Basic Instincts

(or – The Wisdom of Crowds, Part 2)

 

No, my title is not taken from the Michael Douglas/Sharon Stone movie of 1992. (That was singular, “Instinct”!) I’m interested, rather, in a range of instincts that citizens of many societies seem to have, that are increasingly overridden by public policy.

 

Not too long ago, thrift was a virtue. To incur debt was strongly discouraged. Debtors’ prisons in Europe were a symbol of society’s disapproval. When families needed to be self-sufficient to survive, creating some reserve of savings (whether a surplus harvest or money saved) was a normal response to future uncertainties. Families and societies who failed to create a buffer literally died out. Saving was a “basic instinct”. What happened?

 

Somehow (and Keynes was perhaps not the only one to blame), the idea took hold that the virtues of individuals became faults at the level of society. While saving was still accepted at the individual level, Governments were urged to borrow more and more. Initially, this was proposed only counter-cyclically in a downturn. Today it is regarded by many as an obligation of government. Prudence is called “austerity and is a “bad thing” in policy discussion.This has now reached such an extreme that in European fiscal politics, “austerity” no longer means saving too much, it means not over-spending enough! Spending only 110% of income, compared with some previously higher level.

 

This policy environment creates problems well beyond the Government’s own accounts. The financial policies that citizens read about encourage everyone to spend more than their income. “Consumer spending” is encouraged as if it were a public good. George W Bush, after an earlier financial crisis, publicly urged Americans to spend as if it were somehow patriotic. China is regularly accused of saving too much. The general tone of policy discussion, by talking about the “savings glut”, now implies the idea of saving is fundamentally destructive.

 

The last politician I recall who reflected “basic instincts” in her public policy was Margaret Thatcher in the UK in the 1980’s. As the daughter of a grocer, she often commented that the need for thrift and common sense with money that characterised her father should underlie government policy too. Many professional economists scoffed at this idea is if it was obviously stupid. Borrowing for productive investment somehow became conflated with borrowing for consumption. Commentators would criticize all parties for not borrowing ”enough”, regardless of the purpose of the borrowing.

 

This atmosphere of debate, when twinned with loose central banking and massive credit creation, has inevitably created societies that have over borrowed at every level. Governments, companies, individuals: each in aggregate has huge debts now. And this is without accounting for the mountain of other state liabilities not formally recognised in government balance sheets.

 

Let’s now consider why the basic instinct to save is so “basic” and why Governments are imperilling us by suppressing it.

 

Imagine a person’s lifetime cash flow before the modern age of welfare. The childhood years were obviously a time when the family had to support the individual. But by perhaps the age of 10-12, most children were making a contribution. Child labour was universal. On a small farm, it would have been easy for youngsters to make a meaningful contribution to the fields or the household. The cost of living for those kids would have also been very low. Their net positive contribution to the family would have been obvious. Having more children would not therefore have been seen as a risk in the long run but a blessing.

 

At the other end of their lifespan, provided the risks of death from disease or violence had been overcome, “retirement” would be occasioned only by weaker physical strength. It was likely to be short. Support would be provided by sons, daughters and extended family. Again, the costs would be low.

 

The long run net “cash flow” of such a life would see income generated by an individual exceeding his expenses from perhaps the ages of 15 to 60. (These are not researched figures. I am intending simply to give an indication of the broad issues.) Assuming a life expectancy of around 65 (excluding disease and warfare), only the first 15 years and the last 5 would see a deficit to be funded by the extended family. I am certainly being conservative here. The years from 12-65 might be a better estimate of productive life, but staying even with my conservative estimate, we have 45 years of productivity out of 65, or nearly 70%. Absent welfare, the surplus over those 45 positive years needed to cover the deficits in childhood and old age. This is of course averaged across generations. But in the absence of welfare, available then in Europe only from the Church, this lifetime cash flow had to be positive, or the community would quite literally die out (some did). It is therefore not difficult to see that the instinct for thrift and for saving is Darwinian, at the level of the family.

 

Let us now examine what the welfare state, based on the Western model, has done to this instinct for survival. Welfare states vary internationally of course but almost all involve heavy subsidies in the early years of life and in old age.

