It’s time for another Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.
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John Quiggin 
In the days of defined benefits the employers carried the risk. It is true that with the advent of accumulation schemes investors of those funds exchanged clients with some expertise and realistic expectations for millions of rank amateurs who were neither expert or realistic. Inevitably, some fund operators attempted to profit from this state of affairs by hyping their ability to maximise returns. The heavy weighting of equities in the default option is one consequence of this hyping.
Tom @39 – with this government no, a Rudd government possibly. However, currently it would be a great time to try an re-nationalize the utilities or at least sell the idea.
Freelander @41 – a tit for tat plan would be easy to sell, just gaining the funds would be quite tricky with the Australian people so focused on returning to surplus. Not sure people would like to spend.
Are Australians really focused on returning to surplus? Personally, I couldn’t care less. Stupid politicians have been rabbeting on about it as though it is somehow important, and the ignoratti will probably pick up on that.As for average Australians I doubt they care, but on both sides, given that their leaders are giving it undue emphasis, followers will barrack and the issue will become important and unimportant for one side and the other depending on the outcome.
@Freelander
No idea what the electorate thinks about a surplus at the moment, but household savings levels are supposed to be atypically high at the moment (as of recently anyway), so the general sentiment might be there to tighten up at all levels. Of the 3 things our Prime Minister appears to care about (literacy, numeracy and the economy) , she appears convinced that delivering a surplus will provide the ALP with bundles of economic cred.
The Labor government is flailing about in search of something — anything — to headline its forlorn effort to avoid electoral annihilation.
Drowning man, meet straw.
@Katz
The idea of securing income after retirement via the financial markets needs re-examining.
Obviously, a necessary condition for any portfolio of financial securities to serve as a means of transferring wealth in a meaningful way over time depends on the monetary payoff of the financial securities in relation to the monetary cost of consumables at that time (eg in retirement). This necessary condition depends on what the young generation is doing when those who hold their savings in the form of financial securities retire. Alternatively put, the crucial factor is an intergenerational dependency.
The question now arises: Why bother going via the financial market instead of finding a taxation system which achieves intergenerational wealth transfers, excludes the examples of rent seeking, exploitation of information asymmetries and worse, you have mentioned, and allows young people to start their working life without debt incurred while studying?
Interesting question, EG. It strikes at the heart of the nature of our civil society.
The social democratic ideal of cradle to grave became the aspiational model in the era after WWII. Evidently, even in the most enthusiastic social democratic societies, the model was only ever partially enacted. Moreover, since the 1970s, this model has come under attack, first in the wake of the collapse of the Bretton Woods system and then by virtue of voters turning against parties that adhered to the social democratic consensus. Chasing votes, these social democratic parties have changed their tune. This is the politico-cultural setting in which the current superannuation system worldwide arose.
Now let us look at preferred options from the point of view of citizens. They ask themselves, “How do I fund my retirement?” If I pay taxes now, will a viable and sympathetic state still exist when I come to withdraw a pension? Or are the financial markets a more secure repository of my post-retirement hopes? If you were a German, you might answer one way. If you were a Greek you might answer in another way. Australia inhabits the space between Germany and Greece. How trustworthy are Australian social security institutions? Are they more or less dependable than global financial markets? The answer is not clear and any answer is debatable.
Essentially, I agree with Ernestine’s final position re securing income after retirement. I am not sure I agree with all her reasoning on the way through but I agree with the destination. The idea of securing income after retirement via the financial markets does need re-examining. Clearly the push to financialise, marketise and privatise retirement income was a neoliberal, neoconservative push to effect a wealth transfer from social or common wealth to private wealth. This push was and is entirely consistent with the general neolib program (as per the Adam Smith Institute’s original Omega Project) to minimise the legitimate area of operation of the state and remove obstacles to the transfer of most wealth to a tiny plutocratic minority (the so-called 1%).
Simple, straightforward social transfers were eschewed in favour of creating a plunder-able sytem open to manipulation and rent seeking. Before the GFC, the world system was awash with excess monies available for loan. The creation of pension funds must have played a role in the explosions of these monies if it was a global phenomenon and not just an Australian phenomenon at that time. The overall funds available seemed to exceed the amount necessary for genuine productive investment and/or to be channeled for various reasons into speculation, bubbles, derivatives, junk etc. The GFC is the empirical proof of that the pudding, far from being magical and nourishing was in fact ponzi-like and toxic.
Of couse, the neolib, zombie ideology which still holds sway and power exhibits the standard quality of continuing to be “right” even when it is wrong. This will persist until a final crisis occurs too severe to be papered over and denied. At this point the oppressed majority will see the obvious truth and begin protests, rebellions and possibly even revolutions.
We have two key alternatives. To change course and re-socialise and re-democtratise our culture back to a better mixed-economy compromise or to persist with extreme free market policies, increasing wealth inequalities and austerity for the already impoverished until an unpredictable and very possibly violent crisis point is reached. The first course is far more preferrable IMO.
