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Unread 20 Jul 2010, 14:12   #1
Tietäjä
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On the future of wellfare states

A brief introduction

It is a subject I've had in my mind for a while, and I've somewhat contemplated on writing an actual paper on it, but it's proving perhaps too much of a brainstorm and too much of a large scale project to fit unto one. There was a slightly outdated a column on it on a local econ paper today, so I figured I'd brainstorm something on pixels to provide myself with a clear cut view of it and perhaps obtain some feedback/perspective on it (I'm aware of the small amount of potential viewers here, however). The society perspective is somewhat weighted to the Scandinavian model for obvious reasons (but ultimately it's still a very universal view). (and no I've not yet gotten beyond the first chapter in the Stephen HSBC King book).



On the future of wellfare states

Arguably originating from the late 1800s, especially European and Scandinavian countries have in the late 1900s and early 2000s had flourishing wellfare states that have built (sometimes possibly too broad) social security networks to keep unwanted issues such as poverty in reign. In this essay, I'll argue that the liberalization of capital, globalization, and economic dynasties - the last in reference to inheritancy of wealth - are ultimately the reasons that will lead into a radical collapse of the Western style wellfare states in the next 30-50 years. A collapse which will, unintuitively, despite the arguments of the modern laissez faire movement, lead into a further polarization of the society into an extremely rich elite and an extremely poor trash. On global scene, something that's essentially a Cyberpunk scheme.



What are the costs of a wellfare state

Stating the obvious, a wellfare state comes with increased aggregate costs for labour (as an unit of production) since the inevitable unemployed and is funded through the participating part of the labour force. The choice is an ethical one - wellfare states choose a higher cost of labour (which subsequently results in less competitive labour in terms of marginal productivity per cost) in order to obtain a degree of social safety network for those that fall beyond the system (namely unemployment, pension is more complex a subject to consider here).

In closed economies of the pre-globalization era (let's call the 1990s as something of a launch in the modern globalization era), industrial activity was to an extent limited in it's global functions. Due to higher limits in forms of trade barriers and especially constraints in the financial sector, capital movements were far less restricted and moving corporates abroad was less typical to begin with. Typically, this was the last years of post world war nationalism as such - the ongoing spirit was typically "us" as a country, and "them" as other countries. Liberation of capital movements, along with the boom of information technology, and increasing globalization in terms of being able to re-allocate production and corporations (say, basing a betting company in a tax haven in the Caribbean over Europe) with relative ease meant, however, that the aforementioned increased unit costs of labour due to the the existance of the wellfare state are more susceptible for international competition.



The significance of the new age of individualism

The collapse of the Soviet Union signaled a breaking point in not only the global political scheme but also the social development of the Western cultures. Specifically, the considerations were turning more and more individualistic over nationalistic - the "us" that used to essentially govern an entire nation would quickly reduce to an "us" that might barely include your parents. The "them" factor would start including people that used to be a part of the "us": neighbours, even relatives. The incentive to sustaining wellfare networks is generally associated to relating feelings between social groups: the closer knit a society is, the more the top deciles feel of the same population with the bottom deciles, the more favourable grounds there are for building and sustaining wellfare societies.

Together with the increase in mobility of capital (to an extent including human capital; by liberalization of it, and information technology) the break in the societal structure has lead to a very growing idea that wellfare societies are an aberration: "we're not supposed to be responsible of their well being" is an argument typically presented by the part of the population that is born rich (I'll come back to this later).



The impact of global competition and the erosion of wellfare

The two effects described above in the global field adds up for something like this: since resources are scarce, and the labour costs per marginal productivity are higher in nations that have a wellfare network, it becomes profitable to move production to nations without a wellfare network (or a less extensive one). This has recently been especially visible in traditional industry relocating itself to Asia and South America. Superficially considering, the results would intuitively appear to yield more global "equality" - but in truth, the lack of state control in certain states means that the average factory worker is never going to yield anywhere near what the true value of his marginal product might be. On short term, this would not intuitively appear problematic: the capitalists (in a Marxian fashion) will make short term profits, but surely on the long run an equilibria can be obtained through a laissez faire to the invisible hand -like mechanism.

The national competitiveness indexes (e.g Insternational Institute for Management Development and Bad Humour located in Lausanne) that rank Sweden above China are a joke at best. The fact that information is easily accessible means that even if the quality of colleges in China would be lesser than that to Swedish ones (it's not), the odds of ten million motivated Chinese coming up with the innovation that makes the difference are marginally higher than those of a hundred thousand Swedes. The fact that a society is strongly polarized (like say China, Emirates) doesn't reduce the impact of numbers or availability.

The immediate local effects in wellfare states is a rise in the unemployment. This has been a trend in the Western countries. A rise in unemployment has itself contributed to the polarization of the society. The difference with the early 1900s polarization and the early 2000s polarization is that today the difference isn't made by your birth country but by your wealth. The wealthy have become "us" that have to take care of the less wealthy "them" who are deemed less suitable citizens (assuming they ever had true choice) for a reason or another. The unemployment comes with more upwards pressure on the taxes again, a self-imposing phenomenom that causes the wellfare state to become gradually heavier to sustain. Which adds up pressure to break it apart, or at least to reduce it to the level of the equation defined by that of the least wellfare state and the productivity of labour (ie. to sustain labour, your extra costs (including wellfare costs) cannot exceed your productivity advantage).

In fact, we've been, for a good decade or a couple, already in a situation where the rich few will move abroad to tax havens to accumulate more wealth for themselves. A recent research into government subsidies for tech industry in here reveals that a typical small tech business will initiate it's R&D in Finland given the educational resources, collect government subsidies, if succesfull come up with a product, and then, essentially as fast as possible, move everything abroad due to high costs involved in being located in Finland.



Why won't Smith's invincible hand fix it

The market equilibrium theories that come up with (non-cobbweb) equilibriums in terms of an invisible hand -like theory causing wealth polarization not to happen (or even arguing in fact that reverse will happen) are typically built around very loose constraints. The strongest constraint that in real world defines the lack of efficiency of any "laissez faire will result in a societal utility-optimal equilibrium" are inheritages (at the most extreme case a societal maximum given dimunishing marginal returns on utility to wealth would mean absolute equality, but this is obviously unrealistic on short run, thus the aforementioned cobbweb -types). Inheritages essentially mean that a randomly chosen (essentially because this choice was more or less made a couple of thousand years ago) part of the population is born with a degree of accumulated wealth.

These people will, even in the absense of wellfare, be able to purchase goods like education (see: private schools are already a "better" standard in many countries and the discussion of universities having a fee is emerging in Finland, where such things are unheard of) and security (see: private security corps are one of the top rising businesses of the previous decade here, and the number of "large" ones by definition of corp registry has risen from 2 to 7). These people will never have the problem of true poverty, thus they'll eventually feel quite different from their former peers. Consider a current European "poor" to an African "poor". Consider a current European "poor" to an European "rich".

Accumulation of wealth in the absence of mechanics that would scatter the wealth from inherigate type dynasties will mean that wealth will keep accumulating to a small part of the population. Due to available choices (the least wellfare society; see tax havens) and the social erosion, these people will be less and less interested in providing a wellfare network (free education, healthcare, security) than before, since "they" are not "our" problem.



