In recent weeks, Joe Hockey has been floating the idea that in an “age of personal responsibility”, and in the context of a budget “crisis”, people will have to work longer before they receive the age pension. And to do so, they may also need to have used up all their superannuation and housing assets.
Naming a “crisis” is always a good way to introduce a hostile and unwelcome policy, for it engenders a taste for the unpalatable. But crises – real rather than contrived ones – are often also the times when real visions of a better future arise.
1930 wasn’t a great year to be looking optimistically forward and to be speculating about a bright future ahead. Indeed, it was in the middle of a major economic crisis, the Great Depression. Output for both investment and consumption was, by any criterion, “scarce”. But in 1930 John Maynard Keynes wrote one of his most famous and perhaps his most audacious essays: “The Economic Possibilities of our Grandchildren”.
To envision a world of high social productivity, Keynes directly challenged the way economists had conceived of “scarcity”: the idea that there are unlimited wants and needs, but only limited resources. Having marvelled at the growth in the productive powers of society up to the Depression, Keynes contended that in the next hundred years, if society’s productive powers continued to expand, we would see the early-1930s as “…only a temporary phase of maladjustment”.
His central point was that the long-run of human history was of growing capacity to produce wealth. In Keynes’ future, the problem would not be scarcity in the sense of insufficient funding for a basic standard of living for all. As he puts it the challenge in such a society would be that:
…for the first time since his creation man will be faced with his real, his permanent problem - how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.
Much shorter working hours and working lives would not just be possible but probably socially necessary to share around the work. Wider transformations would follow, in terms of social priorities.
Eighty years on, we have enjoyed the productivity growth, but not the outcomes Keynes imagined. Perhaps that wasn’t the case until the mid 1970s or even the mid 1980s, for standards of living were growing significantly, albeit not evenly. But from around the mid 1980s, that changed. Nowhere perhaps is this more evident than in the area of retirement.
A key international turning point was the publication in 1994 of the World Bank’s Averting the Old Age Crisis. It argued that as societies were ageing, and ageing rapidly, governments were facing an impending fiscal crisis if they didn’t radically change their retirement policies – and it advocated forms of retirement privatisation. This meant self-funded retirement: compulsory savings out of wages.
Hockey’s apparent crisis is that these compulsory savings are not sufficient to fund retirement, and people will stay, on his reckoning, too state pension dependent. Hence, the need to increase the period of life over which they save, and reduce the period of life over which they live off savings (private and public). The supposed answer is to increase the retirement age. The Productivity Commission recommends it to go to 70. Saul Eslake, Bank of America economist and former Director of the Grattan Institute recommends a more complex calculation of “longevity risk”, so as to give an average of 10 years between ending work and expected death.
Significantly, leading economists such Nicholas Barr at the London School of Economics, and Nobel Prize winners Peter Diamond and Joseph Stiglitz have criticised the supposed looming fiscal crisis of an ageing population as one of the great myths of the pension reform agenda.
Like Keynes, they focus on the centrality of future output as a means of funding retirement obligations. There are many ways of increasing future output, of which delaying retirement age or the privatisation of pension financing are just a couple – and perhaps not the best options we have.
But in framing the current debate Joe Hockey wants to shape a cultural change – ending what he calls a “culture of entitlement” and replacing it with an era of “individual responsibility” or financial self-management. In building a similar agenda before the global financial crisis, then-President George W. Bush talked about financial self-responsibility as if it were the key to the good life and building the social good.
But as we can now see quite starkly after several million US citizens lost their homes during the sub-prime mortgage meltdown, and billions in retirement savings were lost in the subsequent stock market collapse, financial responsibility isn’t so much about the social good but about personal risk management – it’s about individuals and households managing a growing range of costs and risks that are being shifted from governments and employers. The idea here is that we must manage these risks and of course if we don’t it is our fault that we didn’t work hard enough, save enough, spent too much or weren’t “savvy” enough. Social and economic risks and responsibilities are being individualised. This is the modern agenda of re-imposing scarcity, amidst possible abundance. Extending the retirement age is a corollary of that agenda.
Keynes was pretty clear that in a world of abundance we would not be asked (or forced) to act and think like little capitalists. If we can indulge you just one more time with a quote from the essay, here’s what Keynes said about the historic mission of finance and money making:
The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.
One of the most important battle lines in this contest will be what sort of life including retirement we dare to imagine. Joe Hockey and the Grattan Institute want you to think we live in a world of permanent scarcity so that selling yourself for the means of life for as long as possible is all you can expect. They want you to think about the future in terms of the economic and financial responsibilities of our grandparents.
It will be up to others to identify the possible conditions of abundance already in our midst and still emerging, and to encourage us to dare to imagine what Keynes referred to as the art of life. To do this we will once again have to re-imagine what the economic possibilities are for us – Keynes’ grandchildren.
* The authors wish to thank Scott MacWilliam for discussions and comments on an earlier version of the paper.