No more gloating

AustralianActuary Business

The Royal Commission into Misconduct in financial services in Australia turned its attention to superannuation funds in recent months. It’s fair to say that time in the witness box was uncomfortable for many.

This Commission should mark the end of the gloating. For years, you will have heard self-serving nonsense about how Australia has the best retirement income system in the world, about how it is the envy of other countries, about how it was won as a right for ordinary Australians after a long and bitter industrial campaign. This gloating ought to  stop as the Commission has exposed publicly the many failings of the system. The gloating has been, in the main, perpetuated by insiders – some policy analysts, some academics, fund managers, industry associations, some service providers and politicians, especially former PM Keating and former union boss Kelty.

As far as managing money goes, the Australian system has been good. Investment portfolios are diverse, accessible and low cost. That is it’s one true good quality. As far as delivering retirement incomes, reducing pressure on the age pension, increasing national savings and weeding out unethical practices goes, the system has been miserably bad.

The most obviously desirable, necessary and easily implemented change is to remove the compulsion of the Superannuation Guarantee. Make the decision as to contribute or not contribute one that the employee can make based on their own circumstances and preferences. That would immediately concentrate the minds of the fund owners and operators – they would have to earn and keep the trust of investors, rather than rely on the force of law to guarantee that revenue stream.

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We know what is best for you

AustralianActuary Life

It’s a funny thing, the other half of the world. Take this mob, at the IEMA, for instance. The stated objective of the group of like-minded chaps and chapesses is to transform the world to sustainability. (I take it from that objective they assume the world is currently not sustainable? Despite all it has been through in the last 4.5b years? – editor’s note)

Of the people I know, I understand that many, on getting out of bed in the morning, limit their immediate concerns to a tasty breakfast with the newspaper. Two eggs, freshly laid by contented hens, boiled perfectly and perhaps toast with marmalade accompanied by a pot of tea. They then want to enjoy the day through the course of their business, hopefully enjoy a spot of sunshine under a blue sky and pick up the delicate fragrance of a passing rose on the way home before relaxing in the evening with family and friends.

Meanwhile, it seems clear that others possibly leap out of bed to don black shirts and heavy boots, with an eye fixed on the street below as they do so. That is when they start planning who they will transform today.

There are cultural differences between different groups of people that have worked their way into the legal structures of each society. I heard one description like this:

In England, everything is permitted unless it is expressly prohibited. In Germany, everything is prohibited unless it is expressly permitted. In France, everything is permitted, including those things that are prohibited. In Russia, everything is prohibited, even if it is permitted.

English common law was, thankfully, exported to Australia, New Zealand, US and Canada and we in these countries enjoy greater freedoms as a result. This stated objective of using the law to transform the world seems rather oppressive to me.

Trust

AustralianActuary Life

Recently, I was discussing Africa with a colleague on the topic of poverty. His view was that the poverty in Africa was so bad that it was incumbent upon the rich countries to provide aid. When I pointed out that the rich western countries had poured aid money into Africa for decades, particularly since the end of colonialism, and many Africans were no better off, and possibly worse off, he said he wished he knew what the answer was.

The answer certainly will not be found in any aid budget. Most African countries do not have the pre-conditions to allow wealth generation which is why they remain desperately poor. Rich western countries became rich only because those pre-conditions existed. They are: free markets, the rule of law, private property rights, small Government and trust. In the absence of these fundamental conditions, there is no point in pouring aid money into African countries – it simply ends up in the hands of tyrants, dictators, and the operatives of bodies such as the UN and aid organisations, happy to siphon their cut in perpetuity. Many such organisations are contemptible as a consequence of their participation in this scam.

Meanwhile, back in the west, it is worth remembering that civilisations do not die by murder, they die by suicide. Made wealthy through the efforts of generations of our forebears under the necessary conditions above, the populace becomes complacent and forgets, or never learns, what is necessary for a high standard of living. Many have no understanding of what made their country wealthy. They begin to assume wealth is the natural state of affairs. It’s not.

Small government? Forget that: all western governments have been growing as a percentage of GDP since 1960. Free markets? The constraints, red tape, green tape, pricing controls, occupational licensing, interference in business have continued to grow rapidly. Rule of law? Too big to fail government regulation of some but not others, cronyism, activist judges, elitist institutions that scorn democracy, union bastardry all contribute to schisms in society. Elsewhere, this  has been referred to as generating the difference between the somewheres and the anywheres. Private property rights? Look at the taxation system – capital gains tax, open consideration of death duties, retrospective taxes on retirement savings, penalty taxes if an individual does not buy private health insurance. Trust? Who trusts their bank manager? (Who knows their bank manager?)  Do you trust insurance companies, superannuation funds and the legal system? Do you trust the police force to uphold the law? Do you trust schools to educate your children?

Trust is under threat. Rich countries are rich partly because of the trust in institutions and the other people we meet and interact with. Trust is absent in tyrannies and hell-holes. It is replaced by mistrust and fear. The decline into identity politics, groups within society fighting each other rather than accepting all individuals is a notable point along the way. Trust is local: it requires the nation state. Trust cannot exist under the globalist one-world Government objective held by many left-over Trotskyites, most of the Greens, the UN and some naive university students particularly in the departments of humanities. We know this because it has been attempted before on a smaller scale and, fortunately, never got as far as the whole world.  The usurpation of power by unelected bureaucrats in institutions, the media, schools and universities have been chipping away at the necessary foundations of a wealthy society since the 1960s.