Inheritages: the future is a random number generation

The splash of the invisible hand isn't happening. Due to accumulation of wealth over generations (in reference to economic dynasties), the status quo is unbreakable. During the last two decades, the world has polarized like never before. Those familiar with William Gibson style dystopia will perhaps have marked up a few signs of striking similarity. The power of nation states over transnational corporations is slowly corroding: it's a slight surprise the US are able to excert such force on BP, but they're possibly the last nation state to be able to do so; and even they weren't able to actually do so to Goldman Sachs (or the rest of the financial sector for that). Their preceeder in ultimate power, UK, has been played a fool by private investors before.

Accumulation of wealth and erosion of wellfare societies (at least to very close to the level of least wellfare society) indicates that eventually the nation with sufficient amount of available labour will be able to decide the level of least wellfare and the rest will have to drop down to that level (excluding inherent productivity advantages) in order to maintain competitiviness. Explicitly, this means abolishing of the western wellfare states as such. Implicitly, this means that those that own the corporates will increase in power and wealth - "us" won't be interested in the wellfare of "them", and polarization will escalate.

By random number generation, it's quite likely that a fatalistic view where your birth defines your chances in the world is very realistic a view in the end. Currently, in many western states, while it's undeniable your birth surroundings always have an impact, there are substantial social wellfare networks to provide with outs for those of talent and-or hard work. This may not be so in the future. Currently, the roll has been between being born to a wellfare state or a not-so. In the future, it'll perhaps shift into being a question of born rich or born poor. There might not be too much in between.
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Unread 20 Jul 2010, 14:37   #2
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Re: On the future of wellfare states

See, having written all that, it simply boils down to being a shift in the accumulation from nation states to corporate owners (that said, wealthy individuals). I guess I've just gone into lengths just to break the last bit of my idealist back.
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Unread 20 Jul 2010, 15:01   #3
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Re: On the future of wellfare states

A note in advance: my understanding of economics is largely based on common sense, so feel free to point it out if I say anything ridiculous!

Quote:
Originally Posted by Tietäjä View Post
The incentive to sustaining wellfare networks is generally associated to relating feelings between social groups: the closer knit a society is, the more the top deciles feel of the same population with the bottom deciles, the more favourable grounds there are for building and sustaining wellfare societies.

Together with the increase in mobility of capital (to an extent including human capital; by liberalization of it, and information technology) the break in the societal structure has lead to a very growing idea that wellfare societies are an aberration: "we're not supposed to be responsible of their well being" is an argument typically presented by the part of the population that is born rich (I'll come back to this later).
Interestingly enough (and I'm speaking from the perspective of a Dutchie), I don't think it's just the rich that feel this way. Increasingly, poor people, too, feel that taxes are not a burden they should carry. We had elections last month in which the liberal party came out on top, using a platform of shrinking the welfare system and lowering taxes. The feeling is far from universal (labour was only a single seat smaller) and the example far from perfect (the liberals also focused on "security" and immigration), but it's an interesting (and disturbing) trend.

Quote:
Originally Posted by Tietäjä View Post
The strongest constraint that in real world defines the lack of efficiency of any "laissez faire will result in a societal utility-optimal equilibrium" are inheritages
I don't think it's the efficiency of laissez faire that's the issue here (the definition of efficiency in such a system being rather close to "the rate at which wealth flows from poor to rich"). As you said earlier, it's a question of ethics.

Quote:
Originally Posted by Tietäjä View Post
[Rich] people will, even in the absense of wellfare, be able to purchase goods like education [...] and security [...].
Or especially in the absence of welfare?

Quote:
Originally Posted by Tietäjä View Post
The power of nation states over transnational corporations is slowly corroding: it's a slight surprise the US are able to excert such force on BP, but they're possibly the last nation state to be able to do so; and even they weren't able to actually do so to Goldman Sachs (or the rest of the financial sector for that).
The US government can pull that off because 1) the oil disaster happened in plain sight, close to home for a large part of BP's consumer base, both physically and mentally; and 2) you can't win the World Press Photo award by taking a picture of a financial system collapsing, but a photo of a bird covered in oil is instacash.



By the way, I noticed you didn't mention any possibly solutions. Your thoughts?
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Unread 20 Jul 2010, 15:21   #4
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Re: On the future of wellfare states

Quote:
Originally Posted by Mzyxptlk View Post
Interestingly enough (and I'm speaking from the perspective of a Dutchie), I don't think it's just the rich that feel this way. Increasingly, poor people, too, feel that taxes are not a burden they should carry.
I see what you mean - it goes on here too. The ground level is that people you'd easily attribute to "working class" are talking to you about "how you can't get rich in this country due to taxes".

Quote:
I don't think it's the efficiency of laissez faire that's the issue here (the definition of efficiency in such a system being rather close to "the rate at which wealth flows from poor to rich"). As you said earlier, it's a question of ethics.
See, but the question of laissez faire is, that given free reign, the rich will simply reduce the proportion of wealth flowing to the poor. This is easily elaborated by corporations moving their factories out for higher profits as such. The only actual restriction is the least constraint -idea. E.g. minimum wages in western countries are arguably a part of a state established social security network. These do not exist in certain countries. Thus, since globalization, it can be possible, and plausible, to move production to such countries in order to reduce the flow (and increase your own inflow, and increase polarization).


Quote:
Or especially in the absence of welfare?
The way it struck me after having a walk down the grocery store goes like this: in the past, rich western states have afforded something poor other states couldn't (security, education, so so). In a sense this is a change in the status quo to a direction where nation states no longer make much of a difference, and the power is concentrated upon the rich corporate world (who will be in a similar position in where an European tends to be in comparison to an African, but obviously transnationally so).


Quote:
The US government can pull that off because 1) the oil disaster happened in plain sight, close to home for a large part of BP's consumer base, both physically and mentally;
Now consider had it dropped off on a shore of a less known small country somewhere in the pacific. The US government are able to pull off that because they still have a degree of leverage the vast majority of the nations no longer really have.


Quote:
By the way, I noticed you didn't mention any possibly solutions. Your thoughts?
The only way out I would see would be a situation where a globally accepted social security (wellfare) network could be established. In the fashion that, there would be less sense for capital to move around simply due to the added costs, but capital would only move around due to absolute advantage related to production (ie. my favourite: it's smarter to produce forest products in Finland than say grow wheat - due to the climate). But this would essentially mean that due to resource constraints the western nations would have to take a real income hit (which people would never agree to), additionally it would require very large scale international cooperation (which nobody would agree to).

The essential problem in the current situation is that corporates are able to collect parity from moving around; the lack of minimum wages in certain countries (as mentioned), means that the corporate world can essentially (excuse the harsh words) rob people more effectively, since they'd have to pay a "fairer" (although, most likely "too much" in sensible terms) wage elsewhere.

