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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

rights-based entitlement ethic « Previous | |Next »
December 18, 2008

Jeremy Sammut, a research fellow at the Centre for Independent Studies, lines up the social democratic left in The Australian for their response to the the global financial crisis. He connects this response to the collapse of household saving, indebted households and the welfare state and then critiques the culture of dependence that has arisen from the rights-based entitlement ethic.

Sammut says:

Quick to interpret the crisis as a morality play, social democratic commentators have railed against credit-driven consumption or the so-called debt binge that plunged household saving into the red for the first time in recent years. Citing the long-term decline in net national saving from 12 per cent of gross domestic product in the 1960s to about 5 per cent today, the most virulent critics of the "culture of excessive debt and consumption" have welcomed the end of the long boom as an opportunity to revive traditional values such as thrift and living within our means....social democrats who complain about low saving and piously bang on about affluenza are hypocrites who conveniently ignore the most critical issues. More than a product of the Australian love affair with plasma TVs, the national saving culture, or lack thereof, is a consequence of the world that social democrats have created with the help of the Howard government.

Apparently, we blinded, hypocritical social democrats do have a point about household debt, consumption and the recent boom, that Sammut is willing to concede:
the debt-is-doom merchants... do have a point. While the recent growth in personal debt reflects rising incomes and has financed the purchase of housing and other financial assets, a significant part of household borrowings have been used to fuel additional consumption in excess of current income. Against the expected trend, saving has continued to decline in an era of unprecedented economic prosperity. Baby boomers were expected to put more of their incomes aside in preparation for their looming retirements. The "forgotten people" of our era appear to be those who have forgotten how to save.

Nothing is said about capitalism creating a debt fueled consumer culture to ensure consumption of over production. That takes us to Marxism, doesn't it.

Sammut's main bone of contention is the world that the social democrats have created with the help of the Howard government--the world of the welfare state and its culture of dependence. His argument is that the failure to save is similar to long-term welfare dependence in that the former trend is a product of the rights-based entitlement ethic that lies behind the growth of the welfare state since the '70s. This has white-anted what once were core [liberal] social values:

For most of the 20th century, to the chagrin of social democrats, social policy was under liberal stewardship and shied away from unconditional or universal welfare benefits to encourage work, thrift, and saving to cover future needs....Along with setting the value of the pension at a modest level and alleviating the poverty of recipients judged to "deserve" a pension, these arrangements were designed to discourage improvident behaviour and to promote the expectation that all who could save and provide for their own retirements should do so.

Unfortunately, the social democrats policy of expanding the welfare state to counter the negative effects of capitalism (unemployment, poor public services etc) has undermined the classical liberal culture of independence and self-reliance:
The idea that it wasn't respectable to depend on government doles (due to the stigma of charity) has been undermined by social democrats, who have all too successfully persuaded citizens that they have an unconditional right to receive a taxpayer-funded pension and free health care. Growing acceptance of the principle of government provision has diminished individual responsibility and weakened incentives for saving, just as predicted by liberals who opposed the welfare state for these prospective reasons.

The real moral of the story, for Sammut, is that promoting the culture of thrift means reining in the corrosive, anti-thrift culture of excessive welfare. An example is the baby boomers approaching retirement have taken on debt they intend to repay using their superannuation, or have double dipped by taking early retirement or blowing their super on cars, holidays and renovations, safe in the knowledge they can go on the increasingly valuable pension and use their political clout to extract higher transfers.

Nothing is said about the crisis in finance capitalism wiping out out half of the baby boomers superannuation , requiring them to work longer. The central problem is the failure of social democrats to don't admit that demographic change has rendered the welfarist model un-sustainable. Pay-as-you-earn taxpayer-funded pension and health arrangements were never designed to cope with the much larger and longer-living elderly populations of the 21st century. Consequently, requiring saving-as-we-go and pre-funding health costs is the next logical step in intergenerational reform

| Posted by Gary Sauer-Thompson at 3:36 AM | | Comments (5)
Comments

Comments

It is often a bad idea to explain something by invoking a cause that, at least in recent times, simply did not occur.

A timely paper by two Treasury economists, Susie Thorne and Jill Cropp, "Household saving in Australia", observes that:

"After falling steadily from the mid-1970s, the share of disposable income that Australian households devote to saving has picked up in recent years."

It further points out that:

"[Research] tends to attribute much of the decline in the household saving ratio to strong capital gains over the period.... Real net wealth per capita has approximately doubled over the past 15 years, mostly due to growth in the value of housing and equity assets. Since capital gains tend to stimulate consumption, but are not counted as income from a National Accounts perspective, this has put downward pressure on the saving ratio. Compounding this, asset price growth increases capital gains tax, reducing disposable income and thus the household saving ratio."

http://www.treasury.gov.au/documents/1451/PDF/06_Household_saving_in_Australia.pdf

(HT, Peter Martin)

Jeremy forgets that the current employer based super scheme has only been compulsory for all employees in the last 20 years, prior to that women and factory workers had to rely on the old age pension.

The current employer based super schemes are incredibly inefficiently run, encourage the sacking of long term employees with large pension entitlements and make employing workers over the age of 35 unattractive. To get people to save for their old age introduce a national superannuation scheme and collect super contributions when tax is collected. Despite laws to the contrary many employers do not give workers their choice of super fund and casual workers working 3 or 8 jobs over a year will be contributing to a separate super fund for each employer. Retrenched mature age workers end up in casual work.
An old age pension is $271 per week plus subsidised medicine, a minimum wage is double that, so its cheaper to put surplus workers on pensions than it is to find work for them.

He reckons the people who create commodity fetishism are the social democrats who hold forth against it?
Not the ad men or media corporations like Foxtel, who thrive off the hysteric consumerism they foster like grubs at a carcass?
I get sick of this constant parade of liars with the tabloid press.
As Billie says, if you are on welfare you don't "spend it all at once 'cos you're profligate, but because it is relatively small amount against,say, bludgers who sell their souls writing lies for the bosses.

If production becomes more efficient income has to rise to consume it, increasing consumer debt is not a long term solution.

Capitalists desire to limit wages is very short sighted. In mt view the utterances of the business council of Australian are dripping with incompetence.

MikeM,
How we square the Treasury analysis with the idea of indebted households?