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Are PPFs really that risky?

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I started responding to some of the points raised by Mr. Burntout’s posts on PPF in India (equivalent of the state pension in other countries). Being a 4 part series, I was getting scattered all over the place. I have collected my thoughts here to burntout’s observations and placed them in a single place here.

However in the PPF scheme in India, even withdrawals are not taxed, making it unique and extremely attractive to investors. This is a tremendous gift form the government of India to the people, since in effect, it means that the money invested in PPF is never taxed!

Historically, Indian politics has transmogrified today from an anti-colonial freedom movement into a uni-party parlimentary democracy that has now fragmented to coalition based horse-tradery. And since we know that this form of politics purely sychronises with populism and vote banks, this EEE-PPF fund is one milch cow that no party will dare to touch (with barge pole).

table shows the PPF rates since the inception of the scheme

The above table is Mr. B’s PPF interest rates. I understand Mr. B’s point, but here’s a better table that compares PF returns against bank fixed deposit rates, to show how the PPF returns have matched, fared or trailed these cases (and it has done all three).

Now with the bank fixed deposit interest rates, it is easier to compare

  1. Notice from the table that over the years, the government has promised and delivered a rate of interest that is much higher than the prevailing market rate at that
    time. Ed’s note: Check! 
  2. Every time the market rates have gone up, the government has been forced to increase rates in the PPF scheme, to keep money flowing into the scheme.  Ed’s note: Not always true, look recent numbers. 
  3. Again this year, as the RBI has increased interest rates to keep inflation in check, the collections into the PPF scheme have dropped significantly.
  4. The government depends on having a strong cash flow every year into the PPF scheme, and it had to increase the interest rates for this year to keep the scheme viable. Ed’s
    note: : In the 80s, this seemed to be the case
     
  5. The government from this year, has pegged the PPF
    interest rate to the 10 year G-sec yield with a margin of 0.25%.  So if the G-sec yield is 10% for a given year, the PPF interest rate will be 10.25%  Ed’s note: Thank you for the info.

So, basically, we can see that B’s points bears out, but only obliquely. In the last few years, the PPF rates have actually been very steady when compared with the market — even during the bullish 2007-2008 phase. Yes, they did
increase their rate recently as B points out, but it is too early to draw any conclusions from any of that — definitely not enough data to be calling it a Ponzi yet. Just look at the pre-1992 numbers and compare to market rates, and you can take comfort that the numbers were more alarming then than now. After all, this is the first significant move in the last 10 years, and the average return for both banks and PPF is the same (8%).

For starters the PPF interest rate is pre-defined by the government at the beginning of every year, and for decades has had no correlation to market returns. The interest rate is in fact a political issue, and is decided by politicians, rather than economists. Typically the interest
rate is kept higher than prevailing market rates, ostensibly to encourage small savings, but also as a political ploy to please the voting populace.

This point connects to the first EEE point made at the beginning of the post. From sheer size of population that invests in PPF, the momentum is going to keep this scheme going. The same mindset of the population that continues to buy into bonds and treasury bills the world over, will also keep investing in ISAs, PPFs and 401ks. No doubts about it.

The PPF scheme is pretty opaque in terms of how the account is managed, where the money is invested and current status of the scheme. Asset Management Companies (AMCs) in India are regulated by SEBI and are required to publish a detailed list of their financials every quarter, that include their investment portfolio, balance sheet, expense ratio, rate of return etc. 

Well, Mr. B’s very harsh here. No amount of regulation prevents companies going belly-up though. However state pension schemes are like hornet’s nests. Disturb them at your own political peril. No Government worth its salt wants to be seen as defaulting on its assured payments either at home or abroad, no matter how hopeless the situation seems to be. I like to offer two case studies. In the first case, the Brazilian Real. This is a classic case of medium unrest locally, but in the end everyone weathered the storm with good results all round. Next up, the Argentinian crisis. Here, the Government defaulted rather than adopt the kind of thinking that Brazil displayed. Even India “opened itself up” when it faced imminent bankruptcy due to internal cronyism in the 90s (As much as I have mixed feelings about that move it seemed better than suicide — given the political leadership leading to that stage back then). Given an informed choice, most nations will choose to go the Brasilian way and bolster internal confidence, which will go a long way in keeping the nation solvent. As for the EU crisis, it is still being played out. Let us wait and watch.