Part of the problem is that the average western is overpaid, and too rich. On the long run, what causes accumulation of wealth, however, is people inheriting it. In terms of "laissez faire" economics, consider following: it is well justified that, if you come up with an absolutely breaking invention, say, a cheap practical application of clean fusion power, you'd become filthy rich. But then, in the current state of things, all and any of your descendants and their descendants, would also be filthy rich, thus creating a dynasty, and technically, wealth has a habit of accumulating (ask Warren Buffet). Which inevitably leads to certain kinds of rich owner classes being born. Now, on the long run, it might be a problem, that is attributed to how wealth accumulation over generations works. But enforcing abolishing such accumulation would also require international cooperation and redistribution which sounds unlikely.

In short, I don't believe there is a realistic a way out of it. I think we're all just going to have to get used to the idea of the state pension fund possibly not being able to cover it, and income differences being very much higher in the west too than they are now - or have been.


edit - sidenote
Quote:
Increasingly, poor people, too, feel that taxes are not a burden they should carry.
However, most of these people don't realize that they are most likely, over their entire lifespan, in the receiving end of these benefits (due to things like education and pension; they pay relatively less for them due to progressive taxes most often used in west). It probably accounts to a strange case of stupidity and ignorance.
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Unread 20 Jul 2010, 16:47   #5
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Re: On the future of wellfare states

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Originally Posted by Tietäjä View Post
Now consider had it dropped off on a shore of a less known small country somewhere in the pacific. The US government are able to pull off that because they still have a degree of leverage the vast majority of the nations no longer really have.
The Russian government would have the same leverage (if only because they basically do whatever they like), and they would not have gotten off easy in Europe either, nor in China or India. I see what you mean though. Things like this happen there on a regular basis (see Shell in Nigeria, for example) and companies rarely have to do more than make vague promises of betterment.

Quote:
Originally Posted by Tietäjä View Post
Part of the problem is that the average western is overpaid, and too rich. On the long run, what causes accumulation of wealth, however, is people inheriting it. In terms of "laissez faire" economics, consider following: it is well justified that, if you come up with an absolutely breaking invention, say, a cheap practical application of clean fusion power, you'd become filthy rich. But then, in the current state of things, all and any of your descendants and their descendants, would also be filthy rich, thus creating a dynasty, and technically, wealth has a habit of accumulating (ask Warren Buffet). Which inevitably leads to certain kinds of rich owner classes being born. Now, on the long run, it might be a problem, that is attributed to how wealth accumulation over generations works. But enforcing abolishing such accumulation would also require international cooperation and redistribution which sounds unlikely.
You (quite rightly, unfortunately) pointed out that most westerners would be unwilling to accept taking a large hit to their income. However, by definition, a rich elite is small. And if what you say is correct (haven't made up my mind just yet, but let's assume), then instituting a truly exhorbitant global tax on inheritance (99% on anything over a million, say) could be agreed upon by pretty much everyone and would solve the issue quite neatly.

Quote:
Originally Posted by Tietäjä View Post
In short, I don't believe there is a realistic a way out of it. I think we're all just going to have to get used to the idea of the state pension fund possibly not being able to cover it, and income differences being very much higher in the west too than they are now - or have been.
I am unwilling to believe that. It's the age old adage of socialism: there's so many of us and only so few of them. While I agree that the rise of individualism has made it harder for people to realise that they have power and while the hold large corporations have on what we see and do not see (see Shell in Nigeria, once again) has made it harder for people to see what's going on, we can still make pretty much everything happen, given enough people in the streets. If they can do it in South America or India, then we can do it here.
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Unread 20 Jul 2010, 17:43   #6
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Re: On the future of wellfare states

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Originally Posted by Mzyxptlk View Post
given enough people in the streets. If they can do it in South America or India, then we can do it here.
Yes, the enough people in the streets argument is something another bloke presented to me too - if there's enough poor in a western country, things will change. Right. Let's assume things escalate. What is stopping the at that point rich elite from

a) Moving to Monaco with their wealth (for part of them, their wealth is already there)
or
b) Simply resorting to violence to hold on to their stature (Which is what the West was successful with for a while. I'd assume there's a rich elite against which you could try to stand up against in China or Russia too).

Quote:
And if what you say is correct (haven't made up my mind just yet, but let's assume), then instituting a truly exhorbitant global tax on inheritance (99% on anything over a million, say) could be agreed upon by pretty much everyone and would solve the issue quite neatly.
Whether it's "the issue" or simply a part of "the problem" justifying massive inheritances on economic grounds is nigh impossible. Even more difficult it is to justify accumulation of massive amounts of wealth on a few select groups of people to be socially efficient in any utility theorem fashion (based upon the normal assumptions on preferences). Obviously, it would have to be progressive, and reasonable to an extent, but nevertheless, it could not be agree upon it, because the people who would feel most threatened by are the people who have the most influence in these decisions.

It's easy to trample five thousand poor, but hard to do the same to five thousand filthy rich - if you remember the case rich family child missing in Portugal.

Quote:
You (quite rightly, unfortunately) pointed out that most westerners would be unwilling to accept taking a large hit to their income.
(I'm sidetracking a little here with wages) The problem is that typically wage flexibility is a converge mechanism. Downwards flexible wages (Estonia recently did this; ie. a kind of an internal devaluation) are very useful when your competitiveness is being hurt by excessive wages. Now, the labour union culture (and people's ignorance in economics 101) has resulted in a situation where it's nigh impossible to negotiate nominal wage drops (since people will cry). The current global monetary policy status quo isn't what it was in the 1970s either - you can't simply go and devalue your currency heavily just to pick up export swing, which would've been typical in Finland in the back days, enough to cause jokes about the currency bending over for the metal and forest industries. It's not just about price stability being a monetary policy strategy, it's also about free capital markets and retaliation.

The problem with lack of downward wage flexibility and excessive wages is partially contributing to the situation where corps are moving abroad (the other end is the least wellfare states that don't have as heavy expense structures in place "against" corps), but there is absolutely nothing that can be done about it because "people would go to streets" ie. they're outright retards. No sane person should imagine that they're worth 5,000 euros a month for whatever they produce unless what they cause to happen is truly magical. In today's world you would be healthy to see the global scale of things. It's all contributing to the huge unemployment puzzle and the Spanish figures won't be unknown here on the long run, I'd be brave enough to claim that an average EU27 will break 25% unemployment by 2030 unless dramatic changes happen.

Inheritance is the long run problem caused by excessive payments. In a system of "laissez faire", these aren't taken into account: simply, it is assumed, that accumulating wealth won't be a cause of inequality. But this is not true by empirical evidence: the Saudi Arabia rich for example (and Russian oligarchs to a lesser extent) have been able to sit on their wealth while having peak of the line poverty figures in the world for decades and centuries, and there's little way that wealth is going to "escape their families".

Quote:
However, by definition, a rich elite is small.
But the power of such is so much, enough to make certain people think things like the war of Iraq was started to benefit a rich elite. Whatever caused the war to happen, I'm indifferent with, but it's subsequent washout has definitely benefited no-one more than the rich elite. The current financial crisis is all about the same, and it happens on regular intervals: you don't need to be a zeitgeist believer to take it into pieces. Just consider how easily Goldman Sachs was prepared to pay hundreds of millions of fines just to wash their hands off the case. They'll be participating in some degree of a stunt in the next 10 years again. How much power corporates can truly have is something people tend to belittle. Just go find who was the US Secretary of Treasury when the crisis erupted, and which company's CEO he was not long before this.
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Unread 20 Jul 2010, 18:16   #7
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Re: On the future of wellfare states

In the end though, there doesn't seem to be much more to it than simply an old (western) rich elite being replaced by a new (transnational corporate) rich elite.
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Unread 20 Jul 2010, 18:51   #8
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Re: On the future of wellfare states

You contradict yourself. If as you say (and I don't think you're wrong) people are able to keep wages high, then they are able to achieve other things as well, for example an inheritance crackdown.