 

Schooling is impacted in three ways. First, it is provided “free”. That is, if you pay taxes to fund schools, you pay these regardless of whether you have children. Indeed you are likely to receive a tax-free allowance for having children, so the childless pay even more to fund schools for those with children. This means that the parents are no longer impacted by the cost of schooling. It is invisible to them.The second impact is making school compulsory. The parents cannot any longer trade off the long run benefit of further years of schooling against the cost of not having their child working. The trade off is imposed by the state, and if you keep your child from school you will be arrested (in the UK at least). The third impact results from the progressive extension of subsidised schooling. From a school leaving the age of 10 initially in 1880, the compulsory school in the UK has been extended in steps to 18 (with some opt outs after 16). In many countries, state funding extends to college level even if it not strictly compulsory it is heavily subsidised. Once more obscuring the trade off between more education and generating an income. In Uruguay, for example, all college education is “free” and as a consequence 100% of the age cohort attends college. In Germany, many students now take two Masters degrees and may not begin their working life until their late 20’s. This means that the income earning period of individuals today has been hugely reduced compared with less than 150 years ago.

 

Let’s now look at the other end of the life spectrum. We see exactly similar impacts of public policy. First the health care costs of old age are obscured for the individual family. A “free” health service at the point of use, creates unlimited demand by hiding its cost. Once more, the taxpayer who does not use the public system still pays. Once more, much of the system becomes “compulsory”. You cannot opt out from choosing to pay for this level of health care.

 

Apart from obscuring the true health costs of old age, public policy on pensions distorts the income side. By promising “adequate” state pensions, citizens in many countries are encouraged not to save or at least to save less. The MPF scheme here does the same. Yet many state schemes are unfunded (as are civil service pensions here). Not only is the citizen encouraged not to save, the state does not save in his stead. As in childhood, the impact of these state provision shortens income earning life. The state pension schemes in Europe led inevitably to employers automatically retiring their workers at 65, then 60 and in some cases younger still (see Greek civil servants for example).

 

Add the two sets of policies together and we have a working life, in extreme cases, of from the ages 27 to 57 only. Yet life expectancy has extended in many countries beyond 80. 30 years of productive work may now have to pay for 80 years of life. No longer a ratio of 70% but below 40%. Now, you may say, productivity is much much higher than in the premodern period of my example. Indeed it is but by how much? Who can tell? My message here is that there is no longer any transparency about the cost for this. And no ability to act if there were. An initial thought would be that if productivity were easily enough to cover these costs, Government finances would be in great shape everywhere from all those taxes from productive activities during working life.

 

Yet all around us are the signs of an enormous miscalculation by policy makers in the so called “developed” world. Pension schemes are going bust. Retirement ages are being compulsorily extended, breaching promises previously given. Fiscal policies cannot raise more tax revenue. And despite the huge cost of publicly provided health and education systems, users are deserting them. One key reason for middle-class angst in Europe is that many parents who are already paying for the public education and health system through taxes are paying a second time for private provision even at great cost to their family finances. (Some of my readers perhaps?) For them, the lifetime net cash-flow of that additional child is not looking so good. The child’s ability (or intention) to care for mum and dad in their old age is also waning.

 

As a result of all this, couples earn income much later, they therefore marry later. And the net financial impact over a lifetime of that additional child is not so clear. So population growth slows. Is any of this really a surprise?

 

What is happening is that the quality failure of public services has pushed the costs back on parents and made them more visible. “Basic instincts” have according led to slower population growth. Yet instead of reflecting upon these personal decisions by many couples, what do policy makers do? They double down; try to borrow more; add more incentives to have more children; promise more tertiary education not less; not admit pensions schemes are bust; ignore their unfunded costs; hold interest rates low to help governments borrow more, thereby making the pensions schemes ever more insolvent.

 

Left to themselves, citizens might make sensible decisions on these very important matters. But our condescending policy makers and politicians, worldwide, will not permit it. For them, crowds have no wisdom.

 

Watch out for our Hong Kong administration going further down this road to certain ruin as our city ages.

