I wondered if anyone could address a question I have about the how the Austrian school treats forced savings. Savings is good, right? The more people save, the more economic growth there will be in the long term, and without savings there could be no growth at all. So, superficially at least, it would seem that by compelling people to save a greater portion of their incomes, to forgo consumption, a government could increase long term economic prosperity. Now, I understand in practice this rarely happens, and governments tend to decrease savings through instituting social security programs. But, Singapore is an example of a country with a mandatory savings program, with the State forcing people to save around 30% of their incomes, and its economy has been extremely successful, with the highest per capita rate of millionaires in the world, at 15.5% of households. It could be argued that this is due to the small state and relatively free (by international standards) market, but then Hong Kong has (as far as I’m aware) an almost equally free market, however has only 8.6% millionaire households per capita, a difference that could be attributed to Hong Kong’s lower compulsory savings requirements (the exact % would be in here somewhere: http://www.mpfa.org.hk/eindex.asp if anyone’s feeling adventurous :P).
So, my question is, what would be the Austrian response to the statist assertion that government intervention can increase long-term economic growth by compelling people to save more than they otherwise would? (Assume say a minarchist government with a monopoly on force, which jails people who fail to save the required percentage of their income but otherwise intervenes as little as possible in the economy.) If the natural rate of savings (defined as that which would occur absent State intervention) in the economy was 10%, and the intervention raised it to 30%, would that lead to a more prosperous economy in 100 years time than would exist otherwise?
I’ll just qualify, I’m not actually advocating such government intervention, as I understand the Austrian tradition is based around principles of choice/liberty rather than totalitarian utilitarianism. I’ll also add that I find it somewhat ironic that I’ve never seen this argument advocated by statists, since it seems like one of the few good arguments for how state intervention could indeed bring about a greater (utilitarian) good; I guess their Keynes-induced aversion to thrift precluded them from considering it?
What if people would rather spend (more of) their money right now than save (that much) for the future?
The market economy is about satisfying customer preferences. Such a policy would prevent more present-oriented customers from fulfilling their desires. In that sense, it’s a subsidy to the future-oriented ones.
You could try to make a normative case for the superiority of future-orientedness, but it would clash with both Rothbardian ethics and the ethical nihilists on here.
How does this work exactly? I expect these savings cannot be hidden under a mattress, [because then they could be spent, right?] but must be put in a bank. The bank knows that every single payday, with out fail, they get more money to play with, no matter how foolishly they gambled with last paycheck’s money. See any problems with that?
…the Austrian tradition is based around principles of choice/liberty rather than totalitarian utilitarianism.
Utilitarian for who? The bankers and the businessmen, but not the forced savers, who lose their money if things go bad, but do not gain anything if things go well. It’s called slavery.
…with the State forcing people to save around 30% of their incomes, and its economy has been extremely successful,
post hoc…
with the highest per capita rate of millionaires in the world,
Why cherry pick this statistic as the lone measure of a succesful economy?
There are also the unseen but pernicious effects of such a scheme. Can one measure how much less effort is put into making money if you are forced to give 30% away [besides all taxes]? Consumption is the reward of hard work. If the reward is reduced by 30%, what do you think will happen to the hard work?
How many profitable businesses were stillborn ecause they were unable to get funds which were forced into other avenues by thiis harebrained scheme?
They are doing great because of their free market, the freest in the world. If they have made a huge mistake, they are lucky it hasn’t hobbled them completely, but let’s not attribute their success to it. That’s like saying Spider Man is strong because Peter Parker is a weakling.
Life is good, right? How about the government locks you into a safe basement for the rest of your life thus forcing you to avoid the life-threatening risks of living outside (such as crossing a street or pianos falling from the sky)?
More fish is good, right? Imagine an eskimo village where each person catches 8 fish a week, eats a fish a day, and saves a fish a week for a rainy day. Then the wise chief descends upon the villagers and forces each to save FOUR fish a week (smoked and stashed into a storage igloo) for the “long-term”. Imagine also that such policy was implemented for the next FOUR generations. You’d end up with four generations of emaciated but “rich” lucky survivors.
As you may have guessed already. Value/utility is subjective and can not be aggregated into a sum by any (albeit benevolent) outside party.
Without any forced saving, there are probably more millionaires per capita in the top ten richest counties in the U.S. than in Singapore.
I’m surprised no one has mentioned this yet, or maybe I’m missing something, but for how long is someone forced to save, a year, 5 years, forever? Obviously, savings isn’t good for the sake of savings, but because it can be used to invest in more roundabout means of production. Any sort of mandatory time frame as to when savings can be spent is bound to inhibit the ability for individuals and entrepenuers to invest in the most profitible ventures, ultimately hurting economic growth.
Now that I think about it, I imagine the amount of “force” used to keep people from using their savings is pretty low, akin to something like an early withdrawl penalty on a CD. Most likely entrepeneurs are not overly inhibited by this, which is why it isn’t a crippling policy. Now if the penalty was something like jail time, I’m sure it would hurt the overall economy: both because of what I said before and because putting a lot of people in jail is expensive and reduces available labor.