As for the violence argument, I don't believe in it. Over the last couple of months I've taken in a lot of information about it (see here, for example), and the problem oppressors tend to run into is that you need people who are willing to commit the violence. This is not as easy as it sounds, especially if the "enemy" is unarmed nonviolent civilians. It is not surprising that war veterans tend to have as many issues coping with the horrible things that were done to them as they do with the horrible things they themselves did. During World War 2, Gandhi's plan for the defence of India against a Japanese invasion was to line up men, women and children at the border and allow themselves to be massacred: "An army that passes over the corpses of innocent men and women would not be able to repeat the experiment".

I don't think moving the money to Monaco is a easy way out for them either; if you want to spend your money, you need to take it across borders, where all kinds of nasty laws could be in effect.
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Unread 20 Jul 2010, 19:07   #9
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Re: On the future of wellfare states

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You contradict yourself. If as you say (and I don't think you're wrong) people are able to keep wages high, then they are able to achieve other things as well, for example an inheritance crackdown.
No no. I'm not contradicting; trade unions are able to keep wages high in western countries because there is a demand for certain sectors of labour still (namely finance, and parts of R&D). However, the trade unions' success in keeping wages of say forest industry high in Finland has lead to about half of what used to be production here to move abroad in the last 20 years, and more or less every month either Stora Enso or UPM Kymmene announce a production line here to be shut down due to excessive costs, while at the same time they keep setting up new infrastructure in South America (under the name Botnia, namely in Uruguay and Argentina).

The spiral of excessive wages - here - started in the 1970s when our then-currency markka was consistently devalued to support export of these industries, who then avoided setbacks due to that grace. Because we held a half-open economy (saying that the service sector was closed; essentially still mostly is, but the industry was open), and centralized wage bargaining, it meant that profits in forest industry soared in the wake of monetary policy support, and the centralized wage deals ensured that for no apparent reason a haircut in Helsinki costs four-five times what it costs across the slap of water in Estonia (who are subject to wage pressure due to their euro commitment).

In fact, if you want to take a day off in a beauty spa to get your face and nails done, you'll get off cheaper by buying a two hour raft to Estonia, doing it there, and getting one back. In closed sectors this works to an extent because everyone won't go to Estonia for this, and it also works in resources exclusive to an extent (hence why corps do R&D here and move abroad when the product is ready to set; case Perlos is a classic story). Production, however, is dead here, and what comes to R&D, it's only a matter of years until it's also better done in the other countries due to the inability to compete with labour costs per production.


ps. I'll take a look at the Berkeley bit later on today, it seems interesting enough. What would puzzle me though, is how are multiple countries able to sustain obviously erratic schemes (PR of North Korea, PR of China, Federation of Russia, half the African and Asian countries in general terms). Gandhi case was extreme yes, but what would you think people would do to actually cut down the position of the multi-trillionaires? I'll give you an example of what I mean. This guy is a despot in his homeland. His main source of money is probably development aid. What he does with the development aid mostly consists of shopping sessions in France. And the French care, exactly, how much? And the people in the country are doing, what exactly?

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Unread 20 Jul 2010, 19:35   #10
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Re: On the future of wellfare states

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No no. I'm not contradicting; trade unions are able to keep wages high in western countries because there is a demand for certain sectors of labour still (namely finance, and parts of R&D).
Well, yeah, it only works within a certain area. When that area is "everywhere", though... It is kind of ironic, I suppose, that the only way to effectively combat economic globalization (which is essentially what we're talking about here), we need to cooperate globally.

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What would puzzle me though, is how are multiple countries able to sustain obviously erratic schemes (PR of North Korea, PR of China, Federation of Russia, half the African and Asian countries in general terms). Gandhi case was extreme yes, but what would you think people would do to actually cut down the position of the multi-trillionaires?
[...]
And the people in the country are doing, what exactly?
Honestly, I couldn't tell you. The issue here is that you just don't hear about this kind of thing in the mass media. It just isn't reported on (could be ignorance, could be intentional). Maybe they're doing stuff, maybe they're not, I just don't know. However, I am more familiar with other campaigns, the easiest thing to do is probably to just link PBI and the Rosenstrasse protest in Nazi Germany.
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The outraged poets threw sticks and rocks over the side of the bridge. They were all missing Mary and he felt a contented smug feeling wash over him. He would have given them a coy little wave if the roof hadn't collapsed just then. Mary then found himself in the middle of an understandably shocked family's kitchen table. So he gave them the coy little wave and realized it probably would have been more effective if he hadn't been lying on their turkey.

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Unread 20 Jul 2010, 19:58   #11
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Re: On the future of wellfare states

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Well, yeah, it only works within a certain area. When that area is "everywhere", though... It is kind of ironic, I suppose, that the only way to effectively combat economic globalization (which is essentially what we're talking about here), we need to cooperate globally.
Yeah - this essentially brings us to square one, where labour opportunities slowly move from wellfare states to nations where there is no such network thus labour costs are lower. This comes with added profits for companies, since they'll be paying a fraction of the wages they'd have to pay to not only overpaid western work force but one that also requires a large amount of social fees paid. Which in turn leads to eradication of the wellfare societies (because they're not sustainable in such a framework). The obvious out of global coordination of things like pensions and minimum wages however would first need a common approval to happen, then it'd require wage cuts in western countries to function (because we're overpaid here, simple facts, in the world of scarce resources we've been living above our means for a good few decades now), and a bunch of other restructuring that sounds more like a pipe dream than an option.

This is the part where I gnaw the bit of idealist spine I have and admit that it's more likely to just go the way where nation states as per western dynasty lose their significance and the vacuum is probably filled by corporates. However, it's not in the end that different from the situation we already are in - just instead of the "privileged west" and "the poor africa/asia/et cetera", we'll have a "privileged corporate world" and a "poor rest of it". In a perspective, it's not such a dramatic change apart from cosmetics. Since it's just changing the "we" and "them" perspective.
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Unread 20 Jul 2010, 20:04   #12
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Re: On the future of wellfare states

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However, I am more familiar with other campaigns, the easiest thing to do is probably to just link PBI and the Rosenstrasse protest in Nazi Germany.
The problem with movements like Gandhi, the anti-Nazi, the Finnish war for independence, and such is that back when a lot of this happened it happened because there was a strong unification inside the nation. We used to kill each others in Finland before the second world war (essentially, saying that the right wing was butchering the left wing people). By the time we were at a war with the Soviet Union, all of this was forgotten, and after the second world war, people lived on almost as if it'd never happened in the first place.

