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Joe Hockey’s retirement pitch overlooks a world of abundance

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…

Joe Hockey’s “budget crisis” overlooks our real economic possibilities. Julian Smith/AAP

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.

Join the conversation

26 Comments sorted by

  1. Dave Bradley

    logged in via email @yahoo.com.au

    No Scarcity of Cuban Cigars though it seems.

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  2. Dave Bradley

    logged in via email @yahoo.com.au

    Please Sir, said a starving Oliver Twist "may I have some more".

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    1. John Ward

      logged in via Facebook

      In reply to Dave Bradley

      At the 1937 federal election, the United Australia Party had promised to introduce a system of national insurance that would provide medical cover and pensions for working people. The scheme was to be funded by contributions from government, employers and employees. Menzies, who had helped draft the policy, was an enthusiastic supporter of the scheme. For him it constituted good social policy and, once adequate superannuation funds had been accumulated, promised to relieve taxpayers of what was likely…

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  3. grant moule

    Consultant

    When will we see politician's pension and generous benefits only apply when they reach 70 years of age, and accessing their superannuation at the same age as everyone else?

    Would this not be more in line with Joe Hockey's "I think we have got to send a clear message to the electorate that whatever we are asking the electorate to contribute to the budget repair task, we are going to contribute ourselves as well."

    And while at it, make the politician's pensions the same value as those available to the general public (including all existing recipients), this would have to save quite a few dollars and make the system much fairer.

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    1. Steven Fuller

      Asset Management

      In reply to Ronald Ostrowski

      Also of note, is how the "one million jobs" promise went largely uncritiqued, particularly in terms of our population growth. That we will have an increase of more than one million people requiring jobs actually means a net decrease in the number of jobs compared to job seekers.

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  4. Brad Farrant

    logged in via email @hotmail.com

    Great piece, thanks Michael and Dick.

    It would also be helpful to have an article that investigates how Keynes argument intersects with the physical limits to growth we are bumping up against (climate change and other forms of environmental degradation and physical resource depletion).

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  5. Suzy Gneist
    Suzy Gneist is a Friend of The Conversation.

    Multi-tasker at Graphic Design & Montville Coffee

    It's very important to question the assumptions that these measures are based on and to me, the definition of wealth in the context is very relevant. Especially since we still do not recognise contributions by volunteers or other unpaid contributions to the economy of the nation - an area which will also be affected by this rise in pension age and the accompanying demands on time and effort to remain in paid employment to cover one's living expenses.
    There will be labour shortages in other areas which will require compensation in service provision. I cannot imagine a still working 68 year old finding time to look after grandchildren, help in school programs, run fundraisers for rotary clubs or assist in private care. All of these will need to be provided in other ways or leave our society less resilient and worse off overall.

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  6. R. Ambrose Raven

    none

    In Europe and the U.S. the filthy rich – the 0.1% - have done very very well from brutal Austerity; Spain has 26% unemployment co-existing with a record number of millionaires.

    To plunder similarly here, they need to inflict similar pain. Therefore, as representative of the filthy rich and of transnational capitalism Abbott the Hun's agenda (equally driven by Hockey the Hatchet-man) is in fact quite open, quite simple, and quite brutal – to wreck the economy so as to indirectly force the massive…

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    1. James Hill

      Industrial Designer

      In reply to R. Ambrose Raven

      Low wages, a shortage of savings, an increase in interest rates, a consequent demand for, and rise in the value of the Australian dollar as foreign capital agitates for entry.
      Those who already have dollars will be happy, those with only their labour to offer, sorry we have less-expensive people than you waiting and eager to take your place, and occupy the houses you can no longer afford to keep, the farms you can no-longer afford to keep.
      Dispossession through debt?
      An old conservative game.
      Know your enemy.

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  7. James Hill

    Industrial Designer

    In the present circumstances, would Wu Sun Tzu's The Art of Strategy (or generalship) be more of a priority than the "art of life"?
    The population, according to the comments, will be struggling to survive the war declared upon them by the Abbotteers and friends.
    "Know your enemy.
    Know yourself.
    One hundred battles,
    One hundred victories."
    The art of life and the life of this present government are mutually exclusive?

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    1. Jane Middlemist

      citizen

      In reply to James Hill

      Re the "Abbotteers", James : a quote from Q&A last night:
      "Mind over matter economics" = "Those who matter, don't mind. Those who mind, don't matter". Blood curdling really …

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  8. Graham Walker

    IT Architect

    How many of those who scream and cry when this budget slashes and burns voted for this Government and believed their rhetoric in the lead up to the election. Who do they have to blame now but themselves. Unfortunately they dragged the rest of us along with them.

    Although that said I still think our screwed up preference system is also to blame as many people may have voted for other parties not realising where or how their preferences would ultimately be used.

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    1. Steven Fuller

      Asset Management

      In reply to Graham Walker

      Correct. If you look at the election results, more first preference votes went to Labor than the Liberal Party - their assistance from the Nationals as a coalition notwithstanding. Still, it says a lot for Abbot's constant proclamation of a "mandate" when more than 50% of the poluation voted against his party.

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    2. John Ward

      logged in via Facebook

      In reply to Steven Fuller

      At the 1937 federal election, the United Australia Party had promised to introduce a system of national insurance that would provide medical cover and pensions for working people. The scheme was to be funded by contributions from government, employers and employees. Menzies, who had helped draft the policy, was an enthusiastic supporter of the scheme. For him it constituted good social policy and, once adequate superannuation funds had been accumulated, promised to relieve taxpayers of what was likely…

      Read more
  9. John Saint-Smith

    Concerned Citizen

    “If an understanding of ecological systems and moral
    responsibility among mankind can keep pace with man’s
    power to affect changes, the present-day concept of
    unlimited exploitation of resources will give way to
    unlimited ingenuity in perpetuating a cyclic abundance
    of resources”
    G.E. Hutchinson,1948
    Ecological Economics provides the 'how' of Keyne's dream, and makes it sustainable.
    Without a sustainable economy all this 'rational' redistribution is meaningless.

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    1. Janeen Harris

      chef

      In reply to John Saint-Smith

      The economy can't be sustainable if it encourages poverty to grow. Distribution is the real issue Australia is facing, as is the rest of the world. If the majority are expected to do more for less so a minority can have more and more then the economy will crumble from the stress. Maybe our governments contempt for the people will be the cause of a recession here. What I fear is the rest of the world going back into recession at the same time.

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    2. John Saint-Smith

      Concerned Citizen

      In reply to Janeen Harris

      Janeen you have the cart before the horse, I'm afraid. Sustainability covers a 'Gordian knot' of many more pressing issues than equity, as important as it is. We are currently on a certain trajectory to melt-down, and we'll all go together, whether we are in first class or in steerage. Redistributing a shrinking ecological base for life won't sustain anything.

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  10. John Ward

    logged in via Facebook

    At the 1937 federal election, the United Australia Party had promised to introduce a system of national insurance that would provide medical cover and pensions for working people. The scheme was to be funded by contributions from government, employers and employees. Menzies, who had helped draft the policy, was an enthusiastic supporter of the scheme. For him it constituted good social policy and, once adequate superannuation funds had been accumulated, promised to relieve taxpayers of what was likely…

    Read more
  11. Susan Geason

    Writer

    Who, among this army of self-funded retirees will dare ask for financial advice, given the government's determination to let them keep their licence to steal?

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