@Ikonoclast
I also agree we need to re-examine the idea of investing retirement savings in the casino…ah hm…[cough]… financial markets; at least while financial innovation, speculation and sentiment trumps fundamentals and asset quality. Problem is, this ponzi process has derailed en-route to the conservative tram stop, stuck in new territory where the hunger for financial innovation is still strong.
I’m not sure fully socializing retirement is possible in Australia anymore with living standard expectations, aging population increases and the requirement to stay internationally competitive.
“the world system was awash with excess monies available for loan”
This was largely driven by the steady increase in the price of oil from the mid nineties onwards ( that increase caused a ballon of surplus capital), buttressed by the other feature of institutional acruals hunting for investment opportunities. The Oil Drum had an interesting article on this issue a month or two back.
It is an interesting debate to be had. Is the public approach with lower returns better than the private approach with its volatility and risk of misappropriation and mismanagement? I favour as I have pointed out many times the self investment approach (superannution accruals funding personal property pay down), plus a mixture of public and private involvement for the balance (once the primary property is freehold).
My Mom always said, “don’t put all of your eggs in the one basket”.
Ernestine Gross :
“The idea of securing income after retirement via the financial markets needs re-examining.
The question now arises: Why bother going via the financial market instead of finding a taxation system which achieves intergenerational wealth transfers, excludes the examples of rent seeking, exploitation of information asymmetries and worse, you have mentioned, and allows young people to start their working life without debt incurred while studying?”
Interesting question, EG. It strikes at the heart of the nature of our civil society.
The social democratic ideal of cradle to grave became the aspiational model in the era after WWII. Evidently, even in the most enthusiastic social democratic societies, the model was only ever partially enacted. Moreover, since the 1970s, this model has come under attack, first in the wake of the collapse of the Bretton Woods system and then by virtue of voters turning against parties that adhered to the social democratic consensus. Chasing votes, these social democratic parties have changed their tune. This is the politico-cultural setting in which the current superannuation system worldwide arose.
Now let us look at preferred options from the point of view of citizens. They ask themselves, “How do I fund my retirement?” If I pay taxes now, will a viable and sympathetic state still exist when I come to withdraw a pension? Or are the financial markets a more secure repository of my post-retirement hopes? If you were a German, you might answer one way. If you were a Greek you might answer in another way. Australia inhabits the space between Germany and Greece. How trustworthy are Australian social security institutions? Are they more or less dependable than global financial markets? The answer is not clear and any answer is debatable.
The Republican Party contains dinosaurs and funds schools which teach that the same is true of Loch Ness.
http://www.washingtonpost.com/blogs/answer-sheet/post/loch-ness-monster-real-in-biology-textbook/2012/06/26/gJQAPhwr4V_blog.html
@Bring back Birdy at Catallaxy
Paleontologists are still debating if there’s an ancestral relationship to the Rinehartosaurus.
Katz, in reply to your 2 posts.
Quite right, there is no easy answer to the question but it invites debate. There are only two related little points I’d like to mention.
There is a fundamental difference between a social democratic system and a financial market system. The former runs on the principle of 1 head 1 vote, the latter runs on the principle of 1 Dollar 1 vote. [FN1] A related difference is that in the former a change in policy (‘rules of the game’) is brought about through political processes (debate and voting) while in the latter people have to wait untill the proverbial last financial institution is broke (I am being strict here regarding ‘free markets’.)
I realise we don’t live in this black and white world of characterisations of social systems. Sometimes, I feel, it is useful to take the step to the most simple characterisation..
[FN1] Regarding Germany I’d say it depends which era is considered. About 80 years ago social democracy[FN2] wasn’t in place and the change had to be brought about via military means. Regarding Greece, the troubles, not identical though, lasted even longer. Your suggestion that Australia is in some sense between these countries (presumably in their current state) would, IMO, call for a treatment that could fill a book.
[FN2] I don’t know whether there is or is thought to be a ‘pure form of social democracy’. To me the notion of social democracy has a weak exclusion criterion, namely nutters who confuse wishful thinking with theoretical knowledge and they carry on regardless of observables.
I’m not having much luck posting this link about a certain middle eastern country in the news a lot lately. Guessing that it may have been the inclusion of the link from the place I saw it, or maybe the name of the country.
Anyway, I thought they deserved the kudos for bringing it to my attention. But I’ll try again (using the ‘MSM’ source):
http://www.guardian.co.uk/commentisfree/2012/jul/12/syrian-opposition-doing-the-talking
I urge everyone with an interest or opinion on current events to read the piece. Truly astonishing the names, think tanks, corporations, banks, agencies and other countries involved in our latest exercise.
EG, I’d simply observe that:
1. a social democratic system is not the only one that operates on the basis of one head, one vote.
2. social democratic systems have always arisen out of market capitalist systems, and only market capitalist systems. And they have arisen out of the ballot box. Thus they are the product of popular opinion, which is subject to change by persuasion. The Reagan and Thatcher “revolutions” were vouchsafed by the ballot box but were conditioned by the observed failure of social democratic institutions as they laboured against the pressures of globalisation of finance.
Social democrats worldwide are still trying to come to terms with the financial revolution of the 1970s.
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