There once was a prosperous town on the fertile banks of an abundant river. It was full of people plying various trades. Over the years, the people had found barter inconvenient and they had arrived at a brilliant plan. The various tradesmen would issue IOUs, and these IOUs became tradeable. Thus, one might buy a pound of fresh fish with an IOU good for a haircut and shave by the barber. This system worked well, mostly.
The Cobbler’s Tale
The Cobbler was a far-sighted and prudent Man. He worried, although not to excess, about how he should live when he became too old to cobble, or about what would happen should he fall ill. Then one Day, he invented a cunning Plan: he would save his IOUs! Every Week, he would write an IOU to the Value of nine percent of his Turnover for the Week, of which he kept meticulous Track. These IOUs he would put into a Lockbox hidden under his Home.
As he aged, he decided that at his Threescore and Ten he would hang up his Tools and work no more. The great Day came, and he celebrated with Friends and Family. Some of them were concerned, and thought that this Notion of “Retirement” was foolish. How would he live? But the old Cobbler tapped his Nose and smiled.
After the party, the Cobbler opened his Lockbox and counted the IOUs with Contentment and Happiness. These would sustain him for many Years, well into his Old Age if husbanded wisely.
Now then: what do you suppose happened to the cobbler, the very first time he attempted to buy bread with one of his oh-so-carefully hoarded IOUs?
The Inkeeper and the Smith
The Inkeeper had much the same Plan as the Cobbler. However, he had a large Family and his Sons maintained the family Business as he moved on into his Dotage. They loved the Old Man and gladly kept him, happily redeeming his old IOUs. In Truth, it was no Burden to do so, for his Habits were modest and frugal. The Inkeeper would always boast about how he had wisely provided for his Old Age, by saving his IOUs. His Sons would merely smile.
Happier he, than the Smith. The Smith was a coarse Man who beat his Children and their dear Mother. His sons devised a cunning Plan, for the Smith had always issued IOUs good for “a complete Shoeing”. His sons decided that these IOUs were only good for a complete Shoeing of one Hoof, and suddenly the Smith found that his Savings were only worth a Quarter of what he had saved. Thrown out of home, he died of Hypothermia one Winter, mumbling that Inflation had eaten into the value of his Savings.
Now then: what value had the IOUs of the Smith and the Innkeep?
The Milliner lived extravagantly, well beyond his Means. He loved fine Clothes and expensive Food in excess. But he had invented a brilliant Plan. He would issue IOUs for “the fitting of an Hat” of more than the Value of the Things he purchased, but these IOUs were marked as being redeemable at some point in the Future.
Of course, the Future always comes around eventually. Sometimes the Milliner would redeem the Value of the IOUs presented to him. At other times, he would offer another IOU worth even more, redeemable later on. People would often accept these, for the Milliner had a fine Family, greater even than the Innkeep’s, and they were confident that the Certificates were good.
Eventually the Milliner died of Gout (a nasty way to go) and his IOUs began to come due. His sons were in a Quandary, for they lived every bit as extravagantly as their father, and by much the same Means. They could not simply refuse to redeem their father’s Certificates – who would accept theirs if they did? And so eventually they struck a Bargain with their most important Creditors, whereby the IOUs would be forgiven in exchange for a share of the Value of the House in which they lived.
Now then: where do you suppose the Milliner’s grandchildren lived? Who do you suppose they worked for? And do you suppose that his other creditors ever got their hats?
So what am I saying? This American model, where retirement funds are paid for by a nation purchasing its own securities, is transparently ludicrous. A nation’s currency is only ever worth the nation’s assets – more or less.
The price of bread is the amount of money that people want to spend on it, divided by the amount of bread that there is. If all the bakers retire, the price of bread goes up because no-one wants to make it anymore. As the baby-boomers hit 65, either inflation will raise the cost of living, investments will somehow disappear (they were only ever numbers on paper, anyway) or laws will be finagled so that people cannot get at their “savings” until more of the aged cohort are dead. No mater what happens, if people want more bread than the younger cohort can produce, then the bakers will be forced out of retirment one way or another. Bread don’t bake itself.
At the end of the day, if a person is no longer working, someone else must bake their bread for them if they are to eat.
To put it another way – once an entity is the size of a nation, currency is no longer a store of value. It’s a fiction, whose fictitiousness becomes overt once you have a social security “lockbox” than in theory has two trillion dollars in it. You cannot save by holding claims against your own future effort – only by holding claims against someone else’s. When a whole society tries to do it, it won’t work. Retirement “savings” are a chimera, and a society that tries to save it’s own currency for the future will find that the effort is doomed, because currency is only worth what you can buy with it at the time you are trying to spend it.
The Australian system is no different – just a little sneakier. The fact that it’s all done through private returement funds (“superannuation”) doesn’t actually change the situation. It will just alter the mode by which it fails, come the day that it does.
Super is a generational scam. The only thing that makes sense is to discard the broken “superannuation” model and return to the idea that the young and fit should support the old and infirm by way of outright allocations of money – what used to be called social security – and without the middlemen of the financial services industries.
It’ll never happen, of course, any more than my idea that legal costs should be paid for by a medicare-like mechanism (it is as outrageous that the poor go to gaol for want of money as it is that they sicken and die from it). I don’t worry about what the future might be like. I’m pretty certain.