It' just hard to see a nation setting up an unified front for "Free India" or "Independent wellfare Finland" anymore, partly due to the rise of individualism.
At best, the only phenomenom I can think of that resembles such is terrorism (people willing to put their lives at risk or bluntly sacrifice them for a cause). One related question would be the situation in Tibet (or one of the multitude of parts of Federation of Russia - Chechenya is probably the most famous).
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Unread 20 Jul 2010, 22:31   #13
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Re: On the future of wellfare states

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Originally Posted by Tietäjä View Post
The problem with movements like Gandhi, the anti-Nazi, the Finnish war for independence, and such is that back when a lot of this happened it happened because there was a strong unification inside the nation. We used to kill each others in Finland before the second world war (essentially, saying that the right wing was butchering the left wing people). By the time we were at a war with the Soviet Union, all of this was forgotten, and after the second world war, people lived on almost as if it'd never happened in the first place.
Having a common enemy or (preferably) a common goal can still bring people together. Here the union example I (mis)used earlier does apply. A couple of months ago there was a strike by cleaners in Amsterdam and a couple of other cities, right around Queen's day, which can be seen as a Dutch 4th of July. It was a success, they got better wages than originally offered (spent a week cleaning up the horrific mess the party goers had left) and their union got tons of new members over the next few weeks. Success reinforces itself.

Free India didn't start with hundreds of millions of people, but with one guy circulating petitions after getting thrown off a train in South Africa for not being white. The Rosenstrasse protest was started by just a few wives who wanted their husbands back. You don't need tens of thousands of people to Get Things Done (but admittedly it helps).

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At best, the only phenomenom I can think of that resembles such is terrorism (people willing to put their lives at risk or bluntly sacrifice them for a cause). One related question would be the situation in Tibet (or one of the multitude of parts of Federation of Russia - Chechenya is probably the most famous).
Terrorism has a very different approach, though. In terrorism, self-sacrifice is a means to harm others, while a dedicated nonviolent actor can be willing (as a last resort) to sacrifice their life if necessary, but never any other but their own. This is not just an implementation detail, either, the two actions have widely different results as well. Islamist terrorism in the 90s in Algeria escalated to the point that the population who had initially supported the terrorists turned against them. That sort of thing just does not happen when you have a just cause and a goal that you attempt to reach using nonviolent means.
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The outraged poets threw sticks and rocks over the side of the bridge. They were all missing Mary and he felt a contented smug feeling wash over him. He would have given them a coy little wave if the roof hadn't collapsed just then. Mary then found himself in the middle of an understandably shocked family's kitchen table. So he gave them the coy little wave and realized it probably would have been more effective if he hadn't been lying on their turkey.
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Unread 21 Jul 2010, 07:11   #14
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Re: On the future of wellfare states

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Originally Posted by Mzyxptlk View Post
Having a common enemy or (preferably) a common goal can still bring people together. Here the union example I (mis)used earlier does apply. A couple of months ago there was a strike by cleaners in Amsterdam and a couple of other cities, right around Queen's day, which can be seen as a Dutch 4th of July. It was a success, they got better wages than originally offered (spent a week cleaning up the horrific mess the party goers had left) and their union got tons of new members over the next few weeks. Success reinforces itself.
But, like, cleaners striking for higher salaries in a western country is the equal of a squirrel gnawing his own foot off hungry. In short run it eases your appetite, on the long run it's a suicide. Like, it's not like we're not in giant trouble with the upwards wage pressure of the closed sector (ie. services). Because essentially it comes down to the fact that the open sectory (industry) has to have the extra leverage to to pay for the excessive wages of the closed sector (because they don't really have the productivity to justify most of it). It's a vicious cycle. It's unarguable that trade unions hold leverage on local level (it's what caused the forest industry wages to boom over the 1960s through 1990s and subsequently there's now cities, or, towns, that are in dire straits because the major local industry giant has left for Uruguay).

Trade unions represent ignorance, arrogance, selfishness, and short-sightedness in this world. Greed fumed by the forest-paper industry, and jealousy fumed by the trailing sectors have here resulted in interesting numbers, such as the youth unemployment numbers being above 33%.

Services just have, currently, the advantage of not being importable, but, the economy still needs to produce something exportable to be able to pay off the import expenses, and this exportable needs to essentially cover for the high internal price level too. Which contributes to pressure on trade accounts (decifits). A local professor once put it in the terms of asking what happens to the last bloke in Greece, will he owe hundreds of billions to different nations?

Quote:
You don't need tens of thousands of people to Get Things Done (but admittedly it helps).
Yeah. I'm no big expert in revolutions, revolts, and psychology behind such. I'm just unsure whether there'd be interest in any parties to resolve such problems. I'm very, very surprised that Estonia managed to pull off an internal devaluation with reasonably little collateral damage. Since it's not possible to commit to external devaluation due to euro, this is really only the only method applicable to drop wages (ie. respond to the global downwards wage pressure).

What I mean is, you speak of union leverage as if the cleaners receiving higher wages would be something of a good thing (it's not, it again contributes to inflation and upwards pressure because their productivity increases have probably been arguably zero, and their wage rises will have to be carried by productivity elsewhere, which, frankly, isn't taking leaps and bounds like it is in SA/Asia). People generally, in the West, are under the illusion that using union leverage to gain wage lifts is a good thing. However, this is not taking into account the global side of things. In fact, the union leverage should be going to the opposite direction - asking their members to take dramatic wage cuts (on nation level, this would equal internal devaluation). Why? To cut down on labour costs, to keep employment, to bump competitiveness.

Consider this. Would you be accepting to take a 30% wage cut in order to maintain Dutch unemployment below 10% in the future, or would you rather keep your current salary level which would most likely yield an unemployment above 20% in the near future? (I'd say most people will answer like this: I don't care about the scums getting sacked, most of them are bums, I want to keep my wage which I deserve. Then, when they get sacked, they blame the corporate owners for being selfish - which they are - in their plan to move the production to Uruguay/India).

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Unread 21 Jul 2010, 09:38   #15
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Re: On the future of wellfare states

You misunderstood which point I was trying to make with the union example. I used it as evidence that despite individualism and the influence of the mass media, people can (and do) still get off their asses to cooperate and contribute to a cause that they feel is worthwhile. It doesn't matter if they're going after the wrong goal; the only thing that matters is that they think they're doing the right thing. It's easier to "convert" someone who is actively trying to remedy a perceived injustice (even if it's the wrong one, even if they're using the wrong means) than someone who just gets fat and watches Dancing with the Stars every night. Gandhi always said that he could make a satyagrahi out of a violent person, but not out of someone who's apathic.

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Consider this. Would you be accepting to take a 30% wage cut in order to maintain Dutch unemployment below 10% in the future, or would you rather keep your current salary level which would most likely yield an unemployment above 20% in the near future?
Yes, I probably would. That said, as much as I like to think of myself as a thoroughly selfless person, it's worth keeping in mind that I'm a student: even starting wages seem so high to me that I can't imagine what I would spend it all on. If I had a mortgage and 3 children, I might very well feel differently.