This is one case where intervention is honestly helpful. Forced savings usually refers to savings brought about by inflation which is harmful do to the fact that it causes a boom which can’t realistically be kept up. Savings in the manner you are talking about can be quite beneficial however. The savings are private which would entail that the savings are likely to be productive because if you’re going to save your income then you might as well get bank off of it through healthy investment. Rothbard’s critique of this generally was twofold, the first being that it would be government investment and therefore likely wasteful, this obviously does not apply. Then there’s the critique which is actually valid which states that this would mean a forced postponement of current satisfaction and wants, the old and terminal would likely never see the kind of prosperity which they could have seen and it would be a fairly long time before any of us would actually be able to live like we could today if we had all of our money.
With this being said despite short term suffering there would be long term growth and prosperity, the poor would be hurt the most in the short term for any number of reasons. As Keynes said in the long run we’re all dead, and life is nothing other than a series of short terms.
So that’s up to you, forced short term suffering for long term prosperity or somewhere in-between which is the free market option.
It should also be noted that this is a case where it’s hard to put a “one size fits all” solution upon the matter. The thing is that some people could really enjoy that money and do things with it whilst others might save it anyway or be minorly inconvenienced. In a free market the individuals would be able to make this decision about how much to save on their own, this does not exist in the system you’re talking about, which means that some will necessarily be harmed in a fundamental way which they otherwise would not.
its really not helpful… governments/central banks gives the incentive for people to consume at a time where one shouldnt do as much by adjusting the interest rates and encourages people to invest in projects. If the interest rate is not adjusted by the central banks/governments, then why would one need a policy to have mandatory savings? That is pointless, the market already allocates this by the interest rates, why would we need government policy to do this for us?
That’s an emotional argument that’s irrelevant to the topic. You haven’t addressed the fact that it would indeed lead to increased real economic growth which would actually be helpful to economic health.
No I’m saying that it’s up to the individual to decide which is more important and which overcomes which. Short term stomach pain and long term great health in future or a fine stomach now and moderate health in future.
Well I think fish-oil is helpful to your health, as well, so I do find the point relevant. Why not force everyone to gulp it up every morning?
No forced/coerced alternative could increase the satisfaction of an individual more than his uncoerced voluntary exchange/action, regardless of the time horizon. Value/satisfaction/wealth (both short-term and long-term predictions of same) are (1) subjective and (2) not amenable to aggregation/quantification by a (benevolent) dictator. You (the dictator) can not and will not make an individual subjectively better off (both short- and long-term) by forcing him to save more than what he would freely choose to save, nor by forcing more fish oil down his throat than he would freely choose to take. This is one of the foundation stones of Austrian Economics.
It’s up to the individual to decide what he believes and supports. Praxeological refutations usually follow the premise that a thesis is refuted if the outcome is more unfavorable to the individual promoting the behavior than the alternative. This does not follow that prescription, it brings about the intended goal of an increase in the capital stock and profitable investment, but it does so at the expense of what I outlined above. Now EVERY INDIVIDUAL can choose if he supports manditory savings or not, this does not mean it will make a difference, I’m saying that your opinion as to whether it’s “good” or “bad” from a societal perspective is up to the individual, it is not up to the individual as to whether or not he will or will not buy into the service.
That depends upon your values and the practical implications, not my opinion.
Because value is subjective you cannot say that what is eventually brought about in the end has less utility to the individual in the long term, you’re quite right that this cannot be measured however. With this being said all generations in the future will be better off materially than they otherwise be all else equal and therefore the person valuing the two actions could consider the long run more important. As Mises made clear it does not matter if the actions are unfavorable to the people who it directly effects, what matters is if the outcome is favorable to the evaluator. There is also no reason why long run improvement would not make someone better off subjectivley in the long run, for instance if an individual did not have the means to invest enough to procure this state off affairs and the individual preffered 3 years of 4X income and then progressing 6X income that continues to progress rather than 5 years of 5X income which progresses much more slowly.
If one believes people will be better off with long term growth and short term suffering this is the way to go, there’s no way around it. You are right that it is arrogant, however.
I’ll take the Australian Superannuation scheme as an example. Employers are forced to pay 9% of wages into the employee’s superannuation account, which the employee can invest in a privately managed superannuation fund of their choice (a superannuation fund is basically a low-risk mutual fund). They can also chose to self-manage their fund, investing mostly as they see fit. It’s basically a private pension scheme, and people can access the money from age 55 onwards (moving up to age 60 over time). So to mikachusetts, they save until retirement. Doesn’t matter if they spend all the money upon retirement, since it’s still been invested for a significant period of time, generating growth.
