I wondered if anyone could address a question I have about the how the Austrian school treats forced savings. Savings is good, right? The more people save, the more economic growth there will be in the long term, and without savings there could be no growth at all. So, superficially at least, it would seem that by compelling people to save a greater portion of their incomes, to forgo consumption, a government could increase long term economic prosperity. Now, I understand in practice this rarely happens, and governments tend to decrease savings through instituting social security programs. But, Singapore is an example of a country with a mandatory savings program, with the State forcing people to save around 30% of their incomes, and its economy has been extremely successful, with the highest per capita rate of millionaires in the world, at 15.5% of households. It could be argued that this is due to the small state and relatively free (by international standards) market, but then Hong Kong has (as far as I'm aware) an almost equally free market, however has only 8.6% millionaire households per capita, a difference that could be attributed to Hong Kong's lower compulsory savings requirements (the exact % would be in here somewhere: http://www.mpfa.org.hk/eindex.asp if anyone's feeling adventurous :P). So, my question is, what would be the Austrian response to the statist assertion that government intervention can increase long-term economic growth by compelling people to save more than they otherwise would? (Assume say a minarchist government with a monopoly on force, which jails people who fail to save the required percentage of their income but otherwise intervenes as little as possible in the economy.) If the natural rate of savings (defined as that which would occur absent State intervention) in the economy was 10%, and the intervention raised it to 30%, would that lead to a more prosperous economy in 100 years time than would exist otherwise?
I'll just qualify, I'm not actually advocating such government intervention, as I understand the Austrian tradition is based around principles of choice/liberty rather than totalitarian utilitarianism. I'll also add that I find it somewhat ironic that I've never seen this argument advocated by statists, since it seems like one of the few good arguments for how state intervention could indeed bring about a greater (utilitarian) good; I guess their Keynes-induced aversion to thrift precluded them from considering it?
Forced saving (deflation) distorts the market no less than forced spending (inflation). Both alter the market interest rate and will cause economy-wide misallocation of resources. Of course, this is the weaker argument against forced saving. The strongest argument is that it's simply wrong to force people to do things they don't want to do unless you have a good justification for it (i.e. they committed a crime against you, etc.)
Clayton -
What if people would rather spend (more of) their money right now than save (that much) for the future? The market economy is about satisfying customer preferences. Such a policy would prevent more present-oriented customers from fulfilling their desires. In that sense, it's a subsidy to the future-oriented ones. You could try to make a normative case for the superiority of future-orientedness, but it would clash with both Rothbardian ethics and the ethical nihilists on here.
1. How does this work exactly? I expect these savings cannot be hidden under a mattress, [because then they could be spent, right?] but must be put in a bank. The bank knows that every single payday, with out fail, they get more money to play with, no matter how foolishly they gambled with last paycheck's money. See any problems with that?
2.
...the Austrian tradition is based around principles of choice/liberty rather than totalitarian utilitarianism.
Utilitarian for who? The bankers and the businessmen, but not the forced savers, who lose their money if things go bad, but do not gain anything if things go well. It's called slavery.
3.
...with the State forcing people to save around 30% of their incomes, and its economy has been extremely successful,
post hoc...
4.
with the highest per capita rate of millionaires in the world,
Why cherry pick this statistic as the lone measure of a succesful economy?
5. There are also the unseen but pernicious effects of such a scheme. Can one measure how much less effort is put into making money if you are forced to give 30% away [besides all taxes]? Consumption is the reward of hard work. If the reward is reduced by 30%, what do you think will happen to the hard work?
How many profitable businesses were stillborn ecause they were unable to get funds which were forced into other avenues by thiis harebrained scheme?
They are doing great because of their free market, the freest in the world. If they have made a huge mistake, they are lucky it hasn't hobbled them completely, but let's not attribute their success to it. That's like saying Spider Man is strong because Peter Parker is a weakling.
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It's easy to refute an argument if you first misrepresent it. William Keizer
MadMiser: Savings is good, right?
Savings is good, right?
Life is good, right? How about the government locks you into a safe basement for the rest of your life thus forcing you to avoid the life-threatening risks of living outside (such as crossing a street or pianos falling from the sky)?
More fish is good, right? Imagine an eskimo village where each person catches 8 fish a week, eats a fish a day, and saves a fish a week for a rainy day. Then the wise chief descends upon the villagers and forces each to save FOUR fish a week (smoked and stashed into a storage igloo) for the "long-term". Imagine also that such policy was implemented for the next FOUR generations. You'd end up with four generations of emaciated but "rich" lucky survivors.
As you may have guessed already. Value/utility is subjective and can not be aggregated into a sum by any (albeit benevolent) outside party.