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I'd say most people will answer like this: I don't care about the scums getting sacked, most of them are bums, I want to keep my wage which I deserve. Then, when they get sacked, they blame the corporate owners for being selfish - which they are - in their plan to move the production to Uruguay/India.
That's probably true.
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The outraged poets threw sticks and rocks over the side of the bridge. They were all missing Mary and he felt a contented smug feeling wash over him. He would have given them a coy little wave if the roof hadn't collapsed just then. Mary then found himself in the middle of an understandably shocked family's kitchen table. So he gave them the coy little wave and realized it probably would have been more effective if he hadn't been lying on their turkey.

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Unread 21 Jul 2010, 11:00   #16
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Re: On the future of wellfare states

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Gandhi always said that he could make a satyagrahi out of a violent person, but not out of someone who's apathic.
Yeah. This is a very good point. I'm not sure how things are around, but I think one of the first premises of the sort of societal apathy is that the voting percentages (in parliamentary elections and communal ones) are steadily falling - people just don't seem to be interested anymore. It's come coupled with increasing amounts of people alienated from the society. I think it has to do with the individualism over the sort of dying-out community feel. Back in the day, you'd know your neighbours, and you'd socialize with them. Now you might know someone's first name.


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Yes, I probably would. That said, as much as I like to think of myself as a thoroughly selfless person, it's worth keeping in mind that I'm a student: even starting wages seem so high to me that I can't imagine what I would spend it all on. If I had a mortgage and 3 children, I might very well feel differently.
I'm a student too, well, I work temporarily right now, and I'd be supposed to be getting a real job eventually. That said, I've been told I should apply to a place here and there, and some of the pay levels have felt nothing less but staggering. However, I don't find the mortgage and three children aspect making that huge a difference in the end. The thing is, people are just expecting quite a high level of spending avail to them. The family of one of the more significant ex's, or, her parents said, probably had a combined gross income of more than 14,000e a month, that, given two children living home. They found it "not enough" in net terms. How much mortgage and crap you buy with a net of 8,000 or so, is beyond me, but if you're trying to buy a taj mahal then maybe therein lies the problem.

Technically, people get fairly accustomed to high levels of income fast, and climbing income is rarely the long term satisfaction, but dropping income tends to be a big hit (Layard: Happiness).

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That's probably true.
Steph Flanders was on about employment subject on a blog earlier, and, frankly, the BBC comment population seems to be the optimal case of just what is wrong. I'm taking some stuff from here.

Quote:
However, less good is the increases seen in senior Directors pay which increases the gap between rich and poor.
Ironically, the gap between the rich and the poor on a global level is exactly what allows the rich to reap excessive rewards. If pay levels were higher in countries where the production is being exported to, there would be quite a bit less parity profits to pick. Finance is a different subject alltogether.


Quote:
how do you know people aren't 'earning' a pay rise???

Over worked, under paid, funding lazy benefit claimants.....
An average British person will have no idea what overworked and underpaid actually means unless they've seen the people who assemble the mobile phones they purchase with their salaries.

Quote:
Its a bit naive to say pay should not rise with inflation. Are you saying everyone should get a pay cut unless they earned the right to have their pay keep up with costs? Also, your pay is what you earn is it not? What do you mean by becoming a part of British culture? Which country in the world requires workers to take pay cuts?
It's hilarious how people fail to see the connection between labour costs and inflation. Inflation is nowadays misconceived just to be a "market failure" (or a result of speculation), but it is also a convergence mechanism. If people are being paid too much for labour, companies may have to raise prices, which causes inflation. While certain exports like oil definitely play a role, especially the role of closed sector wages is not to be forgotten (a typical cycle goes like this: open sector productivity experiences a boost. thus, it is justified, that the harder-better working production witnessed through exports receives a pay rise. centralized wage barganing/union leverage models deem that also other people "deserve" the same. closed sector that hasn't budged in productivity demands pay increases. inflation happens).

Ignorance is bliss. Most of the baltic countries, Estonia foremost, has gone through internal devaluation.




Really, it boils down to people's perception on what they deserve. I think most westers are very accustomed to feeling that they deserve fifty times more for working as an assistant than an Indian person working as an assistant deserves. It boils down to ignorance, selfishness, and racism. I'm personally most likely going to be hilariously overpaid once I get my master's thesis sorted and a job for it, but, I'll just save some money for when the pension system comes crumbling down.

Mortgage is also the biggest joke there is. You do understand, that, paying a mortgage is an investment of kinds, since you're essentially purchasing a property? Or, you've purchased a property and are paying outstanding loans for it. Vast majority of people die owning a shitload of something (typically a house worth whatnot 200,000e) that's gonna serve them little good in the grave. And then they complain about not... having enough income to what, buy a 42" plasma or provide for three children?
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Unread 21 Jul 2010, 11:08   #17
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Re: On the future of wellfare states

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Stephanie,
Given that the direct cause of this depression in the economy is that aggregate demand had been supported by consumer credit, rather than adequate employment and wage levels since the 70s - the best things the government and industry can do right now is:

- Increase public sector employment, and raise wage levels

- Encourage industry that's making a good profit to pay above inflation pay rises

- Introduce a 'Full Employment Guarantee' to fulfill our UN Charter obligations

- Government targetted investment in energy and food security and R&D
relevant to that

- develop and implement market anti-inflation programs

- educate our population about how our money works and macro-economics
so that these crazy neo-liberal, procyclical policies can never return.

Kind Regards
Charlie
That must've been the best ever heh. I guess he's right on the last bullet.
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Unread 21 Jul 2010, 12:19   #18
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Re: On the future of wellfare states

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Originally Posted by Tietäjä View Post
Yeah. This is a very good point. I'm not sure how things are around, but I think one of the first premises of the sort of societal apathy is that the voting percentages (in parliamentary elections and communal ones) are steadily falling - people just don't seem to be interested anymore. It's come coupled with increasing amounts of people alienated from the society. I think it has to do with the individualism over the sort of dying-out community feel. Back in the day, you'd know your neighbours, and you'd socialize with them. Now you might know someone's first name.
An often heard reply to the question "Are you going to vote?" is "Nah, it's not like it matters anyway, it won't have an impact, it'll just be the same all over again". Interestingly, this happens most often among poor people with little education, who (I think) have the most to gain.

While I agree that low voter turnout is partly caused by apathy, I think that the main issue is that people feel that they are powerless. This is especially true in the west. People who feel strongly about a particular issue often ask the question "but what can I do?". In South America, people just do. This is another reason why the cleaners union example was significant: it empowered people.

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Technically, people get fairly accustomed to high levels of income fast, and climbing income is rarely the long term satisfaction, but dropping income tends to be a big hit (Layard: Happiness).
Yeah. The reason I would be ok with taking a 30% income cut is because it would not hurt me. 70% of a starting wage would still be more than I currently get, while people who spend half their income on a mortgage would run into trouble if their income went down 30% (or, for that matter, if they get fired). Not to mention what would happen to the housing market if 3 million families (out of a total of 7-8 million homes in the Netherlands) tried selling their overpriced house at the same time.

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Ironically, the gap between the rich and the poor on a global level is exactly what allows the rich to reap excessive rewards. If pay levels were higher in countries where the production is being exported to, there would be quite a bit less parity profits to pick. Finance is a different subject alltogether.
I was thinking about this last night, but forgot to post it. Isn't the whole problem that welfare states are facing a short-term one, anyway? I mean, by the sound of it, you're saying we'll see a return to the early industrialism of the late 19th century; exploitation of the working class, little welfare and high income inequality. The difference is that we'll see it on a global scale this time, instead of just in the West.