The PPF scheme on the other hand is nowhere near as transparent. A recent audit of the EPF (Employee Provident Fund) scheme showed an excess of funds, that prompted the finance minister to increase the rate of return for the last financial year in the EPF scheme. The “finding” of these excess funds, in itself, was hotly debated for the correctness of the financial audit. Mr.Ponzi also did not maintain clear records, and it was impossible to fathom where the money deposited by his investors went.

Well, this is very true even for the large backbone institutions such as the LIC or even SBI. However, the LIC and SBI are exposed to the markets which bring in some kind of risk into the picture. The PPF on the other hand functions like sovereign debts by the public to the
Government of India. Therefore, failures of state pensions are treated in the same vein as sovereign defaults! So, B can be rest assured, the Government will resort of any trick in the book (going all the way to increasing retirement age!) to pay its obligations towards the citizens.

The PPF scheme depends on new investors coming in yearly with their fresh deposits to keep the scheme running. When the collection began to drop for this financial year, the government stepped in and increased the interest rates to make the scheme more attractive. This has been done in the past as well, to keep the inflow going.

While not mandated by law, most companies open for their employees an ipso defacto PF account and deposits the minimum required funds into it. Based on demographics and population size, this policy by companies will ensure that decent amount of funds will be making its way into the PPF coffers for some time.

The way B sees the EU crisis playing out and similarities with the PPF  is where I differ from him. Brasil and Argentina have had similar financial routs, but Brazil did manage to find its feet. And the EU crisis is still playing out and the end game is not in sight yet. Good luck to them all, and hopefully sanity will prevail.

We have demographics on our side in India. The population is *very* young when compared to the USA/Europe or even Japan and this might stagnate in a few decades, but not right now. Therefore, there is no danger of US level (pension) payouts like the one imagined in Ponzi schemes for the next generation (mine) at least.

There is one more idea that, while not popular, offers some peace of mind towards worries of these nature. The concept of “Ricardian equivalence“, while hotly contested, has been empirically observed and validated as true.

Ricardian equivalence suggests that it does not matter whether a government finances its spending with debt or a tax increase, because the effect on the total level of demand in the economy is the same. 

In other words,

present borrowing would be matched by increased bequest to future generations in order to pay future taxes expected to pay the debt on the government bonds.

So, because PPFs are effectively “sovereign debt”, there is no danger of this turning into an elaborate Ponzi scheme, ever.

Concluding Remarks:

I understand, and applaud burntout’s intent behind the  post. I was reminded of the mantra Diversify, diversify, diversify which cannot be understated! Thanks, burntout. I agree with him on that. Paradoxically and ironically however, if everyone abandons the financial instruments such as PPFs in droves and crowd the stock market (as people in the USA did in the 80s), the inevitable that B warns of — the failure of the PPF scheme — will actually happen, just like its is happening in the USA. It would be far more sensible to balance risk against something as tweed-like as the PPF, the ISA or the 401k and chiefly plan on rebalancing your lifestlye like some of these luminaries have. 😛

Alternatively, get yourself FI, and then you could even launch a second innings like Jacob has (YaY! Go Jacob, go!)