It’s valid from a totalitarian utilitarian perspective, in the sense of maximising overall human utility over an indefinite timespan. For this maximisation to happen, the time period over which humanity existed as a species would have to be extended as long as possible (if we became extinct, utility generation would stop, so the longer extinction is postponed, the greater the total utility). Imagine for instance a giant meteor is due to hit Earth in 2500, which would wipe out all human life as it did the dinosaurs. Assume also that with a great degree of savings and hence growth, we’d have colonised Mars by then, so a reasonable amount of humans would survive the attack, and be able to repopulate the species and continue generating utility. With lesser savings and growth, we wouldn’t have settled Mars by then, so all of humanity would be wiped out, and utility generation would stop. Hence, over a very long timespan (say year zero to year one billion), overall utility with the greater savings and growth would be orders of magnitude more than with the lesser savings and growth. I know that sounds far-fetched, but the principle is valid: every year, there is the risk of an extinction level event on Earth. Therefore each unit of growth, in the sense that it brings the species closer to technology to ward off or escape such an extinction level event, decreases the risk of human extinction. Thus economic growth therefore increases overall potential utility on an indefinite timescale, by prolonging the existance of the human race. Hence from this perspective, compulsory savings would be desirable, as it increases growth, therefore decreasing the chance of extinction, so increasing the timespan over which human utility may be generated. Note that I’m not actually arguing this position, I’m just describing a framework from which compulsory savings could be argued for.
Since it’s unlikely anyone actually supports such absolute utilitarianism, it’s also possible to argue from a personal preferences perspective. Say you wanted to prolong your life indefinitely. The technology for that doesn’t exist yet, but could be created sometime in future. The more economic growth there is, the sooner that technology will exist, and the greater the likelihood that it will exist in your lifetime. Hence it’s in your interests that society has a high savings rate, and therefore higher growth, as you couldn’t create that technology based on personal savings/investment alone, much as even the richest person in the world in 1920 couldn’t have used their savings to create an IPod 4.0. Or another example: you have a loved one with motor neuron disease, and you want them to be cured. The higher economic growth is, the sooner a cure will be discovered, and the greater likelihood of it being discovered before your loved one dies. Hence, it’d be in your interest that society has a high savings rate, and the consequent higher growth.
3,4. I picked millionaires per capita as it is the statistic for which Singapore is the most ahead of any other nations, and hence makes the most impact. Singapore’s also however got the third highest GDP per capita in the world in PPP terms, going by IMF figures, at US$56k (the US in comparison is at $47k), and over the past four years or so its total GDP has grown at an average of 6% per annum.
I’d argue, although this is entirely just from experience, that people wouldn’t see it as ‘giving 30% away’, rather they’re ‘saving 30% for retirement’. As to “They are doing great because of their free market, the freest in the world. If they have made a huge mistake, they are lucky it hasn’t hobbled them completely, but let’s not attribute their success to it.” That’s why I compared them to Hong Kong, which also has a very free market, and whilst prosperous is not as prosperous as Singapore. But I suppose Honk Kong’s lesser prosperity could just as equally be argued to be due to its less-free market, than to its lower compulsory savings, so I withdraw that point.
To z1235 “Without any forced saving, there are probably more millionaires per capita in the top ten richest counties in the U.S. than in Singapore.” Singapore generally has a freer market and less regulation than the US; it’s rated no. 1 in the world for ease of doing business, the no. 1 best business envornment worldwide, and no. 1 most open economy for international trade and investment. It also has practically no social welfare, lower taxes (top income bracket is taxed at only 20%), and government spending as a % of GDP is much lower than America’s. It’s essentially the most libertarian country in the world, in terms of economic liberty, although obviously not remotely socially libertarian. So considering all this, even if Singapore lacked its compulsory savings scheme, what advantage does the US have over it in terms of producing millionaires?
I’m not sure whether this subforum is here to argue the principles of libertarianism or the practicality of Austrian Economics, so I shall restrict myself to the latter.
What does “saving” 30% mean? If you say putting in banks, well, that is more of loaning, which is not exactly saving. It’s investing, which is active use of the money. There is no guarantee that it will be 100% returned. Enforcing the law by describing all instances of “saving” is near impossible. Since money is really only a middleman, I may as well say that I am “saving” the money by buying cake and storing it inside of myself as fat. Anything can be “saving” or “investment.” That’s why centrally-mandated economic decisions are poor and only seek control for the government. All politicians who want to make the economy grow and the nation be better than others are living out their fantasies of being emperors who control mighty states at war. Government gives these people the sandbox to live out their fantasies.
? It most definitely depends on your opinion (and not on my values) if I have no choice but to submit to your benevolent program.
?
As I wrote in a previous post in this thread:
“Imagine an eskimo village where each person catches 8 fish a week, eats a fish a day, and saves a fish a week for a rainy day. Then the wise chief descends upon the villagers and forces each to save FOUR fish a week (smoked and stashed into a storage igloo) for the “long-term”. Imagine also that such policy was implemented for the next FOUR generations. You’d end up with four generations of emaciated but “rich” lucky survivors.”
I am now certain that you don’t know the meaning of “subjectivity of values”. Person A can not “subjectively” value neither the short nor the long run in Person B’s stead. Person B is the only one that can subjectively value anything concerning Person B.