 

Nick Sallnow-Smith

 

 

本能 (或 群眾的智慧2）

非也，是次標題並非來自米高德格拉斯及莎朗史東於1992年拍攝的那一套電影。（那一套片名是單數： “Instinct”）令我感興趣的，反而是許多社會公民本來擁有的本能，越來越被公共政策所取諦了。

不久之前，節儉是一樣美德。借錢度日是不當的行為。歐洲的債仔監獄正正就是社會抗拒賒借的象徵。當一個家庭需要靠自身力量去生存就應該以儲蓄（不論是剩餘的收成或是金錢）作為對抗未來不確定性的正常行為。如果沒有建立起這個緩衝的家庭或社會就會在壞日子中滅亡。所以儲蓄只是一個 “本能”。但現實中發生了什麼事？

不知何故（要被責怪的可能不只是凱恩斯一個），社會上把這個美德說成是一種錯誤。當個人層面仍接受應該儲蓄的同時，提倡政府應借更多的錢。起初提議只是為對抗週期性經濟衰退問題。但今天，借錢已被許多人認為是政府的義務。謹慎的理財方針被貶為“吝嗇”及“有缺失”的政策決定。歐洲財政政策現時已經達到一個極端的想法，認為 “吝嗇”不再是指儲蓄太多，而是超支不足。只消費收入的110%及比往更高比率的對比。

政治環境製造的問題遠超於政府的賬目。市民所讀取的財政預算是鼓勵大家超出收入地去消費。更把消費說成公眾利益。喬治布殊於早前的金融危機後便呼籲美國人消費，並稱之為愛國。而中國則被指責儲蓄過高。當談論政策時，一般都會指“儲蓄過剩”是有著結構性的破壞。

1980年在英國的戴卓爾夫人是我見過最後一位能夠在政策體現出 “本能”的政治家。作為一個雜貨店老闆的女兒，她時常都以父新對金錢上的節儉習慣作為建議政策的基準。很多經濟學家都嘲笑這個明顯是愚蠢的做法。本來借貸用於投資生產變成了用作消費。不論借款是甚麼目的，輿論都認為借不夠。

在央行寬鬆及大量的信貸擴張的氣氛下辯論，無可避免地在社會上的各階層都創做了過度借貸。各政府、企業、個人：現時都累積了龐大的債務。而且這還未把國家的債務巨山正規地納入政府的資產負債表內。

我們不妨探討一下為可這麼“基本”的本能，政府都全力阻止我們儲蓄？

試想像一下在現代福利世代之前，一個人一生的現金流。在童年時當然由家庭支付其開銷。但到了十到十二歲左右，很多小孩已經開始作出貢獻。全球都有童工。在小農場，年輕人行容易就能有效地對農地或家庭幫忙。這些小童的生活費用很低。他們對於家庭的正回報很明顯。多生幾個小孩長遠來說對家庭不見得有害，反而是福氣。

而另一方面，就算生命能過度因疾病或強暴帶來的風險，”退休”會只因為年老及身體轉弱而發生。而退休後的日子不會很長。到時生活就會由兒子或女兒支持。但無論如何，開銷不高。

長期而言，這樣的個人現今流由十五到六十歲的收入都高於開銷。（縱使沒有真實的數據支持，但我嘗試簡化作大部分人的情況）假設當時人均年齡是六十五歲（排除了疾病及戰爭）只有首十五年及後尾的五年會出現赤字而需要由家庭作出支持。這個可能計萛得有點保守。其實以12-65來計萛有生產力的年齡範圍較合適，但就算以我保守的方法計萛仍有45個工作年頭，以65年的人生計萛都佔人生的70%。排除福利，每人只需利用這45年剩下的錢支付童年及老年的支出。這當然是要跨世代平均計算。但在排除福利（例如歐洲教會）的情況下，人生現金流必須要為正數，否則社會便會死亡（的確有這樣的情況出現過）。所以在家庭層面上來看，節儉及儲蓄是本能應不難理解的。