Mr. B, I am very glad to have come across your blog. May our tribe increase! 🙂

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Written by Surio

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Guest Post: ERE-Lite or, How I can easily live on £5000 per annum — Part II

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Read ERE-Lite: Living on £5000 per annum — Part I here…

ERE-Lite: Living on £5000 per annum — Part II

Since leaving my job and striking out on my own I have really come to appreciate this hierarchy of capital types. Social at the top, financial at the bottom. Recall above my previous concerns about whether the financial industry would survive 2008, tie this to my idea of real wealth and the imminence (or at least inevitability) of peak oil, and you will see why financial capital is at the bottom of the hierarchy. It is the least stable, least secure of the three, prone to counter-party risk and strongly correlated to the health of Western industrial civilisation. My non-financial capital includes my home, my garden and the tools to work it. My social capital resides with my friends and neighbours, and provides me a network whereby I have gained some of my physical assets, access to paid work, exchanged food and labour, dissipated my excess production and derived a lot of entertainment, education and pleasure. In terms of priorities, I’d rather add first to my social capital, then my non-financial capital, and finally to my financial capital.

Perhaps the best way to illustrate the workings of social capital is anecdotally. I could try in the abstract, but it would be less convincing as it would tend to contradict many common worldviews, and encounter resistance (Ed’s Note: Agree on that point with Macs! Just read, How blog comments look in a parallel Universe). Aliases have been used to protect the innocent.

At the beginning of the tale, when I was little more than a cubicle-jockey running on the 9—5 tramlines of conformity, my social capital was low. I had moved home (and country) a few times and shaken off most of my old social connections, but eventually found myself resettled on my native soil as a debt—slave working an uninspiring job mostly to pay off a modest mortgage. This last was not a common experience, and I was truly unhappy to be in such a position. After a hard day’s work I’d often find myself in the local pub (which we’ll call ‘The Rainbow’, for anonymity’s sake) bemoaning the soul-lessness of my existence. Now, the secret to building social capital boils down to two words, really: ‘Be nice’. Make and build friendships, maintain them, be available, be honest, be true to yourself. Be aware that a gift is an investment in social capital — it’s not quantifiable, not tallied in a ledger anywhere, but it strengthens relationships. So when Mr Grey was out of work and down in the dumps, a drink or two were appreciated. After a while he was employed in the kitchens at the pub, and I found I had a source of re-used containers and potato sacks I needed for my garden. In return I supplied some of my surplus potatoes to the kitchen (for a few pints), and some herbs from my garden.

Mr Blue, another keen gardener, brought in excess runner beans — some went to The Rainbow’s kitchen, some came my way. Likewise the pheasants he brought in after a shoot — now, I didn’t know how to prepare a pheasant for eating, so I spent a couple of days in the kitchen myself, helping out and learning the ropes on preparing game birds. A bit of upskilling! All unpaid except in terms of social capital. Another friend — Mr Silver — also likes a bit of game, so I made sure some of the pheasants went his way, and then when he’d made too much marrow chutney for his family, some ended up in my store cupboard. By the time I was ready to give up the day job, and I knew I had more time to spare, I mentioned to Mr Silver that I’d be available if needed — he works as a handyman and gardener, and I knew some jobs would require more than one pair of hands. Sure enough, a few short contracts have come through that way. He’s been able to take on jobs he might have had to refuse, and I have some enjoyable work I’d never have accessed otherwise. In this particular instance that social capital actually yielded cold, hard cash.

Panorama shot of my foraging grounds

Panorama shot of my foraging grounds. 🙂

Besides gardening, I also enjoy a spot of foraging around the woods and hedgerows for wild foods. Often as not I go out on my own for a bit of peace and quiet, and to enjoy the scenery, but on occasion I’ll team up with Mr Grey and/or Mr Silver, sharing my knowledge of what’s out there, what’s good to pick and how to use it. The latest joint venture is a nice big tub of elderberry wine which is bubbling away in Mr Silver’s spare bedroom. That will be a good party when it’s ready, and of course, we’ll have a few spare bottles to distribute, again bolstering our social capital. Foraging has also yielded quite a nice haul of other produce: elderflower cordial earlier in the year, (wild) raspberry jam, bramble jelly, apples, hazelnuts, rosehips, sloes… Some of this produce stocks my own cupboards of course, some is distributed around the network, swapped for meals out with Mrs Scarlet, or eggs from Mr Green. And of course garden produce can also come in excess, so that is also dissipated through the social network, too. Mr Crimson, I have found, is mad for marrows — which my garden has been producing quite prolifically this year (grown from seed swapped with Mr Silver).

