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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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Unread 18 Mar 2012, 11:04   #2
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Re: Financial refugees

I am intrigued.

You say we're "used to political and war refugees". I disagree. Economic motives have always been the most common reason for migration to the West. Speaking for the Netherlands, we first had a wave of Spaniards and Italians in the 50s and 60s, and when they became too rich to want to do shitty jobs at minimum wage, and their job prospects in their native countries improved, they went back. We were then forced to switch to the next poorest countries over in the 70s and 80s, Morocco and Turkey. For them, the return phase has not yet come and might never come. More recently we've been seeing an increase in immigration from Poland & co, when some eastern European countries acceded into the EU back in 2004.

What is new, to me at least, is this notion of completely severing the bonds with the home country right from the very start. The usual pattern of economic migrants is that first, the parent with no job prospects come over. Whether that's the dad or the mum seems largely dependent on the culture. They largely live outside of the society of their guest country (very easy to do when you're alone with no responsibilities) and send the majority of their earnings back to the family in their native country. Sometimes It starts with seasonal migration (it is common in India to take a seasonal job in the big city in order to pay off loans, for example) and then develops into permanent residency. Some time later (he said vaguely...), the spouse and children join the lonely parent and only then do they really start to put down roots (the children, especially), beginning the hard process of integration.

In your scenario, the goal is no longer supporting your loved ones back home, but to escape the boa constrictor that is a collapsing economic system. I'm questioning whether the emigrating young generation really would so callously turn their back on their homes. Social bonds come in varying types and strengths. We are much less willing to support random strangers in the street than we are to support our immediate family. The richer we are, the more willing we are to create generous social security structures. In bad times, this willingness slowly withers away.

But even in the poorest of societies, not all social bonds vanish. Loyalty to family seems to be one of those, which explains why there's a direct correlation between poverty and the number of children per family; it's the only kind of social security really poor people have.

So while I agree that mass emigration of the paying generation will put the Greek government in a bit of a pickle, I don't think that will necessarily lead to a collapse of society, because even the most selfish emigrant will not let their family starve back home while they're comfortable in a Nordic heaven.


On a slightly related side note, making future generations pay for your present comfort is hardly a new notion. In fact, that is the whole reason d'être of pension funds.
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Unread 18 Mar 2012, 12:27   #3
Tietäjä
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Re: Financial refugees

Quote:
Originally Posted by Mzyxptlk View Post
I am intrigued.

You say we're "used to political and war refugees". I disagree.
Fair. But least say, inside the Union. In terms of say post world war two Finnish migration to Sweden, about half never returned. Low cost labour from places like Estonia hasn't been a wonder to begin with, but say here, Estonians don't really have the intent of immigrating - they're more like a mobile work force (Estonia isn't in a financial grief anyways). Just that, a leak of tax payers under heavy tax burden could be very harsh on a country in the situation of say, Greece, Italy, or Spain.

Quote:
So while I agree that mass emigration of the paying generation will put the Greek government in a bit of a pickle, I don't think that will necessarily lead to a collapse of society, because even the most selfish emigrant will not let their family starve back home while they're comfortable in a Nordic heaven.
The thing is, a typical immigrant family will try relocate it's members to the new host country if it's possible - as you say, some time later. About bonds: I don't suspect the bonds to family, I'd suspect the bonds to a nation. Nationalism is becoming a hollow concept: if you look at an average immigrant family, they're not as likely to return home after going to "hard integration", however, they are sending money out. There's in fact a small scale business in simply arranging local Africans to wire money home to Africa, ran by Africans (of course, they trust each other) here.

Money moved in this fashion doesn't really provide that much to the state. You'd have to raise value added taxes and such to get anything off it, and value added tax is a slap on the face to the poor people anyways.

Wonder if there's reliable easily accessible data somewhere on mobility inside the union. Surely Eurostat/ECB would have such.

Quote:
On a slightly related side note, making future generations pay for your present comfort is hardly a new notion. In fact, that is the whole reason d'être of pension funds.
No, it's not a new notion (in terms of fifty years of so of pension funds' actual history) - however, it's sustainability hasn't been really questioned as heavily as it is now. The wide presumtion up until lately was that things like profit rates on the pension fund investments would be sufficient, which probably never was realistic if you looked at the trends of the stock market in an "objective-pessimistic" -view (in that, it's fairly stationary, and expecting an above-stationary level profits might be overdoing it).

Of course, it's possible that sooner or later, likely sooner, the present upcoming generation will inform the previous that their pension schemes are over-shooting, and nobody's paying their shit. The situation in a Nordic state is probably slightly different, since we have a wide state pension system together. They're not too happy to ship out data on the individual level accumulations though.
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Unread 18 Apr 2012, 01:09   #4
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Re: Financial refugees

Great food for thought! I find it hard to believe that the Greeks' study of the Swedish language is a sign that their youths (on an individual level) plan to knowingly immigrate to avoid the debts of their forefathers. I would more likely accept the premise that they are being taught Swedish to advance the economic retlationship between the two countries. After all, who decided to offer, staff, and teach the Swedish courses?

I would suggest that the return of Greek immigrants to there motherland will likely depend on the depths of the Greek recession/depression. If given the option to return home in 10-20 years and live in veritable luxury (due their earnings/savings while abroad compared to those who stayed behind) I think most would take that option - to return to home country and family. But, if Greece falls into decay and becomes a '3rd world' country that likelihood surely approaches nil. I base that opinion on the immigrants I see here in the US. When I speak to Central and South American immigrants, most tell me they never intend to return home because they simply do not want to return to a country where reliable vehicles and air conditioned homes are scarce at best. But when speaking to Canadian and European immigrants they generally look forward to their return home, as returning home does not suggest a decline in quality of life.

I would be most curious not on the economic impact of the regular moneys sent home to family during an immigrant's working days, but more so if/when they retire to their home country and move the totale of their accummulated wealth. A slow and steady stream of lost economic recycle is one thing, but an en masse removal of significant funds (when an entire generation of immigrants retires and returns home) could have a sudden and substantial impact to the economy harboring the immigrants. (If I had any true knowledge on the history and topic of economic migration I'm sure I could insert a fine example here... )

Last edited by tulsa; 18 Apr 2012 at 01:13. Reason: incomplete thought
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