Australian Law Professor Mirko Bagaric says forcing people to pay money into tumbling markets is cruel. Superannuation is coercive, he says, and the superannuation industry is the main winner from forced saving, earning hundreds of millions dollars revenue from fees and charges.
He also decries the use of compulsory superannuation to reduce the take-home pay of young families. We can coerce them later, he says, when their kiddies are a bit older.
The Professor concludes that superannuation is flawed because we don't have enough of a say in it. The solution, he says, is to guarantee that superannuation returns do not fall. In other words, pass a law that bans bear markets.
Yes, you read correctly. The Professor wants a guarantee that super funds will never lose money. Coercion is wrong, but Government should use coercion to act in our best interests to guarantee gently ascendant prosperity. Nirvana, here we come!
Retiring doesn't come cheaply. Fewer workers will have to support all those retirees claiming government-guaranteed pensions and benefits. What to do? Government-sponsored geniuses dreamt up a compulsory superannuation system. Money taken from you is given to someone else to "invest." We needed to do this, apparently, because people knew they could get a pension and weren't saving "enough."
So take some populist policy, use force to implement it and hey presto! Government intervention created an entire industry.
Government has always been about using coercion to force people to do stuff. We are told that saving money in superannuation is good for us, because it's an easy path to wealth. Just hand your cheque-book over to the professionals, and nobody will get hurt … much.
Those pesky baby boomers intent on claiming pensions, cheap prescription drugs and medical benefits might have to keep working. Thankfully, the Professor knows we all like our jobs and want to keep them.
But there's a problem. Apparently the stock market is not encouraging "compliance with fundamental moral norms that affect the wellbeing of others." How dare it. Seems that the stock market, supposed to always go up, is currently going down. Well, we're from the Government and we're here to help! We can pass a few laws, and bingo! Your problems will be solved.
Except that using coercion simply hides the first problem by creating new ones. Government use of coercion removes choice and substitutes dependency. And of course, coercion is a bit like lying: one little lie invariably leads to another.
The Professor is wrong in calling for Government to use coercion in a war on bear markets. Injecting liquidity will not "fix" insolvent banks; buying their toxic assets will share the problem around. And cost us all, big-time.
Government intervention will inevitably create more problems. But then, some people thrive on hope. Expecting a different outcome from more government meddling certainly suggests that.
Thanks to Greg Pauling for editing this article.
October 6, 2008