Mr Crimson has also been employing both myself and Mr Silver for garden work and a bit of freelance geekery — a damaged ‘phone needing the data extracting, setting up a blog for his business and the like. Some work yielded cash, some beer… He stretched me a bit, too, when he said he needed a new shower enclosure. This was where my professional-style resignation paid off, as I was able to go back to my previous employers as a customer, and enjoy a nice ‘ex-staff’ discount. And amazingly I’d learnt enough at that old job to be able to fit the enclosure, including doing the tiling and some plastering. Never knew I had those skills until I tried it!

Greenhouse with water tanks

Greenhouse with water tanks

Perhaps the best synergy between my social capital and my garden arose when Mr. Grey announced his father needed to dispose of a greenhouse. In return for dismantling the greenhouse I was able to move it to my own garden which has already made a great improvement to its productivity. There were a few broken panes of glass to replace, but Mr Silver had a source of surplus glass, so that was easily solved. To have purchased that style of greenhouse from new would have cost me a good £300-400, so I have had a real bargain, Mr Grey Senior has had a bargain through not needing to dispose of it and clear the site himself or pay for it to be done, and some valuable materials have been reclaimed instead of being dumped. Now I have an extended growing season, and better facilities for propagating plants, some of which are going to be spread around to Mr Crimson, Mr Silver and the garden at The Rainbow. When I needed water storage to capture the rain run-off from the greenhouse, a quick word around at The Rainbow evinced a reply from Mr Red – a local plumber — who had a couple of 50 litre tanks cluttering up his garage. Result! For the price of a few pints.

Some final benefits I’ve derived from my social capital include the contract to trim all the hedges at The Rainbow, and a share in a massive crop of plums which another customer needed to dispose of — more delicious jam for gifting! Mr Crimson’s old shower enclosure was saved from the dump when I looked at it and saw instead of waste, the makings of a couple of 2 metre long cloches for the garden – they’ll be very useful next spring for starting off early seedlings under cover.

Certainly, I could have stayed at work and bought all those things which I have acquired through exchange of social capital — except of course I wouldn’t have. I would have had no time to devote to my garden, to build a greenhouse, to go foraging in the woods. And you might say in terms of value I would ‘earn’ more in a job than say foraging for hazelnuts. In terms of a simple cash yield that would be true, but the yields are multiple. A couple of hours spent collecting a few pounds of hazelnuts might yield maybe £5 worth of nuts. On a one-dimensional cash-mediated account that is worth less than two hours paid work. But it also yields two hours of entertainment, two hours of healthy exercise, two hours immersion in nature (the lack of which is a major source of mental stress and anomie). In the cash-mediated model, two hours of work would not supply £5 of produce and pay for two hours in the gym, another two hours of entertainment and still leave time for a nice walk at a time defined by working hours. ‘Earning’ the cash would entail further costs — a wage is not pure ‘profit’. To go foraging, I just walk out of my back door, at a time of my choosing. To go to work I needed to wake up early, wear more expensive clothing, drive a car for half an hour, suffer the stress of traffic, spend all day indoors sat down and staring at a computer screen, then drive home again. For the eight hours I’d worked, I’d used up ten hours of my life and degraded both my physical and my mental health. In short, I have exchanged ‘standard of living’ for quality of life.
In truth, much of what we classify as ‘standard of living’ is better described as ‘cost of living’. What may not show through much of the above (although an annual budget of £5000 hints at…) is that I have withdrawn almost entirely from consumerism. I don’t define my ‘worth’ by the things I own, or derive any satisfaction from much of what most people consider to be normal culture. For one, I do not watch or even own a television (Ed’s Note: I can’t even explain how liberating it is not to have TV. Although I own a TV (but no cable, Sky, dish, etc.), it is my parents’ old one from 1984, and gets used occasionally for an odd DVD). That plugs one gaping hole through which pours an incessant stream of discontent and envy into the average person’s life. I’m not interested in ‘celebrity’ culture or keeping up with fashion or organised sport or soap operas or manufactured ‘reality’. I hate being advertised at — either overtly or by insidious ‘product placement’. I resent the condescension implicit in advertising, that vapid consumption of inherently unsatisfying gimmicks somehow bestows on us our ‘worth’. I am not what I drive, or the label on my clothing. I do not need to be anaesthetised by second-rate fiction, I do not need my emotions to be manipulated for someone else’s commercial interests. I do not need my worldview to be pre-digested by the narrow focus of corporate ‘news’ and sterile political ‘debate’ that doesn’t even examine the unstated assumptions of our way of life (Ed’s Note: If you want a more detailed exploration of these ideas, read this post and then, this one). In fact, I don’t need much at all, and most of that I already have. Shelter, food and water, health, a place in society, meaningful work, intellectual engagement. Oikos.

