for food, clothing, and shelter for themselves and their children.

The reality is that “free” public services come with a cost . . . and these costs increase as we demand more “free” stuff.

One of the truths about addictions is that they require larger and larger “hits” . . . that provide ever smaller and smaller “highs”. This results in people either becoming so dependent on the substance that they cannot function without it . . . or they pursue the addiction to its ultimate conclusion, an overdose.

H/T to Katewerk for the link.

October 11, 2011

What the “Occupy #LOCATION” folks should really be protesting

Filed under: Economics, Liberty, Politics, USA — Tags: , , , , , , — Nicholas @ 12:09

Caroline Baum puts her finger on the real looming crisis that the folks out in all the various Occupy Wall Street/Bay Street/Seattle/Edmonton gatherings should really be agitating about:

Oh, sure, some protesters have posted lists of pie-in-the-sky demands. (The occupywallst.org website insists there is no official list of demands.) One of these includes a $20 minimum wage regardless of employment, tariffs on all imports, trillions of dollars in new spending on alternative energy and infrastructure, and debt forgiveness — all debt “on the entire planet.”

In other words, lots of benefits and no consideration of the cost. You’d think one of these kids — and that’s how they come across — would have taken an economics course along the way. Where do they think the government gets the money for its largesse? Imposing usurious taxes on the top 1 percent of earners won’t yield enough money to provide for the other 99 percent. (One of the protesters’ slogans is, “We are the 99 percent that will no longer tolerate the greed and corruption of the 1 percent.”)

It’s not as if young adults couldn’t find good targets for their anger. If these protesters are looking for something to get exercised about, they might want to wander into Chris McHugh’s Monetary Economics class at Tufts University in Medford, Massachusetts, and learn about “generational economics,” the idea that government is going to stick the younger generation with the bill for supporting the retiring baby boomers. McHugh asked his students to identify grass-roots youth groups that are agitating about this, but all they found were a couple of minor groups that tended to be Tea Party and Ron Paul spinoffs.

Talk about haves and have-nots. The debt burden that the younger generation is staring at almost guarantees it will have a reduced standard of living. After all, if more dollars are directed at keeping Granny alive until age 102, that means fewer dollars for productivity-enhancing investments.

This idea clearly hasn’t resonated with today’s youth.

Maybe that’s because the numbers — tens of trillions of dollars in unfunded Social Security liabilities, for example — are hard to fathom. It’s much easier to vent their anger at bank bailouts and preferential treatment for corporate interests, much of which is justified. They seem to be ignoring Capitol Hill, where the rules are made by our bought-and-paid-for government.

September 11, 2011

The Canada Pension Plan and moral hazard

Filed under: Cancon, Economics, Government — Tags: , , , , — Nicholas @ 11:37

An interesting post at Worthwhile Canadian Initiative looks at the overlooked failure in pension markets. I found this bit of information to be quite interesting, as it addresses a conversation I had with Dark Water Muse a few months ago:

Governments provide pensions in one of two ways. Pay As You Go (PAYG) plans use current contributions to fund current benefits. The Canada and Quebec Pension Plan were, when they were first introduced, PAYG plans. The moral hazard risk a worker faces with these plans is political: a politician will design the plan so as to maximize his or her chances of re-election.

The design of Canada and Quebec Pension Plan has created large benefits for the first generation of recipients (current voters) and a much lower rate of return for future recipients (future voters). Now those gainers were the generation that entered the labour market in the Great Depression and fought in World War II, so one could argue that the windfall gain they experienced was merited on equity grounds. The point here is merely that the design of PAYG pension plans reflects the interests of the designers (for re-election) as well as the interests of the contributors and recipients.

The Canada and Quebec Pension Plans are now transitioning into fully-funded plans. The Canada Pension Plan Investment Board was, as of June 30th 2011, managing $153 billion in assets. Some is managed directly by the board, the rest is managed by “partners” ranging from Istanbul-based Actera Group to New York-based Welsh, Carson, Anderson & Stowe. I suspect that the CPP, roaming the world with billions to invest, is able to negotiate low management fees, and there must be savings associated with economies of scale in investing. But the possibility of moral hazard — someone getting rich by diverting away a tiny percentage of the return on $153 billion, or a politician exerting pressure on the CPP investment board to make electorally-sound investments — remains.

In sum, while private pension markets suffer from moral hazard, it’s not clear that governments can solve the problem.

In my discussion with DWM, I claimed that the CPP was a PAYG system (in extreme examples, like the US social security system, this can be compared to a Ponzi Scheme), while DWM — claimed that the system was fully funded from investments. As the quoted section above shows, we each had part of the answer.

It’s hard to believe that the CPPIB (the organization that handles the investments of the CPP) can remain immune to government meddling — buy this company’s stock, invest in that company’s risky-but-located-in-a-marginal-riding new venture, etc. As long at the CPPIB can remain independent of political pressure, the system might work.

« Newer Posts — Older Posts »

Powered by WordPress