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Unread 17 Mar 2012, 15:40   #1
Tietäjä
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Financial refugees

It's a sketchy idea that I've been brainstorming a little since a Finnish economics tabloid published an article on Greek youth going rampant on Swedish classes. It occurs that the youth are busy learning Swedish in masses in order to enhance their chances of immigration. It's probably a little different shape than what we'd typically expect of refugees (in that we're all used to war refugees, and political refugees). Maybe I'll write a paper on it if I manage some structure and enough interesting data to look into empiria.

It has to do with the government financial system. I'm not going to go into the whole fiat money discussion again, but let's assume it's not relevant for now (since, whether it is a problem or not, is of no relevance to the direction of the outcome).

Pension systems and government's current spending are backed up by the promise of future payments. It's a (more or less) one-side agreement between the generations: if a government chooses (in democracy, people technically do) to obtain debt in order to pay for current expenses (pensions, public sector wages, so forth) they're making a decision to place the burden of payment to the next generation.

To write an example, consider the Finnish pension system: up until the 1990s, the pension payments from wages were as little as 5% (thus, 5% of wage had to be paid to the pension funds to finance future retirement). While life expectancy has soared (retirement age is going to be tied to expectancy soon, possibly), the money placed on the pension funds is no longer of sufficient capacity to pay for the expenses. In that, it would be necessary to either increase the collection as a percentage of wages, or obtain government debt. As a consequence, the rate has also soared from 5% to above 20% now, which of course has a direct impact on labour costs.

Since most people who never paid "much" of a pension payment, e.g. didn't collect enough money in the funds to finance their retirement costs, e.g. future and current pensions, there's a need to spend the money saved by the next generation to finance the previous generation's pensions. In such, the previous generation (here, touted "the greedy generation") has signed their own treaties so that the next generation will pay for them. The system is called a bit of a ponzi scheme (which it is, a pyramid), and it's sustainability rests on the next generation holding up to the agreement bestowed upon them. The resilient refusal of the greedy generation to change the retirement age or the pension levels is escalating the problem: it's the generation that still holds considerable political leverage.

While, in Finland, the problem isn't yet such that people would start refusing, Greeks are seeing this. In a myriad of problems generated by excess spending (it's not so much a financial system issue, whilst the system obviously 'enabled' this spending), the generation now in their twenties and below are already being seen as the "lost generation". The generation that will pay. However, the apparent urge to immigrate sheds light on a different issue. European expat laws aren't really binding in that you're able to switch your tax allegiance on even quite short a term. As long as this is possible, it is possible for a generation to 'break their part of the agreement'.

If a generation like the Greek one does break it's agreement and mass-immigrate (since it's not that difficult in the union, and countries like Sweden are probably well keen on accepting a dose of young eager workers to alleviate their own demographic issues!), it puts a very interesting question on the future of a nation, and the sustainability of such contracts. If Greek youth disappears from the Greece's tax payers list, there won't be anyone to keep the lights on. Misery, poverty, and a massive collapse will surely follow.

The curiosity breaks from the fact that national home is no longer necessarily considered something so important: the apparent willingness to seek refuge from they debts bestowed upon one by the previous national generation seems to point to this outcome. If anything, this should be one of the telling blows to show that a nation cannot place indefinite debt on it's future generations and simply expect them to obediently pay up. Sure, some of the grief may be alleviated by generational income transfers, e.g. financial inheritage, but it seems that there's a growing intention by the generation to spend their retirement days: they're even taking backward mortgages (e.g. selling a future to their property and receiving the payment now - things which will dramatically reduce any possible generational income transfers to the next generation).

I'm not really concluded on what the impact might be, if such financial refugee'ism becomes widespread. For certain, it will have very interesting consequences, especially if it happens under the premise that immigrating back to Greece probably isn't an option - and, likely, it will become even more unattractive since the years spent somewhere else will burden the government finance accordingly.

I'd expect it to happen, judging by the Greeks. It's interesting if it'll spread, and what are the consequences. Here, in Finland, we'll surely happily accept Finnish speaking immigrants that are willing to pay for our previous generation's costs. They might not be as heavy as the Greek ones!
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