But surely if we raised welfare before on the "smaller" scale, we can do it again on a global scale? If what you say is true (and I have no reason to believe it isn't) and nation states are becoming less and less important, then once Mrs. Mbogo the mobile phone factory worker in Zimbabwe makes as much money as Mr. Johansson the mobile phone factory worker in Sweden, international (or global) unions could achieve the same things unions in the West achieved in the first half of the 20th century?

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It's hilarious how people fail to see the connection between labour costs and inflation.
Yes, it is.

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Originally Posted by Tietäjä View Post
Really, it boils down to people's perception on what they deserve. I think most westers are very accustomed to feeling that they deserve fifty times more for working as an assistant than an Indian person working as an assistant deserves. It boils down to ignorance, selfishness, and racism.
While I don't believe people make the conscious choice that "White people deserve to make more money than black people" (or whatever), I agree that racism is inherent in any system that causes such gross differences in payment between continents and races.

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Originally Posted by Tietäjä View Post
Mortgage is also the biggest joke there is. You do understand, that, paying a mortgage is an investment of kinds, since you're essentially purchasing a property? Or, you've purchased a property and are paying outstanding loans for it. Vast majority of people die owning a shitload of something (typically a house worth whatnot 200,000e) that's gonna serve them little good in the grave.
It's a choice between paying rent and paying mortgage. Arguably, spending money on something that you will never actually own is even more nonsensical. A better approach to buying a house could be to pay for it until your pension, then selling it and using the money to sustain you until you drop dead.
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Unread 21 Jul 2010, 12:55   #19
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Re: On the future of wellfare states

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Originally Posted by Mzyxptlk View Post
An often heard reply to the question "Are you going to vote?" is "Nah, it's not like it matters anyway, it won't have an impact, it'll just be the same all over again". Interestingly, this happens most often among poor people with little education, who (I think) have the most to gain.
Funny enough, around here I'd perceive it as a problem of two different types: first, the middle class people who don't find themselves representing any particular cause, or don't find it necessary to a) speak for their side to obtain more wealth, or b) speak for their side to climb out of poverty. The other party not involved in elections are the mentioned alienated people.

The lower class has found themselves in the "True Finns" -party, that is essentially a mix of globalization criticism (European Union, immigration), old worker spirit, and spite at the rich.

It's funny how not more than a hundred years ago people were willing to give their lives for this privilege.

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Not to mention what would happen to the housing market if 3 million families (out of a total of 7-8 million homes in the Netherlands) tried selling their overpriced house at the same time.
Which is a risk involved in obtaining property (investments). Buying services (renting a house) doesn't carry this risk.


Quote:
I was thinking about this last night, but forgot to post it. Isn't the whole problem that welfare states are facing a short-term one, anyway? I mean, by the sound of it, you're saying we'll see a return to the early industrialism of the late 19th century; exploitation of the working class, little welfare and high income inequality. The difference is that we'll see it on a global scale this time, instead of just in the West.
Yeah, that's an interesting way to see it. (However, income inequality today is higher than it was in the industrialism era - the top decile is substantially more rich than it's ever been before).

But yeah, that does sound like something that could make sense, in a convergence sense, assuming sufficiently strong global unions can be formed (and yeah, why not, since they were once formed out of essentially nothing on a local level). Maybe a shakedown of the Western societies is just something that's necessary for people here to understand the unsustainability of the current state of things and the need for more global consencus. (I'll brand this the I-have-faith-in-humanity approach over the diagonally opposite William Gibson'ish view).



Quote:
While I don't believe people make the conscious choice that "White people deserve to make more money than black people" (or whatever), I agree that racism is inherent in any system that causes such gross differences in payment between continents and races.
However, they unconsciously do it. They're okay thinking they deserve to earn more than the Estonian hairdresser does. First they'll argue that it's because everything is more expensive in Finland. Then the logical economist will mention that they still earn multiple times as much even with price-indexed figures (real income). At that point they'll just say "but you can't say it like that".


Quote:
It's a choice between paying rent and paying mortgage. Arguably, spending money on something that you will never actually own is even more nonsensical. A better approach to buying a house could be to pay for it until your pension, then selling it and using the money to sustain you until you drop dead.
Consider renting a house buying a service. The vast majority of your average European Gross Domestic Products are services. Your internet connection is one. You don't own it, you're just paying for a limited permission to use it. Most of your money is probably spent on nonsensical products you'll never actually own. In fact, I'd argue that the truth is the complete opposite of what you claim to be nonsensical, and you just proved it yourself.

You're advocating selling property in order to buy services before you die. In fact, I'd dare to argue that while owning a home might bring a feeling of safety, this isn't due to the sheer joy of owning a home, but more likely the sense of security it brings. It's "sensical" to spend on services and products that you consume. It's nonsensical to set money aside and die without ever using it. Because I'm just that sure the vast majority of people die having not done something they might have wanted to do just if they had had the money for it, whether it's something very insignificant or not.

I think the happiness attached to owning property is a Max-Weber'ish Protestant ethics fueled myth.

I'd like to ride a motorcycle through the Russia and Asia to China, but I can't afford it right now.
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Unread 21 Jul 2010, 14:01   #20
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Re: On the future of wellfare states

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Originally Posted by Tietäjä View Post
Funny enough, around here I'd perceive it as a problem of two different types: first, the middle class people who don't find themselves representing any particular cause, or don't find it necessary to a) speak for their side to obtain more wealth, or b) speak for their side to climb out of poverty. The other party not involved in elections are the mentioned alienated people.

The lower class has found themselves in the "True Finns" -party, that is essentially a mix of globalization criticism (European Union, immigration), old worker spirit, and spite at the rich.
That sounds familiar, we have our own version of that, though ours focuses more on race than on wealth.

Quote:
Originally Posted by Tietäjä View Post
However, they unconsciously do it. They're okay thinking they deserve to earn more than the Estonian hairdresser does. First they'll argue that it's because everything is more expensive in Finland. Then the logical economist will mention that they still earn multiple times as much even with price-indexed figures (real income). At that point they'll just say "but you can't say it like that".
Fair point.

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Originally Posted by Tietäjä View Post
Consider renting a house buying a service. The vast majority of your average European Gross Domestic Products are services. Your internet connection is one. You don't own it, you're just paying for a limited permission to use it. Most of your money is probably spent on nonsensical products you'll never actually own. In fact, I'd argue that the truth is the complete opposite of what you claim to be nonsensical, and you just proved it yourself.
I think the difference is that you have a choice when you want a house. You can choose to buy it or to rent it. On the other hand, I can't buy an internet connection, nor can I rent a banana. This in turn is caused by the fact that the value of a house declines only very slowly. If I buy (take out a mortgage on) a house today, I will be able to sell it 20 years from now for virtually the same amount (in reality I'd be able to sell it for much more, but then we'd have to take into account crashes on the housing market, which seems like needless complication to me). The same does not apply for the 20 year old internet connection (even if I could buy it), nor for the 20 year old banana.