'Still life' composition of some of my 'real wealth'

'Still life' composition of some of my 'real wealth' — (Clockwise from right) Marrows, Apples, Potatoes, Hazelnuts, Jams (Gooseberry, Strawberry, Plum), Jellies (Raspberry, Blackberry Apple) and Marrow Chutney. Preserving summer vitamins for winter use.

Not only is our current way of life unsatisfying, it is also crumbling. We are bumping up against ecological and resource limits – infinite growth in a finite system is inherently impossible. We like to tell ourselves the story that economic growth comes from innovation, human ingenuity, this or that political theory when in fact it almost exactly matches energy use (Ed’s Note: A data-centric treatment of that idea behind energy usage can be read from here). We need to change that story as our energy options are becoming constrained, which inevitably entails an economic contraction, yet our economy is a complex adaptive system that can only remain stable within certain bounds. For one, it cannot accommodate contraction, as an ever-expanding pool of debt backed by the assumption of infinite growth is required to maintain the current financial model. I see the present as a transitionary phase, that now-cliched Wile E. Coyote moment where the majority have yet to look down. I believe the near future will not much resemble the recent past (Ed’s Note: I recommend the Crash Course videos for a quick systems level introduction to our civilisational memes and problems. No, I am not a member, nor do I get paid for that link).

The future will be low-energy, low-tech and local. This is why our most valuable assets will be those which are productive of real wealth. Meanwhile, it is necessary to operate with a foot in both worlds — build up those real assets whilst being able to feed the money-demands of the doomed system. Cutting money costs frees up the time to create the alternative support system — gardens and social capital, our individual ‘oikoi‘.

It’s fair to say that when I left my job, it was a bit of a leap of faith. I had no great plan mapped out for the next few months, just a small safety net — a bit of cash, a garden needing work, a small income from Amazon and other sources. I had no way to know beforehand what my social capital would yield, yet it has made a great contribution towards my needs. To set out on a journey, it is not necessary to know every footstep it will entail. If I’d waited until the future looked secure, then I’d be waiting still.



Ed’s Note: Macs has made it a self-contained post, and I have supplemented suggested readings to whatever topic needed more explanation. However, Macs would be happy to field questions ranging from something as pointed as “‘How can you possibly live on less than £5000 a year?” all the way to very strategic questions one might have about his approach. Fee(l) free to ask. ;-). If the answers have to be long and involved, Macs might even tease out a few more detailed posts. So, put your thinking caps on, and throw those questions (but not the kitchen sink!) at him. 8)

Ed’s Note (2): From Barry Ritholtz‘s Blog: Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
In other words, we have a very liberal approach towards dissenting opinion, but we will choose to block downright inflammatory remarks aimed at the author or his lifestyle. Thank you.

