Keith Rankin: Riding the Anti-Gravy Train
Riding the Anti-Gravy Train
Keith Rankin, 20 June 2002
Once again we are being softened up to accept some sort of compulsory savings scheme and to expect further rises in the age of entitlement to New Zealand Superannuation.
The implicit rule of economic life today is that we live to work. We should, of course, work to live. Thus, whenever we hear about rising life expectancy, we are told (as in TVNZ's Assignment last Thursday) that we must expect to work longer and start our retirement at an older age. It's as if, when healthy life expectancy is rising, the retirement age must always be raised as a kind of penance. The rule of thumb seems to be that the retirement age should be set at the average life expectancy minus 10.
(When life expectancy starts to fall, as a careful reading of age-specific mortality rates suggests it will do when the baby boomers retire, the 'life expectancy minus 10' rule will of course change.)
The other side of the propaganda is the push for us to save more. Martin Hawes, of AMP, tells us nightly on television that if we all save $30 per week (5% of the average weekly wage before tax) when we are in our twenties, and keep it up for 40 years, then we will all have a comfortable retirement, funded, using the so-called magic of compound interest, from a capital sum of $150,000 combined with New Zealand Superannuation.
Whoop-de-do. If a person born in 1937 had followed Martin Hawes advice and saved 5% of the average weekly wage in 1962 ($1.50 per week - quite a sacrifice then) s/he would have raised the grand sum of $8,000 by now. The interest on that nest egg would be enough to supplement today's NZ Superannuation by $8 per week.
OK, inflation on average over the next 40 years may not be as high as it was over the last 40 years. But then it could be higher.
One cause of inflation is too much money chasing too few goods. If we all save like crazy today, but fail to increase the economic growth rate, then when we come to spend all that retirement savings there will be too much money chasing too few goods. Increased savings, per se, is in fact a recipe for less growth and more inflation.
(Certainly the historical record does not suggest that an autonomous decision by households to save more leads to a higher rate of economic growth. What has led to more growth, historically, have been decisions to produce more capital goods and to innovate more. The decisions to produce more capital goods have been made not when households save more, but when they spend more. Just contrast the USA with Japan in the 1990s. It's called 'business confidence'.)
The orthodoxy that is being peddled to us is that (i) we must raise our sustainable rate of quantitative growth, and (ii) that we must modify our household budgets (ie spend less; save more) in ways that are known to make us poorer today and to make the growth rate less than it would otherwise be. And - with our words if not with our deeds - we are silly enough to agree with that advice.
Quantitative growth means more of the same. It means that we live to produce more goods and services that we don't have time to use because we are so busy working. We can get off this anti-gravy train, by refocusing; by visualising what the world (or just New Zealand if we want to keep it simple) could be like in 40 years time.
Our primary economic goal should be to maximise the future production of free time for able-bodied adults.
This is one form of qualitative economic growth. It is a form that would not register as growth on the official national accounts. (The actual growth we have enjoyed over the last 200 years has been another kind of qualitative growth; a form that has registered as increased gross domestic product. We produce very different kinds of goods and services today than we did during the decade that the Boyd was burnt.)
The 'technical' word for this kind of output is 'leisure'. Now 'leisure' doesn't sound like a technical word. Which is part of the problem. Advocating economic growth in the form of leisure sounds like a call for more idleness and debauchery. That makes our Calvinist nerves twitch. But leisure simply means 'time'; time that is our own rather than time committed to paid work. Historically, much of our most productive and creative work has been unpaid work; ie historically, much of our most productive and creative work has been leisure.
Our secondary economic goal should be to distribute equitably the leisure that we create. Note that equitable does not mean equal. The distribution of leisure should be determined by our individual demands for leisure. Yes, market economics can be applied to leisure. (The leisure market will only be efficient though, if there is an equitable distribution of income. And an equitable distribution of income depends on our willingness to legally recognise and enforce public property rights.)
One of the most important times in our lives to participate in leisure is that period of able-bodied retirement; especially but not only our sixties. Now, to increase such retirement leisure, we should be acting to extend the span of healthy life, and to progressively lower the age of entitlement to New Zealand Superannuation.
Indeed the extension of healthy life (and of worthy retirement leisure activities such as university education in humanities and science) should be the principal goal of our nation's social policy. And the progressive reduction of the age of entitlement to New Zealand Superannuation should be the principal goal of our economic policy. In other words, our economic policies should be about finding the various means to enable ongoing reductions in the age of entitlement to a living pension. (By way of contrast, the political right in New Zealand sees economic growth as the means to fund tax cuts that - except for a few crumbs - only boost the disposable incomes of the upper socio-economic decile).
It must be noted that a reduction in the age of entitlement to New Zealand Superannuation is not the same thing as "reducing the retirement age'. It remains important that retirement is voluntary. It is just that New Zealand Superannuation enables people to move from paid employment into productive leisure.
At present, we are in danger of giving up our most important economic objective as a means to help us to achieve some lesser objective. Our most important economic objective is a certain kind of modern economic growth: the growth of leisure opportunities. But our opinion-forming leaders - including the private savings industry that Martin Hawes represents - are looking to use the diminution of leisure opportunities (ie a raising of the age of entitlement to New Zealand Superannuation) as a means to achieve higher savings rates and a less modern form of economic growth.
Requiring us to do more paid work in order to increase our living standards (which means less paid work) is about as sensible as fighting for peace, or eating less gravy to gain weight. The anti-gravy train is a perpetual work machine. It leads us to lower living standards than we should be enjoying.