Sunday, June 08, 2003
Risk transfers and middle-aged Scotts of the Antarctic
A great post here from D-squared, my favourite amateur economist.
In typical British style, you need to skim quickly through the first third of the read (which is a contrarian, but ordinaire, defence of big pay-ments/outs – and face it, it’s hard to tell the difference these days – to corporate exec failures). The real argument gets going with this line:
[T]he crusade against failure has to be seen in the context of a wider project that has been going on since the Thatcher-Reagan years; the attempt to load risks on to the working class which have historically been borne by the owner class.
Living in a country where my decision to go to university at 19, after having worked in a blue-collar job for a year after school, has so far cost me several hundred thousand dollars of financial security (compared to what would have actuarially happened had I kept that job and so been able to buy a house in the early eighties, etc etc) – I am normally most wary of invoking the term “working class” in any sympathetic context. Which I know is churlish of me, and all that – but perhaps the bible needs updating accordingly: “Thou shalt not covet thy neighbour’s $800-a-week job” (or pre-CGT investment property, etc etc).
In any case, “working poor” is – although not the term Mr Squared uses – much more accurate to describe the phenomenon of today’s highly-casualised workforce, and the risk transfers thereto. Also, “working poor” also has much wider resonance in modern Australia than “working class”. And, as a bonus, while I am not currently a member of working poor, I can semi-optimistically aspire to re-joining these ranks at some stage in the future, when my sessional* academic career may resume. In contrast, I once had my chance to join the tenured working class – and I stupidly blew it.
So back to D-squared:
[T]he effect of [workforce casualisation] is to transfer volatility from profits to wages. Previously, owners of companies had effectively provided income insurance against the business cycle to workers as part of the wage bargain; starting 1980, this insurance was gradually withdrawn, and it is difficult to see from the national income statistics that there was any compensation for this loss of benefit in terms of higher wages. The move to defined-contribution pensions rather than defined benefit is analysable in similar terms as a shift of the risks of the stock market.
Good stuff – and commentator “Nabakov” then takes over the baton thus:
But "transfer volatility from profits to wages" is, I agree, one of the nastiest developments of the past few decades.
What really pisses me off is how the people who have driven this push are the one who have all benefited form the unspoken social contracts of the post-war to late seventies years - which provided subsided to free education and healthcare and a respectable commitment to social infrastructure in exchange for the demobbed masses and their immediate offspring not getting any funny ideas (ie; a General Strike).
Starting to sound familiar? Yep, it’s How Baby Boomers Have Fucked Up the World 101, only told generationally non-specifically (and, in D-squared’s case, without trace of either anger or gloating – possible, I think, because Mr Squared appears to possess the rare combination of a baby boomer’s job and income, all in a Gen X frame and mind).
In Australia, a recent example of one such “unspoken social contract” being further, conspicuously, and hypocritically trashed is the latest planned upping of university fees. The point here was well-nailed by these letter-writers:
Why doesn't Peter Costello, his colleagues of all political hues, the vice-chancellors and their academic staff, and indeed all the other baby boomers who have enjoyed the benefit of free tertiary education, have also benefited from the economic and property booms (making many of them property millionaires) and are in well paid employment, repay the fees for their tertiary education now they can afford it?
[snip]
By contrast, the established baby boomers could easily pay their retrospective fees by selling a portion of their investment portfolios, using the many draw-down and other finance facilities offered by all financial institutions – or via some other clever scheme every man and his dog seems to develop when there is a buck to be made by working the system.
-William Maudlin, Bondi, NSW
Letters to Ed, The Australian 15 May 2003 (no URL)
William Maudlin's point (Letters, 15/5) is valid – a generation provided with free tertiary education by their parents now seeks to withdraw that privilege from the next. A generation made wealthy by the sacrifice of their parents maintaining that wealth by sacrificing the next deserves harsh judgment.
Now atop the ladder, rather than extending a hand down, it seems ministers Costello and Nelson are kicking out the rungs beneath them.
[snip]
- Tony Miscamble, Wooloowin, Qld
Letters to Ed, The Australian 19 May 2003 (no URL)
Since it is the topic of insurance what seems to be at the locus of much of D-squared’s thoughts, it is presumably only right to end this post with another example of how another implied social contract has been broken along generational lines – this time to do with insurance specifically.
Here, I’m referring to an annual (or thereabouts) Australian media event. One or more adventurers gets stuck in a spot of bother, often in the high seas, far off Australia but not conveniently close to anywhere else. A rescue, usually involving several governmental agencies, is arranged – costing a bomb, of course – and then, almost as soon as the television feed of the bedraggled figure(s)being winched into the chopper goes to air, the backlash begins: how dare this reckless adventurer rely on “our” taxpayer largesse, etc.
