As a further comment on “funded” public pensions (link to previous note), I just want to comment on the side effects of such “funding.” (To recap, a central government could create fictitious bonds to match “pension contributions,” which has the same cash flows as a pure “pay-as-you-go” scheme. The alternative Canada has switched towards is to buy financial assets with the “pension contributions” — although some of those assets would be reinvested in bonds guaranteed by the Government of Canada.) As I discussed, this is economically equivalent to the Government of Canada levering up its balance — issuing bonds to the private sector to buy private sector assets.
Australia has a massive compulsory pension system we call superannuation (because marketing? It's an annuity, but super?). Everyone puts in (currently minimum of 10.5% of income) to private funds, which then trade in financial assets, infrastructure, and things like monopoly tollways, banks, electricity; and commercial property. Then we allow "the miracle of compound interest" to give us a comfortable retirement. It is essentially a big privatised pension.
Of course, this is all bullshit smoke and mirrors. The returns on these investments are all our money, paid in tolls, mortgage interest, power bills, and retail prices inflated by mall rents. The miracle of compound interest is our own money being given back to us, minus a wodge of asset management fees. In the meantime, the economy is smaller, by the amount of enforced savings, so when we all retire, we have heaps of money with which to buy - what? We will have reduced our production significantly in the meantime! We are not "saving" anything, we are taking 10.5% of our production and setting it on fire.
I won't even go into the significant social equity issues, as the wealthy basically using this as a tax-effective inheritance fund, while the poor get bugger all and fall back on a now emaciated public pension.
The real problem is that it is, effectively, a massive ponzi scheme. The assets that our super funds invest in are inflated by all that super invested in them. So what happens when demographics turn and there is more money going out than in? Asset prices fall, super fund unit prices fall accordingly, all our "hard-earned savings" start going down the toilet. Compound that negative return with a bit of debt deflation (say a big real-estate bust), and the whole bullshit system is insolvent. In the meantime, I can't access my enforced savings to pay off the last bit of my mortgage, so my super vanishes while I'm still on the hook to the bank.
Superannuation is supposedly saving future generations from the "tax burden" of pensions, but when the whole illusion evaporates, which it will, the government will end up nationalising the whole thing - because if they don't, there will be 25 million pissed-off Australians demanding a refund of our entire life savings.
A gracious and interesting post. We can agree that: 1) we cannot send goods and services into the future and 2) the issue for pensions is political not economic, as noted by FDR that entitlements were lousy economics but great politics. That was ninety years ago.
It was Keynes who reminded us (and economists) that we can't predict the future and so can't discount it either. Anyone who makes future promises, eg, for pensions, is taking a risk and somebody has to be ready to bail out the system if it begins to sink. Whether pensions are public or private, there's really no alternative than it be the sovereign state. We saw a great example after Liz Truss's budget in the UK, when the Bank of England had to step in to save pension funds because of their exposure to bond prices.
So while I agree, the political risk of "unfunded" pensions is real, what a tangled web we weave when we issue bonds to de-risk private pensions and (in the US) mortgages and, these days, the whole shadow-banking-swamp. We've just seen four (or is it five) banks collapse without any notion as to how much more instability is lurking in the financial sector's house of cards.
It gets worse, a tenet of MMT - acknowledged by the Bank of England, Bundesbank, and others - is that banks create money, albeit mostly for unproductive speculation rather than productive enterprise. It would be bad if the ill-gotten excess money was simply placed under mattresses (rather than be taxed) but governments instead issue bonds requiring interest be paid - we're currently in yet another rinse-repeat cycle of sending entitlements to wealthy 1% while imposing fiscal constraints on the 99%.
It was ever this. I listened last evening, to Clara Mattei discuss her new book, “The Capital Order, How Economists Invented Austerity And Paved The Way To Fascism”. The “trinity” of austerity - fiscal, monetary, and industrial - was crafted after WW1, celebrated under Mussolini, and has been imposed, whenever needed, ever since. As in right now!
The same tenet of MMT states that banks cannot lend deposits for the simple reason that deposits are liabilities. It seems to be poorly understood by most Central Bankers, including prominent exes who are leading the charge to invest financial liabilities into saving the planet.
It all begs the question, given our climate/biodiversity/inequality crises - the poly crisis - how much more privatization, bond malarkey, and immiserization of the public will it take?
One of MMT’s founders, Warren Mosler, advocates a zero interest rate, no more bonds (or as an easy step, limiting Treasuries to 3 months) with much, much stricter regulation over how private-sector banks create money, and for whom, and for why.
But today’s MMT debate is over fiat digital currency - eliminating private-sector banks from payments systems and with far more stringent control over credit creation. Or maybe just nationalize banking, collapse Central Banks into their respective Treasuries and move forwards without bond or monetary anchors around our ankles.
