Huh? Opting into or out of a scheme has a cost. When I wanted to change my default Kiwisaver provider I had to fill out a bunch of paper work and keep in touch with IRD – if it was an Opt out scheme then I would expect to have to do the same just to get into the scheme.

As a result of this transaction cost, it makes sense that their is a difference between the degree of saving in that scheme in the “opting in” vs “opting out” cases.

Furthermore, the choice is not between saving and not saving – the choice is between the type of saving vehicle. If the scheme we are automatically put into offers the same return as other savings types, then an incredibly small transaction cost would be enough to see us reducing other savings types as a result.

This implies that total national savings may not increase – and households will continue their choice of consumption.

“but we’ve got real empirical data and it says that (irrational though it seems) whether the default is participation or non-participation really matters”

We do not have sufficient empirical evidence to state this – even Treasury said that, and they’ve gold plated this scheme for the government!

That was going to be one of the pluses of the original Kiwisaver scheme – it would tell us how opting in made a difference, and then we could look at the numbers from there. However, then all sorts of subsidies were added – which implies that we now can’t use it to check what happens in the case of voluntary opt in.

“But if someone were to make such a bold empirical claim then I would hope they would provide some empirical data to back it up”

Once the data is out we will look at it – it is still a bit soon, I need 30 data points 😛

When there is no data, theorizing is better than just stating whatever the hell my opinion is – as it is transparent, so people know where the points of difference are and we can discuss them.

Note that I haven’t even been criticising Kiwisaver, I was just stating that saving more now implies that we consume less now as well – and I’m not a fan of telling people what to do with their income, because I don’t believe I know better than them.

Educate people, give people choices, and try to reduce the transaction costs associated with these choices are the things I would do – and I’m glad that Kimble agrees 😉

Now, this isn’t even a post on Kiwisaver, it is on the CA deficit. Ultimately, none of this discussion on Kiwisaver has stated why the CA deficit in its current form can be a bad thing.

If people want to discuss Kiwisaver, please go to the Kiwisaver posts here:

http://tvhe.wordpress.com/category/productivity-series/

However, if people would like to tie this back into a discussion on the CA deficit, then lets do that here. If we are going to do that though, I would like a clear description of what is being criticised – not a random comment taking one of my sentences and criticising that (not saying that anyone has been doing this – it does happen over time though) 🙂

Simply stating what the empirical data shows is only half the job, you need to explain why you think it is so.

Personally, I think the incentives for individuals to stay in Kiwisaver are going to increase overall savings as time goes on, and people come to realise the “free money” that is sloshing around.

But at the moment I dont think most people treat Kiwisaver as savings, I reckon they treat it more like a levy or a tax. That is, it leaves their pay without them seeing it go, it isnt large enough to make an obvious difference, and they budget based on net income.

As with most things, the explanation will probably come down to informational asymmetry or deficiency.

Sure they can. So? The question is not can they save already: then question is do they to the same levels.

There is substantial evidence from the US and UK and opt-out retirement savings schemes get substantially higher rates of participation than opt-in schemes. (eg, http://www.nber.org/papers/w12009 but google can easily find you a bunch of other papers on the effect)

This obviously wouldn’t happen if we were all purely rational self-maximizers. But we aren’t. It’s one of those effects where you can postulate theories about human behaviour all you want, but we’ve got real empirical data and it says that (irrational though it seems) whether the default is participation or non-participation really matters.

One *could* still argue that this doesn’t matter because participation in retirement savings schemes will reduce other savings to match. But if someone were to make such a bold empirical claim then I would hope they would provide some empirical data to back it up, and not mere arm-chair theorizing.

It suspect it stems from his dislike of any mathematics – on that note.

“doesn’t kiwisaver provide people wit ha “choice”, while encouraging deeper capital markets?”

Firstly, people can already save without Kiwisaver. It is not that difficult to get a savings account at a bank.

Secondly, the “deepening of capital markets” depends on whether we really believe Kiwisaver will increase national savings – a fuller discussion of this can be found on the, as yet unfinished, productivity series on this blog (which is related to the also still unfinished inflation series 😉 ):

http://tvhe.wordpress.com/category/productivity-series/

As it is unlikely anyone will read it, my conclusion is that Kiwisaver won’t increase national savings (in a full sense), but it may change where savings goes – which could be quite useful for the domestic economy given current issues in the capital market. However, this is probably a second best solution at best compared to education and information.

Hit the nail on the head right there.

It is good to know that Nome has solved all our problems and discovered a way for us to save without reducing consumption.

We must have very different definitions 😉