And at this, the rescuee usually mumbles into the mike an appropriate combination of deep gratitude and fiscal remorse, sometimes alongside a vague promise to make partial financial restitution. That’s then the end the story – but for one otherwise-minor detail: the age of these hapless adventurers seems to keep going up (these days, most are at least in their forties).
Now, applying D-squared and Nabakov’s model of the broken, post-1980 social poly-contract to the rescuing of adventurers from the public purse, it is clear that we have an anomaly here. If there were ever a case in which a modern government should not step in as insurer, this would seem to be it. In other words, today’s wannabe Magellans-in-a-rowboat or "unsupported" Scotts of the Antarctic should have to make an irrevocable decision at the outset: they (privately) insure themselves – or they accept their deaths, in the alternative. Yet this plainly does not happen, in practice.
This anomaly can be relatively simply explained – private insurance is not economically viable, and so the government must step in, as an insurer of last resort. By “must”, of course, I don’t mean that TINA**, but that the alternative – of leaving uninsured adventurers to die, despite their rescue being physically possible – is either morally unpalatable and/or overly discouraging of the production of erstwhile national heroes.
Interesting stuff. Finally, and to draw things together, I suggest that the reason for this cohort of informally (i.e. governmentally) insured adventurers ageing is directly connected with this social-contract being – unofficially, of course – only available to baby boomers and older. Now this is a big, and hugely contestable claim. Not only I am generalising re the typical adventurer’s ageing, and even if I did have empirical evidence for this, it would not actually prove the point (i.e. Gen X may desist from spectacular feats of adventurer for all sorts of reasons other than the tacit withdrawal of governmental insurance. Being less inclined than baby boomers to seek national heroism is just one such possibility; and being less able to raise the considerable capital costs needed to mount an adventure – even an informally insured one – is another.
So I can’t offer proof. Instead, I’ll leave you with these governmental thoughts on a Gen X adventure into the Antarctic gone wrong. (scroll to “Rescued Adventurer Speaks Publicly for First Time”). Call me an embittered nitpicker, but I just don’t see that this weird combination of admonishing bureaucratic prose, with the vicissitudes of life and death – and money, would have ever been written up, had it been a baby boomers’ rescue.
* The US term for sessional academic is (I think), an “adjunct”. By contrast, in Australia, an adjunct academic is a rather exalted creature, whose high-pay, but medium-prestige day job is thought ideally matched to a medium-pay, but high-prestige part-time position in academia.
** There Is No Alternative (US military acronym)
A great post here from D-squared, my favourite amateur economist.
In typical British style, you need to skim quickly through the first third of the read (which is a contrarian, but ordinaire, defence of big pay-ments/outs – and face it, it’s hard to tell the difference these days – to corporate exec failures). The real argument gets going with this line:
[T]he crusade against failure has to be seen in the context of a wider project that has been going on since the Thatcher-Reagan years; the attempt to load risks on to the working class which have historically been borne by the owner class.
Living in a country where my decision to go to university at 19, after having worked in a blue-collar job for a year after school, has so far cost me several hundred thousand dollars of financial security (compared to what would have actuarially happened had I kept that job and so been able to buy a house in the early eighties, etc etc) – I am normally most wary of invoking the term “working class” in any sympathetic context. Which I know is churlish of me, and all that – but perhaps the bible needs updating accordingly: “Thou shalt not covet thy neighbour’s $800-a-week job” (or pre-CGT investment property, etc etc).
In any case, “working poor” is – although not the term Mr Squared uses – much more accurate to describe the phenomenon of today’s highly-casualised workforce, and the risk transfers thereto. Also, “working poor” also has much wider resonance in modern Australia than “working class”. And, as a bonus, while I am not currently a member of working poor, I can semi-optimistically aspire to re-joining these ranks at some stage in the future, when my sessional* academic career may resume. In contrast, I once had my chance to join the tenured working class – and I stupidly blew it.
So back to D-squared:
[T]he effect of [workforce casualisation] is to transfer volatility from profits to wages. Previously, owners of companies had effectively provided income insurance against the business cycle to workers as part of the wage bargain; starting 1980, this insurance was gradually withdrawn, and it is difficult to see from the national income statistics that there was any compensation for this loss of benefit in terms of higher wages. The move to defined-contribution pensions rather than defined benefit is analysable in similar terms as a shift of the risks of the stock market.
Good stuff – and commentator “Nabakov” then takes over the baton thus:
But "transfer volatility from profits to wages" is, I agree, one of the nastiest developments of the past few decades.
What really pisses me off is how the people who have driven this push are the one who have all benefited form the unspoken social contracts of the post-war to late seventies years - which provided subsided to free education and healthcare and a respectable commitment to social infrastructure in exchange for the demobbed masses and their immediate offspring not getting any funny ideas (ie; a General Strike).