"...But we can get them from foreigners!" is more simply called imperialism (i.e. please, other sovereign state, run your economy for the benefit of our citizens) and is currently in the process of being shut down pretty hard by 'autocratic' governments acting in the interests of their own populations
Australia has a massive compulsory pension system we call superannuation (because marketing? It's an annuity, but super?). Everyone puts in (currently minimum of 10.5% of income) to private funds, which then trade in financial assets, infrastructure, and things like monopoly tollways, banks, electricity; and commercial property. Then we allow "the miracle of compound interest" to give us a comfortable retirement. It is essentially a big privatised pension.
Of course, this is all bullshit smoke and mirrors. The returns on these investments are all our money, paid in tolls, mortgage interest, power bills, and retail prices inflated by mall rents. The miracle of compound interest is our own money being given back to us, minus a wodge of asset management fees. In the meantime, the economy is smaller, by the amount of enforced savings, so when we all retire, we have heaps of money with which to buy - what? We will have reduced our production significantly in the meantime! We are not "saving" anything, we are taking 10.5% of our production and setting it on fire.
I won't even go into the significant social equity issues, as the wealthy basically using this as a tax-effective inheritance fund, while the poor get bugger all and fall back on a now emaciated public pension.
The real problem is that it is, effectively, a massive ponzi scheme. The assets that our super funds invest in are inflated by all that super invested in them. So what happens when demographics turn and there is more money going out than in? Asset prices fall, super fund unit prices fall accordingly, all our "hard-earned savings" start going down the toilet. Compound that negative return with a bit of debt deflation (say a big real-estate bust), and the whole bullshit system is insolvent. In the meantime, I can't access my enforced savings to pay off the last bit of my mortgage, so my super vanishes while I'm still on the hook to the bank.
Superannuation is supposedly saving future generations from the "tax burden" of pensions, but when the whole illusion evaporates, which it will, the government will end up nationalising the whole thing - because if they don't, there will be 25 million pissed-off Australians demanding a refund of our entire life savings.
A gracious and interesting post. We can agree that: 1) we cannot send goods and services into the future and 2) the issue for pensions is political not economic, as noted by FDR that entitlements were lousy economics but great politics. That was ninety years ago.
It was Keynes who reminded us (and economists) that we can't predict the future and so can't discount it either. Anyone who makes future promises, eg, for pensions, is taking a risk and somebody has to be ready to bail out the system if it begins to sink. Whether pensions are public or private, there's really no alternative than it be the sovereign state. We saw a great example after Liz Truss's budget in the UK, when the Bank of England had to step in to save pension funds because of their exposure to bond prices.
So while I agree, the political risk of "unfunded" pensions is real, what a tangled web we weave when we issue bonds to de-risk private pensions and (in the US) mortgages and, these days, the whole shadow-banking-swamp. We've just seen four (or is it five) banks collapse without any notion as to how much more instability is lurking in the financial sector's house of cards.
It gets worse, a tenet of MMT - acknowledged by the Bank of England, Bundesbank, and others - is that banks create money, albeit mostly for unproductive speculation rather than productive enterprise. It would be bad if the ill-gotten excess money was simply placed under mattresses (rather than be taxed) but governments instead issue bonds requiring interest be paid - we're currently in yet another rinse-repeat cycle of sending entitlements to wealthy 1% while imposing fiscal constraints on the 99%.
It was ever this. I listened last evening, to Clara Mattei discuss her new book, “The Capital Order, How Economists Invented Austerity And Paved The Way To Fascism”. The “trinity” of austerity - fiscal, monetary, and industrial - was crafted after WW1, celebrated under Mussolini, and has been imposed, whenever needed, ever since. As in right now!
The same tenet of MMT states that banks cannot lend deposits for the simple reason that deposits are liabilities. It seems to be poorly understood by most Central Bankers, including prominent exes who are leading the charge to invest financial liabilities into saving the planet.
It all begs the question, given our climate/biodiversity/inequality crises - the poly crisis - how much more privatization, bond malarkey, and immiserization of the public will it take?
One of MMT’s founders, Warren Mosler, advocates a zero interest rate, no more bonds (or as an easy step, limiting Treasuries to 3 months) with much, much stricter regulation over how private-sector banks create money, and for whom, and for why.
But today’s MMT debate is over fiat digital currency - eliminating private-sector banks from payments systems and with far more stringent control over credit creation. Or maybe just nationalize banking, collapse Central Banks into their respective Treasuries and move forwards without bond or monetary anchors around our ankles.
"...But we can get them from foreigners!" is more simply called imperialism (i.e. please, other sovereign state, run your economy for the benefit of our citizens) and is currently in the process of being shut down pretty hard by 'autocratic' governments acting in the interests of their own populations