Without any forced saving, there are probably more millionaires per capita in the top ten richest counties in the U.S. than in Singapore.
Welfare Economics (by Jörg Guido Hülsmann)
Let's call a spade a spade. It would be a mandatory lending scheme.
I'm surprised no one has mentioned this yet, or maybe I'm missing something, but for how long is someone forced to save, a year, 5 years, forever? Obviously, savings isn't good for the sake of savings, but because it can be used to invest in more roundabout means of production. Any sort of mandatory time frame as to when savings can be spent is bound to inhibit the ability for individuals and entrepenuers to invest in the most profitible ventures, ultimately hurting economic growth.
Now that I think about it, I imagine the amount of "force" used to keep people from using their savings is pretty low, akin to something like an early withdrawl penalty on a CD. Most likely entrepeneurs are not overly inhibited by this, which is why it isn't a crippling policy. Now if the penalty was something like jail time, I'm sure it would hurt the overall economy: both because of what I said before and because putting a lot of people in jail is expensive and reduces available labor.
they said we would have an unfair fun advantage
this mandatory saving thing reminds me of this quote:
'I've abandoned free market principles to save the free market system.' - G.W.Bush
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Production is 'anarchistic' - Ludwig von Mises
This is one case where intervention is honestly helpful. Forced savings usually refers to savings brought about by inflation which is harmful do to the fact that it causes a boom which can't realistically be kept up. Savings in the manner you are talking about can be quite beneficial however. The savings are private which would entail that the savings are likely to be productive because if you're going to save your income then you might as well get bank off of it through healthy investment. Rothbard's critique of this generally was twofold, the first being that it would be government investment and therefore likely wasteful, this obviously does not apply. Then there's the critique which is actually valid which states that this would mean a forced postponement of current satisfaction and wants, the old and terminal would likely never see the kind of prosperity which they could have seen and it would be a fairly long time before any of us would actually be able to live like we could today if we had all of our money.
With this being said despite short term suffering there would be long term growth and prosperity, the poor would be hurt the most in the short term for any number of reasons. As Keynes said in the long run we're all dead, and life is nothing other than a series of short terms.
So that's up to you, forced short term suffering for long term prosperity or somewhere in-between which is the free market option.
It should also be noted that this is a case where it's hard to put a "one size fits all" solution upon the matter. The thing is that some people could really enjoy that money and do things with it whilst others might save it anyway or be minorly inconvenienced. In a free market the individuals would be able to make this decision about how much to save on their own, this does not exist in the system you're talking about, which means that some will necessarily be harmed in a fundamental way which they otherwise would not.
This is one case where intervention is honestly helpful.
Beg to differ, explained why above.
Neodoxy:This is one case where intervention is honestly helpful.
Really, just one case? How about ten tablespoons of fish oil shoved down your throat every morning? That's pretty helpful too, no?
So that's up to you, forced short term suffering for long term prosperity...
It's not really up to you if it's forced onto you, or is it?
its really not helpful... governments/central banks gives the incentive for people to consume at a time where one shouldnt do as much by adjusting the interest rates and encourages people to invest in projects. If the interest rate is not adjusted by the central banks/governments, then why would one need a policy to have mandatory savings? That is pointless, the market already allocates this by the interest rates, why would we need government policy to do this for us?
z1235: Really, just one case? How about ten tablespoons of fish oil shoved down your throat every morning? That's pretty helpful too, no?
That's an emotional argument that's irrelevant to the topic. You haven't addressed the fact that it would indeed lead to increased real economic growth which would actually be helpful to economic health.
z1235: It's not really up to you if it's forced onto you, or is it?
No I'm saying that it's up to the individual to decide which is more important and which overcomes which. Short term stomach pain and long term great health in future or a fine stomach now and moderate health in future.
Neodoxy:No I'm saying that it's up to the individual to decide which is more important and which overcomes which.
How can it be "up to the individual" if it is forced?
Neodoxy:You haven't addressed the fact that it would indeed lead to increased real economic growth which would actually be helpful to economic health.
Well I think fish-oil is helpful to your health, as well, so I do find the point relevant. Why not force everyone to gulp it up every morning?
No forced/coerced alternative could increase the satisfaction of an individual more than his uncoerced voluntary exchange/action, regardless of the time horizon. Value/satisfaction/wealth (both short-term and long-term predictions of same) are (1) subjective and (2) not amenable to aggregation/quantification by a (benevolent) dictator. You (the dictator) can not and will not make an individual subjectively better off (both short- and long-term) by forcing him to save more than what he would freely choose to save, nor by forcing more fish oil down his throat than he would freely choose to take. This is one of the foundation stones of Austrian Economics.