Starting to sound familiar? Yep, it’s How Baby Boomers Have Fucked Up the World 101, only told generationally non-specifically (and, in D-squared’s case, without trace of either anger or gloating – possible, I think, because Mr Squared appears to possess the rare combination of a baby boomer’s job and income, all in a Gen X frame and mind).
In Australia, a recent example of one such “unspoken social contract” being further, conspicuously, and hypocritically trashed is the latest planned upping of university fees. The point here was well-nailed by these letter-writers:
Why doesn't Peter Costello, his colleagues of all political hues, the vice-chancellors and their academic staff, and indeed all the other baby boomers who have enjoyed the benefit of free tertiary education, have also benefited from the economic and property booms (making many of them property millionaires) and are in well paid employment, repay the fees for their tertiary education now they can afford it?
[snip]
By contrast, the established baby boomers could easily pay their retrospective fees by selling a portion of their investment portfolios, using the many draw-down and other finance facilities offered by all financial institutions – or via some other clever scheme every man and his dog seems to develop when there is a buck to be made by working the system.
-William Maudlin, Bondi, NSW
Letters to Ed, The Australian 15 May 2003 (no URL)
William Maudlin's point (Letters, 15/5) is valid – a generation provided with free tertiary education by their parents now seeks to withdraw that privilege from the next. A generation made wealthy by the sacrifice of their parents maintaining that wealth by sacrificing the next deserves harsh judgment.
Now atop the ladder, rather than extending a hand down, it seems ministers Costello and Nelson are kicking out the rungs beneath them.
[snip]
- Tony Miscamble, Wooloowin, Qld
Letters to Ed, The Australian 19 May 2003 (no URL)
Since it is the topic of insurance what seems to be at the locus of much of D-squared’s thoughts, it is presumably only right to end this post with another example of how another implied social contract has been broken along generational lines – this time to do with insurance specifically.
Here, I’m referring to an annual (or thereabouts) Australian media event. One or more adventurers gets stuck in a spot of bother, often in the high seas, far off Australia but not conveniently close to anywhere else. A rescue, usually involving several governmental agencies, is arranged – costing a bomb, of course – and then, almost as soon as the television feed of the bedraggled figure(s)being winched into the chopper goes to air, the backlash begins: how dare this reckless adventurer rely on “our” taxpayer largesse, etc.
And at this, the rescuee usually mumbles into the mike an appropriate combination of deep gratitude and fiscal remorse, sometimes alongside a vague promise to make partial financial restitution. That’s then the end the story – but for one otherwise-minor detail: the age of these hapless adventurers seems to keep going up (these days, most are at least in their forties).
Now, applying D-squared and Nabakov’s model of the broken, post-1980 social poly-contract to the rescuing of adventurers from the public purse, it is clear that we have an anomaly here. If there were ever a case in which a modern government should not step in as insurer, this would seem to be it. In other words, today’s wannabe Magellans-in-a-rowboat or "unsupported" Scotts of the Antarctic should have to make an irrevocable decision at the outset: they (privately) insure themselves – or they accept their deaths, in the alternative. Yet this plainly does not happen, in practice.
This anomaly can be relatively simply explained – private insurance is not economically viable, and so the government must step in, as an insurer of last resort. By “must”, of course, I don’t mean that TINA**, but that the alternative – of leaving uninsured adventurers to die, despite their rescue being physically possible – is either morally unpalatable and/or overly discouraging of the production of erstwhile national heroes.
Interesting stuff. Finally, and to draw things together, I suggest that the reason for this cohort of informally (i.e. governmentally) insured adventurers ageing is directly connected with this social-contract being – unofficially, of course – only available to baby boomers and older. Now this is a big, and hugely contestable claim. Not only I am generalising re the typical adventurer’s ageing, and even if I did have empirical evidence for this, it would not actually prove the point (i.e. Gen X may desist from spectacular feats of adventurer for all sorts of reasons other than the tacit withdrawal of governmental insurance. Being less inclined than baby boomers to seek national heroism is just one such possibility; and being less able to raise the considerable capital costs needed to mount an adventure – even an informally insured one – is another.
So I can’t offer proof. Instead, I’ll leave you with these governmental thoughts on a Gen X adventure into the Antarctic gone wrong. (scroll to “Rescued Adventurer Speaks Publicly for First Time”). Call me an embittered nitpicker, but I just don’t see that this weird combination of admonishing bureaucratic prose, with the vicissitudes of life and death – and money, would have ever been written up, had it been a baby boomers’ rescue.
* The US term for sessional academic is (I think), an “adjunct”. By contrast, in Australia, an adjunct academic is a rather exalted creature, whose high-pay, but medium-prestige day job is thought ideally matched to a medium-pay, but high-prestige part-time position in academia.
** There Is No Alternative (US military acronym)