現在我們看看西方福利國家對這個生存本能的影響。福利國家有所不同的地方是，他們對於童年及老年都有很大的補貼。

教育則受三方面影響。首先是“免費”。即是說如果你交稅去給政府辦學，不論你有沒有小孩都得付錢。而事實上，如果你有小孩的話，上學是免費的，而沒小孩的，就要為他人的小孩付學費。這意味著家長沒法直接對學校的經費作出影響。他們也無法看得見。第二個影響是教育的強制性。家長們都不可以選擇讓孩子工作來賺取生活費用來代替上課。這是國家的規定，如果你不送孩子入學便會被逮捕（起碼英國是這樣）。 第三個影響就是資助教育的逐漸延長。由1880年，最初的離校歲數為10歲，到英國強制教育延長為18歲（有些可能是16）。有很多國家，資助範圍更擴展到高等教育，縱使是非強制性，但也是大量的補貼。再一次利用教育遮蓋了創造收入這個選項。例如烏拉圭，所有的大學都是“免費的”，以至令所有人該年齡組別的人口都在讀大學。在德國，大部分學生更在進入工作生涯前進修多達兩個碩士學位，令工作年齡推到差不多三十歲。換句話說，個人的收入期比起一百五十年前大幅縮減了。

現在我們來看看生命另一端的情況。我們可以看到政策有著相同的影響。首先，年老時的醫療費用本來是由家庭承擔的。一個“免費”的醫療服務把成本隱藏了，以至製造出無限的需求。而又一次，沒有使用公共醫療的納稅人仍然要付錢。再又一次，把系統變成強制性。你對無可選擇地要對這個水平的醫療服務付費。

除了把長者醫療成本隱藏，公共養老金政策也使政府的財政扭曲了。由於有“充足”的養老金承諾，很多國家的市民都被鼓勵減低或無需儲蓄。這裡的強制性公積金也一樣。然而有很多的計劃都未有充足的資金儲備（如本地公務員退休金）。不單是不鼓勵市民儲蓄，就連國家也是這樣。國家的規定縮短了童年可以取得收入的時間。歐洲國家退休計劃也導致僱員逐漸提早退休。由65變成60, 或有些例子便早（例如希臘的公務員）。

把兩組政策合並來看，你會發現我們的工作生涯在某些情況下變成從27歲到57歲。而很多國家的人口平均壽命則超過了80歲。工作日子比率從70%變成低於40%。可能你會說，現代的生產力遠高於以前的年代。然而是提升了多少？有誰可以提出數據？我在這裡是想提出，這些成本已經不易看得清楚了。就算給你，也沒能力看得真。最初以為生產力可以應付這些成本，但事實上各國政府都未能利用人們工作生涯中繳付的稅款來滿足需求。

其實你會發現周圍都有顯示出所謂“發達”國家的政客計算錯誤的跡象。退休金計劃準備要。退休日子被強制延長，違反了之前的承諾。財政政策未能提供更多的稅收。儘管醫療及教育系統對財政的負荷很高，使用者仍然對之漠視。而歐洲的家長感到很是焦慮的原因，是因為他們已經通過稅收給公共的醫療及教育系統付出，但自己就要到私營的醫院和學校再次付費。（可能是本文的一些讀者？）對於他們來說，這樣的人生淨現金流不利他們再添加小孩。下一代也對於自己是否有能力（或意向）去支付父母年老時的支出有所懷疑。

結果，情侶們都很遲才開始賺取收入，從而遲婚。而對人生財務的影響就是不確定錢是否足夠養育孩子。導致人生增速放緩。這個說法也不會讓人驚訝吧。

公共服務質素差把負擔推回給父母正在發生，而且越見明顯。對應的“本能”減慢了人口增長。然而對於夫婦對政策反應的個人決定，政策製訂者如何處理？他們不斷加強、嘗試借更多、獎勵多生小孩、承諾更多的高等教育、不加以控制退休福利而是繼續加大、不理沒有支援的成本、壓低息率讓政府能夠多借、但又令退休金計劃永遠資不抵債。

公民這些重要的事情有能力作出明智的決定，決定權留給他們吧。但我們在世界各地高膽遠矚的決策者和參政人仕都不會容許這事發生。因為對他們來說，人群是沒有智慧的。

看來真到這個城市老化，香港政府也會繼續跟這條路走下去。

作者：Nick Sallnow-Smith

翻譯：Joe Chan