Compulsory 10 hours of unpaid work

Inspired by this post on compulsory superannuation, here is a post on “compulsory work” (eg slavery).

Without compulsory work New Zealand is destined to become an economic backwater. Our relative standard of living, particularly when compared to Australia, will continue to decline.

Two important actions can reverse our long term economic decline, effective labour market regulation and compulsory work.

Compulsory work had been an unmitigated success in the New World and has helped transform their economy. While NZ academics can argue about whether or not it has increased their overall savings rate, it is clear that it has improved the amount that is produced in the economy.

Moving back away from the sarcasm let me say:

  • Compulsory superannuation is the love child of fund managers – as they can’t see past the idea that “more savings = more funds = more investment”.
  • Even those that do see past self interest only think of “GDP”.  However, the goal of policy is to maximise welfare not output – if people want to consume they should be allowed.  Forcing people to save is abhorrent.
  • Yes compulsory saving leads to more saving, and possibly to more investment (at least to lower borrowing).  But it does this by making people credit constrained – implying that people can’t smooth consumption over time and have lower lifetime satisfaction.

To me, compulsory superannuation/saving schemes are very wrong.  The people trying to push them need to learn that the purpose of policy isn’t to increase GDP or fatten their wallet, it is to ensure that we have a society where welfare is maximised.

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  • Kimble

    Super is already compulsory for all tax payers. Or at least, the tax payers in the future.

  • @Kimble

    Very true my man, very true.

    Two questions that come up from that are:

    1) Why do we do that?
    2) If we already have compulsion, and it causes irritation and argument, then do we really want more compulsion.

    I would note that our current “compulsory super” is really just a higher benefit level for older people. It is more “progressive” distribution in some sense. Directly compulsory Kiwisaver doesn’t even have those equity elements to it …

  • I remember someone making the comment once, for the US situation, that “policy wonks in Washington want Americans to die rich, economists want them to die happy” and this seems to sum up the kind of situation you note above.

  • @Paul Walker

    Nice quote. Very true.

  • I find it hard to take a fund manager arguing for compulsary super seriously, I won’t read the article because I cannot get past the blatent conflict of interest. Then again, maybe my belief in incentives is misplaced:)

  • Kimble

    Part of the irritation comes from Super existing by political fiat. I make no apologies for thinking that someting thats exists solely on the basis of a promise from a politician is not something you should bet the house on.

    Compulsory superannuation does have the advantage of ring-fencing retirement savings. The more that can be taken out of the politicians control is better imo.

    I am most skeptical of the argument that compulsory superannuation will deepen local capital markets, as I dont think it is necessarily true (or even that it would be a good thing if it was).

    The “transformation” of the Australian economy could simply be a leveraging up of risk. Think about how deeply Australians are relying on their own economy; both for their ongoing income AND retirement savings. Ironically, NZ’s shallow capital markets may make overseas investing more attractive, helping diversify that risk.

  • The quote I was after was, like so many good quotes, due to Steven Landsbury:

    “We live in an age of “policy wonks” who judge programs by their effect on productivity, or output, or work effort. Wonkian analysis uses the jargon of economics while ignoring its content. Economists view the wonks’ fixation on output as a bizarre and unhealty obsession. Wonks want Americans to die rich; economists want Americans to die happy.”

    — Steven E. Landsburg, The Armchair Economist: Economics and Everyday Life (New York: Free Press, 1993), p. 44.

  • Matt – Question for you. Imagine yourself as a farmer who has enough food not to starve but wants to buy a new tv. With no other resources would you sell your seed for the next year to buy that tv?

  • @Kimble

    “I am most skeptical of the argument that compulsory superannuation will deepen local capital markets, as I dont think it is necessarily true (or even that it would be a good thing if it was).”

    Completely agreed.

    “The “transformation” of the Australian economy”

    Agreed with the quotation marks here 😉

  • @Paul Walker

    “Wonkian analysis uses the jargon of economics while ignoring its content.”

    Love that. Thanks Paul.

  • @Phil Sage (sagenz)

    Phil, I believe it is up to the farmer to decide what they want to do – that is all.

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  • Matt – you are the farmer – you make the decision, that is what I asked. You know where I am heading with it. The idea that deferring consumption now in favour of future investment is of value. Once you accept that premise the argument comes down to the desirability of the state intervening in that decision.

    I am not a fund manager and actively try to avoid being placed in the position where my money is tied up with fund managers. I describe myself as financially sophisticated with libertarian instincts.

    And yet I am in favour of compulsory superannuation saving. Not because I seek to feather my own nest but because I recognise that it is improving future prosperity by deferring current consumption.

    The reason that a period of compulsory saving is necessary is that taxation is compulsory and superannuation is currently paid by the small number of high taxpayers in favour of the lower earning high current consumption voters.

    That is inequitable. When people are enabled to provide for their higher future welfare through deferral of current consumption the situation is more equitable for lifetime welfare for more people.

  • @Phil Sage (sagenz)

    Hi Phil,

    People can defer consumption now voluntarily – if they don’t then it is fair to assume that they don’t want to. If someone genuinely doesn’t want to defer consumption they shouldn’t have to IMO.

    If there is a problem with universal superannuation that is truely a seperate issue – as you say “taxation is compulsory and superannuation is currently paid by the small number of high taxpayers in favour of the lower earning high current consumption voters”, so it acts as a form of redistribution. If the redistribution is socially preferable it is socially preferable – if it is not it is not.

    Given that the scheme is universal, it doesn’t influence marginal savings anymore than the benefit influences marginal work.

    In order to justify compulsory super we HAVE to say one of two things:

    1) People are irrational,
    2) There is some public benefit from an individual being forced to save.

    I have heard both these arguments, and I’m not sure if I personally believe them.

  • Matt – I am getting into a discussion with Lew over at Kiwipolitico on an associated thought. I believe that people are irrational but that alone would not be sufficient. You need to be less of a brilliant economist to accept that :^)

    The point is the public benefit of people being forced to save. That is the non economic benefit that building an equity stake will have on people’s self respect and happiness. Someone who is completely reliant on the state in their declining years because they never had the discipline to forgo current consumption will be less happy than the individual who has built a pool of funds to assist their retirement.

    The investment available from compulsory super will also provide positive benefits to the economy by making more local money available. I understand your previously made points about the pool of money for investment being effectively infinite for NZ purposes but that money still requires a return and it sacrifices independence to foriegn actors in favour of current consumption.

  • @Phil Sage (sagenz)

    @Phil Sage (sagenz)

    Hi Phil,

    The way I see it, those are specific assumptions about individuals in society that I would be uncomfortable making – but it is perfectly reasonable to make them as you have as long as they are mentioned.

    However, I wouldn’t call it a “public” benefit per see – as it really just stems from people ignoring their future selves too heavily rather than impacting on other people (which is the public bit).