Guest Post: ERE-Lite or, How I can easily live on £5000 per annum — Part I

with 5 comments

About the Author:
I encountered Macs first in Early Retirement Extreme (ERE) way back in 2008. He would leave an occasional comment, the keyword being “occasional”! 😉 His comments(*) were quite thoughtful, intriguing and added a complementary angle to Jacob’s post, so I filed him away in my memory as an intelligent and an interesting person. I really started having interactions with him over at Simple Living in Suffolk (SLS), where we found more opportunities for shared discussions. Macs’ ideas generally represent a non-mainstream approach to irritating real life issues, which is his unique selling proposition (USP). 
(*) And if I might add, like the majority of comments at ERE

About the Post:
The old Chinese curse about living in interesting times has come true, or so it seems. Whichever direction you turn, there’s talk of austerity and unemployment, volatility and inflation, companies reporting profits and layoffs(!), and of course the no-longer-ignorable-and-widespread protests, etc. All talk for the common man is centered about the difficulty in making a living in these tough times. Over a few interspersed discussions at SLS, Macs outlined some of his own approaches towards shoring up his “quality of life” to be as free as possible from all these extraneous factors. So much so that: By Toutatis, the only thing he worries about was, if the sky would fall over his head! 😉
I asked him if he could consolidate all his ideas into a single post to provide strategies and validation to others that might be looking for inspiration. Macs kindly consented, and he sent me a classic one.
At times, the unfamiliar words that were leaping from the page kept reminding me of a Nero Wolfe mystery novel (Part I), whereas all the people names and the description of fun activities were reading like Enid Blyton (Part II)! 😉 I had good fun reading and digesting it. I hope you will too. Thanks Macs!

Serendipitously, the theme of the post is similar to Jacob’s recent “How I live on $7000 per year“.


Early semi-retirement lite — Social capital and the garden economy

They always say you should begin at the beginning, but that presupposses that there is a beginning, that it is singular, and that events follow on in a linear progression thereafter. To meet such requirements, I’d have to start with “FIAT LUX” although – denominational & teleological controversies aside – that would surely be absurd.

Instead I shall begin with what has become my ‘word of the week’, which is oikos (οἶκος) — the Greek root common to both ‘ecology’ and ‘economy’. Oikos denotes a dwelling, a household, and encompasses both one’s place in the world and one’s manner of inhabiting it. One’s environment and one’s self, if you will.

Yin-Yang

Yin-Yang


This is simultaneously a duality and a unity, like the Taijitu (yin-yang symbol), a glyph of enantiodromia, the principle of one condition at its height containing the very seed of its opposite. A tendency of the Universe to abhor extremes and redress balances. These tendencies are evident in both ecology and economy. In ecology there is the ‘logistic equation’ which describes predator-prey population fluctuations based around the over-predation / population collapse / explosive recovery / over-predation cycle. Each species in its extremity is its own downfall – there is no total domination without overshoot. Yet in the longer term the ecosystem — the ‘big picture’ — persists stably, over-arching the cycles. In economics we talk of ‘business cycles’ and ‘supply and demand’ where prices and goods sit on the see-saw.

In the cusp of tension between these warring children of oikos — ecology and economy — we human animals must make our homes and derive our livelihoods. But what has any of this to do with early (semi-) retirement, you may well ask? In my case it all speaks to the ideas of home and how to inhabit it.

An alternative start point could have been the day I handed my boss a little envelope which contained my letter of resignation. Or the day I first read Jacob’s ERE blog. Or the day I first took peak oil seriously. Or … you get the point — beginnings never are, are they? There’s always something earlier. Consider a river – say the Amazon. Where is the source of the Amazon? I know some intrepid explorers have risked life and limb in tracking it down along many tributaries, yet the very concept is a fallacy. The source of the Amazon is its entire watershed, nothing less than maybe a third of the continent of South America. Likewise, my journey towards semi-retirement draws its sources from many and varied roots.

