EU public consultation on pension "reform" | 31 comments (31 topical, editorial, 0 hidden)

Re: EU consultation on pension "reform" (none / 1)

Going back to JakeS' logic
The intuitively obvious corollary to this is that we need to get out of the private pension funds mindset - by their very nature, private pension funds make Joe Schmoe an investor in the securities markets. And Joe Schmoe knows nothing about investing in the securities market, so he shouldn't be doing it.
the way I put it is this:
We understand that "widows and orphans" shouldn't be investing in risky assets and so we create "pension funds" subjected to strict regulations on the kinds of assets they may hold (e.g., no "speculative" or worse-rated bonds) and the kinds of strategies they may pursue (e.g., no "short-selling") so that they may be "safe" for widows and orphans to invest in. But that means that we regulate pension funds to behave like widows and orphans, so they get scalped by sharks like widows and orphans would.
In addition, the whole "private pension fund mindset" is predicated on the argument that public pensions are insolvent because they will eventually be unable to pay the promised premiums. We are told that instead we should invest in private pension funds. But the question arises: if the government is not going to be able to raise the necessary cash to meet its pension liabilities, where is the stock market supposed to get all that cash from? After all, the government and the stock market share in the same GDP pool. In addition, the government's "cost of capital" is lowest (in absolute terms considering "cost of debt" and relatively speaking when "risk-adjusted").

(with added emphasis)

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Thu Oct 21st, 2010 at 08:50:26 AM EST

Re: EU consultation on pension "reform" (none / 0)

Mig:

...the whole "private pension fund mindset" is predicated on the argument that public pensions are insolvent because they will eventually be unable to pay the promised premiums.

Adding that whatever gains accrue in private pension funds invested in financial markets will be less the very substantial costs extracted from those gains by the private entities doing the investment, the expected rate of return for which is 15-20%. Surely the proponents of privatized retirements do not imagine that the private sector will be performing this service out of altruism!

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 21st, 2010 at 11:05:37 AM EST
[ Parent ]

Re: EU consultation on pension "reform" (none / 1)

And also noting that the returns to the funds running the scheme will be extracted and distributed regardless of whether the long term goals for the fund are realized or not. As very recent history has shown, one bad year can wipe out more than a decade of apparent gains.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 21st, 2010 at 11:13:50 AM EST
[ Parent ]

Re: EU consultation on pension "reform" (4.00 / 2)

The real problem is to reason in the Austrian/gold-bug frame that "money is a thing".

The issue here is to dedicate x% of GDP to supporting retired people (and other entitlements) and whether that is possible/sustainable. A reasonable value of x% is always possible and, by definition, sustainable for any reasonable choice of x.

One way to do this is for that to be a sovereign outlay and to collect y% GDP in taxes to fund that, and other government programmes.

People think they can pay z% in taxes, and save (y-z)% into a private investment scheme.

But the fact is that money is not a thing and sovereign outlays are not in a zero-sum game with taxes and savings.

However, the illusion that money is a thing seems to be psychologically necessary in order for a fiat money system to work. Because, if people think that fiat money is not a real thing they will think it's worthless and destroy the fiat part of the fiat money system.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Carrie (migeru at eurotrib dot com) on Thu Oct 21st, 2010 at 11:39:01 AM EST
[ Parent ]

Re: EU consultation on pension "reform" (4.00 / 3)

The real problem is to reason in the Austrian/gold-bug frame that "money is a thing".

Exactly.

And, just as shoveling 1 megawatt into a TV results in a TV that don't work so good, shoveling hundreds of billions into an economy that cannot or does not usefully, e.g., Housing bubbles, use the money results in an economy that don't work so good.

However, the illusion that money is a thing seems to be psychologically necessary in order for a fiat money system to work. Because, if people think that fiat money is not a real thing they will think it's worthless and destroy the fiat part of the fiat money system.

Most people only want to take "money" - whatever it is - down to the local shop and exchange it for a can of beans. If they can do that they don't care if it is "backed" by gold or fried rat tails. Economic policies based on "Money is a thing" are only psychologically necessary IFF the Economics one brings to the game is based on "money is a thing."

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu Oct 21st, 2010 at 12:44:53 PM EST
[ Parent ]

Re: EU consultation on pension "reform" (4.00 / 2)

I agree that a large part of the problem is the misapplication of the idea that money is ONLY a thing. The paper money in your wallet is a thing and has current value. How that value varies over time is a function of government policies and the operation of the economy.

But money is also a relationship. This is especially true when there are significant time periods between the incurring of a debt and the payment of that debt. This is especially true, in the USA, for the "pay as you go" Social Security System. Opponents of that system convinced all to make the system more solvent, on a "money is a thing" basis, back in the late '70s early '80s, and so we did, by significantly increasing the withholding taxes for SS and Medicare.

But the "money is a relationship" aspects were flouted and the extra withholding was not used in ways that would help the society pay the debt when it came due. Instead it was used to paper over massive deficits that resulted from Reagan Administration tax cuts for the rich and increases in defense spending. Keynes had warned that there were problems involved in inter-generational wealth transfers and this sorry episode is example one, for the USA especially.

The idea that "We increased taxes to adequately fund retirements, but corrupt governments have squandered that money on tax breaks for their rich buddies and now want to blame the victims" argument should be very appealing to older demographics. The example should be a warning to younger demographics as well.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 21st, 2010 at 01:51:38 PM EST
[ Parent ]

Re: EU consultation on pension "reform" (none / 1)

Actually money is a rationing and permission mechanism. It's not even a relationship - it's just a way to collect, or lose, permission and reified opportunity tokens.

Austerity is simply rationing. There's no other useful word for it.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Oct 21st, 2010 at 01:56:46 PM EST
[ Parent ]

where's the money coming from (none / 1)

At any point in time, people can only consume what is produced or drawn from inventory. Old people, if not working, can only benefit from services only to the extent that someone is working to provide them.

In that respect, whether it's redistribution or capitalisation doesn't change a thing, only the way the overall pile is shared between those who work and those who don't

The only thing that introduces a change here is if you can call on "work" from elsewhere. The argument for market based pensions is that they can invest in more dynamic countries elsewhere and thus 'import" the wealth back home instead of only relying on the locals' work. But the same is true of a country which has finances sound enough to be able to buy imports directly.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sat Oct 23rd, 2010 at 09:04:47 AM EST
[ Parent ]

Re: where's the money coming from (4.00 / 2)

The only thing that introduces a change here is if you can call on "work" from elsewhere. The argument for market based pensions is that they can invest in more dynamic countries elsewhere and thus 'import" the wealth back home instead of only relying on the locals' work.

The problem with that approach always seems to be that the process of calling on "work" from elsewhere so often seems to result in the direction of the benefits from that work flowing to those who controlled the flow of money and products and the costs to those who previously provided the labor, the end result of which tends towards undermining sound finance in the country employing the strategy. As DeAnander noted in another thread, when this result is the reliable outcome of that policy, then, from game theory, we should assume that it was the goal of the policy -- in part, if not in whole.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Oct 23rd, 2010 at 11:15:36 AM EST
[ Parent ]

EU public consultation on pension "reform" | 31 comments (31 topical, 0 editorial, 0 hidden)

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