Bleg: A question on compulsory super
So if the main justification for compulsory super is that “people are too stupid to save for themselves”, how can we say that a government made up of these same people will be able to determine the “right” level of savings?
It’s down to psychology. Probably a combination of: “Others are stupid, but I’m not.” “If I was in the situation of the average person I probably wouldn’t do x, but I feel they should do x and it doesn’t really affect me so I’m happy making it proscriptive.”
Hm, when I put it like that, in my view, pretty much all politicians are Jim Anderton to varying degrees, I guess.
Possiby also the impact of power:
Losing touch – Power diminishes perception and perspective (http://insight.kellogg.northwestern.edu/index.php/Kellogg/article/losing_touch/)
Why Powerful People — Many of Whom Take a Moral High Ground — Don’t Practice What They Preach (http://www.sciencedaily.com/releases/2009/12/091229105906.htm)
And these are people who can’t even get their “own” expenses sorted.
How much is “people are stupid” and how much is “we’re scared of the current account deficit”? I don’t like the policy, but I think it’s motivated more by the latter.
@Eric Crampton: Go all out incentivising it rather than making it compulsory if it’s less “people are stupid” more “we’re scared”? The “people are stupid and can’t be trusted to make their own decisions” seems more in line with current political policy and the political scene than anything more than a token care for the medium-to-long run.
How about moral hazard as a justification? Given history and an understanding of politics, people might be making a rational judgement that the government would bail out the oldies en masse if they ran out of money in retirement – they’re not stupid, just cynical. The government knows that ‘no bailout’ is not a credible threat (they couldn’t let thousands of people starve to death), but they also know that a bailout on that scale would be unaffordable unless it’s pre-funded.
I’m not sure compulsory super is the one-size-fits-all solution here, but there seems to be a reasonable case against inaction.
@JiveKitty
“pretty much all politicians are Jim Anderton to varying degrees”
Excellent, excellent, quote 😀
@Peter Cresswell
Tis true, I’ve noticed that economists and policy analysts aren’t exactly completely clued on about either their personal finances or what savings really are in the first place 😉
@Eric Crampton
I think there is both – I have definitely heard policy analysts say the first one, constantly, just simply off the record.
However, the second issue is important – because people are scared of the idea of “systematic risk” from debt, which is fair enough.
But, if that is the problem we should be trying to figure out what is behind our CA deficit, and then working out if:
a) It is a problem,
b) What policies would directly deal with any problem that exists.
Blanket solutions like compulsory superannuation are always, what I would technically term, stupid.
@Miguel Sanchez
“How about moral hazard as a justification?”
If we think there is moral hazard, then start charging some sort of insurance premium on borrowing. Or subsidise savings in some way. Don’t regulate with compulsion 😉
The way i see it, this is more about taxation than compulstion.
Basically the government is looking for a way to take the burden of Superannuation off the (progressive) Income tax system, and impose what is basically a flat tax. All this talk about having personal savings is just framing it so it doesn’t look like it’s pushing even more of the tax burden onto those with the lowest incomes.
@Chris Baxter
Replacing a progressive tax with a flat tax – fair enough.
Currently the policy is to ADD the compulsory element, but I do see where you are coming from, and I still really disagree with the policy.
I like your point on the lowest incomes – I wonder if Labour and National have realised that they are thinking along the lines of ripping 10% of someones income out of their hands … when someone is struggling to live this added “credit constraint” is pretty significant 😛
Oops, looks like we were too stupid to invest in Allied Finance ourselves. But don’t worry, the wise and benevolent government has compelled us into it, for our own good. South Canterbury Finance to follow at the end of the month. Also sounds like you’ll soon be a part-owner of the Phoenix football team thanks to the council, though you may not be so upset about that one Matt.:)