Needless to say, I wasn’t enjoying my previous job managing online sales for a small bathroom supply company. All I could say in its favour was that it paid the mortgage and the bills, and that it kept me connected to the internet all day, and like all cubicle-jockeys I found there many things more interesting that my allotted tasks! It reminded me of peak oil (an issue I’d buried from my consciousness a few years earlier), and that as things stood I would be very vulnerable to the changes I expected over the next few years. For a start, my job was vulnerable, and it was also soaking up so much of my time and effort that I had none left over to prepare my home life. Then I discovered ERE and a few other ‘working a job sucks’—themed sites, and an escape plan started to form.

From LATOC, I took on board ideas about ‘prepping’ for an imminent collapse of Western industrial civilisation (which I now regard as slightly less imminent, but no less inevitable (Ed’s note: See this article by Jacob for a detailed, yet similar prognosis), but it was mostly short-term ‘lifeboat’ style preparation — stock up on basic foodstuffs, save rather than squander spare cash, and of course, buy a bit of gold… So I got to the point where — if the lights went out tomorrow — I wouldn’t starve for six months or so, and I had something of value I could slip in a pocket and run away with should the Four Horsemen come knocking. But I was still tied to my job and Jacob’s ideas about financial independence really started to kick in. I’d got the quick panic out of the way, but of course that always leads to ‘what next?’ (Ed’s Note: See ERE’s 21-day makeover)

What I liked about Jacob’s ERE was that it wasn’t just another ‘get-rich-quick’ site, or dependent on earning a wage three times what I was earning, but rather a series of alternative viewpoints, different ways of looking at finances, and ultimately the power of reducing needs — or more specifically of reducing the need for cash to fulfill them.

I was in a bind. What I really needed was TIME. Doing a full-time job denied me time, and it ate into my psychological well-being too — stress, exhaustion, existential angst, you name it. I had one ace in the hole — a life assurance policy due to mature at the end of 2010. Back in 2007/8 I was really having doubts about whether the finance industry was going to survive long enough for me to cash out. It was too soon to count that particular chicken, so I carried on working, reducing my living costs and buying more gold with what I saved. By early 2010 further misuse of my employer’s bandwidth had brought me into contact with Monevator and Ermine’s ‘Simple Living in Suffolk‘ and a few others, and this had convinced me that extra income streams, even small ones, were worth cultivating, so I started diversifying. I bought a bulk load of remaindered books and set up an Amazon account; I started doing paid online surveys; I started a high-yield stock portfolio in an ISA. The Amazon business and the surveys meant I was obliged to register as self-employed, which was a great step to take as it freed up my horizons for later.

By the time 2010 ended the finance industry and myself were both still alive, and a nice cheque arrived in the post. The next day the mortgage was paid off, and I still had about 1 year’s worth of my reduced living costs. This is where the envelope for my boss made its appearance, and I left to
‘spend more time with my own business’. That shocked him even more than the fact I was resigning!

On the 1st January 2011 my new life started. I’m now solely self-employed, with a growing portfolio of small income streams, and a much-reduced need for cash. In round figures I can easily live on £5000 per annum, which is actually below the personal income tax allowance. It would be a lot less if I gave up alcohol and tobacco, but that’s a fight for another day (Ed’s Note: Reminded me of a thread on the ERE Forums).

About 20% of that is covered by surveys, dividends and interest payments (bank accounts and peer-to-peer lending) (Ed’s Note: I participate in P2P lending myself, and if done correctly with the right people, is a good income source), on which I probably spend 2 or 3 hours a week. The Amazon returns are trickier to calculate due to the amount of stock I have to shift, but that makes another useful contribution. Being self-employed means I can take up casual jobs here and there, and so I’ve been doing quite a lot of gardening work, with about 10-15 hours a week at minimum wage being enough to fill the gap between needs and other income.