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Originally Posted by Tietäjä View Post
You're advocating selling property in order to buy services before you die. In fact, I'd dare to argue that while owning a home might bring a feeling of safety, this isn't due to the sheer joy of owning a home, but more likely the sense of security it brings. It's "sensical" to spend on services and products that you consume. It's nonsensical to set money aside and die without ever using it. Because I'm just that sure the vast majority of people die having not done something they might have wanted to do just if they had had the money for it, whether it's something very insignificant or not.
I don't quite understand what you're getting at here. It seems like you're agreeing with me?

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Originally Posted by Tietäjä View Post
I think the happiness attached to owning property is a Max-Weber'ish Protestant ethics fueled myth.
I agree that more property (and consequently, wealth) does not necessarily lead to more happiness, especially not after a certain point, which is probably reached sooner than most people think.
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Unread 21 Jul 2010, 14:26   #21
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Re: On the future of wellfare states

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Originally Posted by Mzyxptlk View Post
I think the difference is that you have a choice when you want a house. You can choose to buy it or to rent it. On the other hand, I can't buy an internet connection, nor can I rent a banana. This in turn is caused by the fact that the value of a house declines only very slowly. If I buy (take out a mortgage on) a house today, I will be able to sell it 20 years from now for virtually the same amount (in reality I'd be able to sell it for much more, but then we'd have to take into account crashes on the housing market, which seems like needless complication to me).
By historical data a house is a bad investment for money. In reality, you will be able to sell it for much more, but if you'd used the money buying your-average-stock porftolio, you'd made more (on aggregate data). If you didn't have the money to begin with, and you had to take a loan (mortgage) to afford the house, you've been paying far, far more for the house than what it's actual sale price ever was when you bought it (interest).

From an economical point of view (in both terms of sensible spending over lifespan and sensible investment for money), picking up a mortgage to purchase a house is one of the most ridiculously stupid wastes of money there are. The typical way to do it is as follows: first, you can't afford it, so you pick up a loan. This has to be paid back with interests, which typically means you're again paying a lot above the the sale value. Additionally, odds are, by the time you die, you're still sitting on the house instead of spending the money on something productive.

As an investment, it is nowhere near optimal profits. In terms of financing, paying interest equals paying for nothing. Just make the math on how much say a 20-year-loan on a 200,000e over the 1990-2010 would've truly cost you. Assuming you're clean to just flat out buy it, then probably decent investment of the 200,000e would have more or less covered majority of rent (especially when you'd be in the receiving end of the rolling interests, not taking a beating off it). In the end, the vast majority of people die owning a 200,000e property. These are the same people, that, during their lives, complained, that due to mortgage and this and that, their income isn't sufficient. What satisfies these greedy people? Owning a Taj Mahal?

Somewhere out there is an illusion that purchasing a house is a great investment. It's not. If you want to invest in real estate, for god's sake buy a corporate facilities or industry facilities.

What comes to choices, yeah, you're correct. There are things you can lease and things you can't. But on a scale of choices, owning a house worth 200,000e and dying on it doesn't increase your money spent on utility. It decreases it, over a lifespan (in compared to alternatives).


Quote:
I don't quite understand what you're getting at here. It seems like you're agreeing with me?
No, not really. I think purchasing a property and then dying on it without spending it's value is simply put pouring income down the drain. If the population's problem is that their money isn't sufficient to invest in an asset they never plan on liquidating, then their problem is actually their own stupidity, not the perceived lack of income.

I mean, I could take a mortgage and buy 300 squares off Eira, and then go over there with my trade union and complain how my income is insufficient for my living, but you know... I deserve to live in a house I own (while the tiny minority of the world owns their own houses), not only that, but I deserve a four times larger and better a house, because I'm a well working cleaning lady (no I'm not).

What I'm trying to say is, that I feel that people who think they need to be able to pay off a mortgage for a massive flat and then die on it without spending it's value (thus creating, by the way, inheritage), and at the same time complain how they've not had enough income, are either ignorant, arrogant, selfish, or greedy, or simply a combination of these all. It came down to the "family of three and a mortgage" -argument which is essentially the same as "family of three and investments in real estate" -argument.
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Unread 21 Jul 2010, 16:33   #22
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Re: On the future of wellfare states

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Originally Posted by Tietäjä View Post
By historical data a house is a bad investment for money. In reality, you will be able to sell it for much more, but if you'd used the money buying your-average-stock porftolio, you'd made more (on aggregate data). If you didn't have the money to begin with, and you had to take a loan (mortgage) to afford the house, you've been paying far, far more for the house than what it's actual sale price ever was when you bought it (interest).

From an economical point of view (in both terms of sensible spending over lifespan and sensible investment for money), picking up a mortgage to purchase a house is one of the most ridiculously stupid wastes of money there are. The typical way to do it is as follows: first, you can't afford it, so you pick up a loan. This has to be paid back with interests, which typically means you're again paying a lot above the the sale value. Additionally, odds are, by the time you die, you're still sitting on the house instead of spending the money on something productive.

As an investment, it is nowhere near optimal profits. In terms of financing, paying interest equals paying for nothing. Just make the math on how much say a 20-year-loan on a 200,000e over the 1990-2010 would've truly cost you. Assuming you're clean to just flat out buy it, then probably decent investment of the 200,000e would have more or less covered majority of rent (especially when you'd be in the receiving end of the rolling interests, not taking a beating off it). In the end, the vast majority of people die owning a 200,000e property. These are the same people, that, during their lives, complained, that due to mortgage and this and that, their income isn't sufficient. What satisfies these greedy people? Owning a Taj Mahal?
You're making a few assumptions that I don't believe hold true. Generally speaking, people who take out a mortgage don't have the 200,000e to flat out buy it. And even if you do have the money, you can't live in a stock portfolio. If you're spending money to live somewhere, you might as well spend it on something that will actually be yours after a certain period of time.

I am also not convinced that renting a house for 20 years is cheaper than taking out a 20 year mortgage on a house and then selling it.

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I think purchasing a property and then dying on it without spending it's value is simply put pouring income down the drain. If the population's problem is that their money isn't sufficient to invest in an asset they never plan on liquidating, then their problem is actually their own stupidity, not the perceived lack of income.
I totally agree with you there. I suggested that people sell their house at a certain point in their lives so that they can use the money before they hit the grave.
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Unread 21 Jul 2010, 17:32   #23
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Re: On the future of wellfare states

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I am also not convinced that renting a house for 20 years is cheaper than taking out a 20 year mortgage on a house and then selling it.

I totally agree with you there. I suggested that people sell their house at a certain point in their lives so that they can use the money before they hit the grave.

How many do it?
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Unread 21 Jul 2010, 19:00   #24
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Re: On the future of wellfare states

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How many do it?
Probably about as many as sell their stock portfolio when they're 60 years old.
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Unread 21 Jul 2010, 20:50   #25
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Re: On the future of wellfare states

Quote:
Originally Posted by Mzyxptlk View Post
Probably about as many as sell their stock portfolio when they're 60 years old.
The people with the stock portfolio are less common in the "my pay isn't enough for me to live" -queue though.
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