Where to from here?

The real cause of poor behaviour in banks

AustralianActuary Business

Here is the text of a letter of mine to the editor that the Australian Financial Review published last week.

 

Karen Maley writes that Commissioner Kenneth Hayne has posed the question, “Is incentive remuneration necessary?” in relation to banking. Maley describes this question as radical. I would describe it as a very good question.

Will Commissioner Hayne, having another few months to complete his report, pose two more questions that strike at the core of the cultural problems in Australian banking? They are: 1) Is the Reserve Bank necessary? 2) Is the four pillars banking policy necessary? These questions would render his first one redundant. It is time to have the discussion. A sound banking, monetary and payments system needs neither the RBA nor the four pillars policy. In removing them the potential benefits for the real economy, rather than the financial economy, are material. However, given the timidity of parliamentarians, I do not underestimate the difficulty Hayne would face in putting those questions in his final report.

Fairfax

AustralianActuary Business

Assuming that the intended acquisition of Fairfax by Nine Entertainment proceeds, will it mean a reduction in the diversity of media views, a reduction in independent journalism? Much chatter since the announcement has clearly anticipated such an outcome. But how likely is it? Nine doesn’t currently compete in broadsheet print journalism and neither neither does Fairfax, having opted out of that in recent times. The assets in the Fairfax portfolio that would be attractive to Nine are more in on-line commercial content and streaming, for example, Stan and Domain. It is possible that the print journalists will be retrenched and no more papers printed since those divisions are underperforming, but that prospect was already real for the Fairfax journalists under current ownership.

The ownership of an asset portfolio is changing, but that of itself has no implications for print media and journalism diversity or independence.

Slow and Steady

AustralianActuary Life

A few weeks ago I had the pleasure of attending the Melbourne launch of John De Ravin’s new book called “Slow and Steady”.

The book is a collection of 100 strategies for building wealth. Strategies are there for all stages of life. Each one is presented succinctly and with clear explanation as to whom it applies and why it works.

The practicality and readability of this book is perhaps best exemplified by noting that my children are interested in it and I see them reading about the topics that are directly relevant to them. They are interested in John’s strategies on car expenses, education debts and property investment. John’s work will be very helpful for many people. It’s available at this link.

Understanding why Diversity & Inclusion is equivalent to Conformity or Exclusion

AustralianActuary Business

Most, if not all, institutions now have Inclusion & Diversity policies. It’s fashionable to do so. These policies are entrenched in corporations, government agencies, peak sporting bodies etc. But what does an I&D policy mean and what do they achieve?

I&D policies may as well be called Conformity or Exclusion policies – they are conceptually equivalent and they achieve the same outcome.

To argue for inclusion requires the explicit assumption that exclusion is currently in force: an individual or a group or class is excluded, hence the need to change behaviour to include them. Logically, this requires that the entity or group or influence from which some are excluded can be identified. If it can be identified, then by definition it must exclude someone and has a test to be passed before membership is attained or retained. The consequence of an I&D policy initiative is therefore to change the rules of entry, change the definition of the group and exclude those who no longer meet the amended membership test. I&D is conceptually no different from Conformity or Exclusion. No barriers are broken down – they are just moved into a different position.

Back to analogue

AustralianActuary Life

Is it just me? Or have others noticed it? Is analogue making a comeback?

Some time ago, going digital was hip. It first came to my attention in the early 1980s when CDs emerged. The vinyl record, already suffering quite a deal from the convenience of the cassette tape, appeared doomed. I was all for it. Then came email in the early 1990s. The internet. Digital photography. The MP3 and ipod followed. Brilliant! Somewhere in there was the e-book reader, the kindle and its brethren. Skype phone calls. The iPhone, iOS, Android. All of these developments were fantastic, at the time. Onward and upward.

Or so it seemed to me. Continue reading →

What is the opposite of advocacy?

AustralianActuary Economics

The intent and the outcome often differ, especially when it comes to legislation aimed at correcting perceived injustices. Today’s example comes via the Chief Executive of the Women in Super group in Australia. According to Investment Magazine, Sandra Buckley  believes increasing the Superannuation Guarantee minimum contribution rate, possibly to 19% of earnings, is essential for women to catch up on their super after time out of the workforce for raising families.

Would that be in the interests of women? The short answer is no. It would disadvantage the very group that Sandra wants to help.

To understand why, Sandra should ask herself where would the extra money come from to make those higher contributions? It does not come from the taxpayer, nor from the employer. It comes from the individual herself. It is a forced wage deferral. There is nothing stopping women, or anyone for that matter, from voluntarily increasing their contributions now. They can do so and defer their income, the result of which would be a larger retirement savings pot. If they can do so now but don’t, that must mean they value take-home pay more highly than an increased superannuation contribution. There are plenty of reasons why that could be the case.

Why does the Women in Super CEO argue that such choice should be removed from women?

Helping Australians build adequate retirement savings is an important objective for policy makers, advocates and practitioners. Attempting to do so by calling for higher compulsory contributions is a lazy option, devoid of imagination and ultimately counterproductive.