I’m now time-rich and cash-poor (Ed’s Note: Kiyosaki readers will understand what that means, but for the rest, this article by Jacob gives a more detailed explanation and provide a context for the explanations that follows below), which gives me the opportunity and impetus to realign my ideas of what really constitutes ‘wealth’ and ‘capital’, and brings us to the nominal theme of the piece, which is ‘Social Capital and the Garden Economy’ and how I have transformed how I inhabit my ‘oikos’.

What are ‘wealth’ and ‘capital’?

Our immersion in the money economy blinds us to the true nature of wealth and capital. The instant response for most people is to equate both with money itself, and the reasons this is not so are many and well-rehearsed. My viewpoint is that wealth is the means to satisfy human needs, it is rooted in the real economy of goods and services. When you buy a loaf of bread, the wealth is the bread, not the coins exchanged to obtain it (it is also the labour expended to earn the coins you spent). If there were no bread, the coins offer no nourishment. I’m not going off on a ‘we don’t need money’ tangent, I just want to emphasise that the money is a medium of exchange, a marker of wealth. But true wealth resides in the actual goods and services required to meet human needs.

Capital is slightly trickier, for reasons I’ll touch on later, but a working definition would include both an accumulation of wealth, and a resource with a capacity to generate wealth. In money terms it is simple to connect these two ideas as though there were no difference — pile up your money where it earns interest and more money will appear. This obviously doesn’t work with bread — pile up your bread and leave it for a year, and you will have a big stinking pile of mould, not more bread. The wealth represented by bread is derived from it meeting human needs, ie being eaten. If more bread exists than people can eat it ceases to be wealth, but becomes a health-hazard — a cost. What then happens when we have more money than required to buy all the goods and services available in the real economy? When there is more than enough money to meet all valid human needs? Are all human needs then met? I think a quick look around the world will answer that one…

So, I like to distinguish three broad classes of capital. Obviously there is financial, or monetary, capital. This is an accumulated excess of exchange tokens. Then there is non-financial capital — which you may regard as roughly being ‘physical’ capital. It is the means to generate real wealth, be it a pear-tree, or a widget-making machine. It might be a raw resource or something built from previous investment of other wealth. Finally, there is social capital which is non-material and non-quantifiable. It resides in relationships between people and grows with co-operation rather than competition, when it is distributed rather than accumulated. It tends to be local and resilient, and the best currency for building it is simple gifting. It builds and holds together communities.

Ed’s Note: Macs’ application of these ideas will be continued: in Part II


Ed’s Note: Macs has made it a self-contained post, and I have supplemented suggested readings to whatever topic needed more explanation. However, Macs would be happy to field questions ranging from something as pointed as “‘How can you possibly live on less than £5000 a year?” all the way to very strategic questions one might have about his approach. Fee(l) free to ask. ;-). If the answers have to be long and involved, Macs might even tease out a few more detailed posts. So, put your thinking caps on, and throw those questions (but not the kitchen sink!) at him. 8)

Ed’s Note (2): From Barry Ritholtz‘s Blog: Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
In other words, we have a very liberal approach towards dissenting opinion, but we will choose to block downright inflammatory remarks aimed at the author or his lifestyle. Thank you.

Retirement planning for “free”: A case study of a case study involving 1.2 crores

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Hello everyone! I am back! Inspired by Maus’ “internet fast”, I had undertaken a somewhat similar one myself. I would heartily recommend it to anyone. Regular transmission is back… until the next fast that is! 😛

Every week, The Hindu BusinessLine newspaper carries readers’ stories along with their financial data, their concerns and their enquiries regarding financial planning steps and their dreams about early retirement. Readers might recall that I had carried a one such story on the blog from the same newspaper on an earlier occasion.

Of some interest to me was today’s reader case study. Although not exactly about early retirement, the discussion that I had with DW on the case study as well as the points the study did not cover, opened more interesting questions and what-ifs, that we decided to share it with a wider audience. Here’s a brief breakup of the data of interest to us.

  • 32 yo, son aged 2, take-home salary is Rs 55,000 a month (SISK – Single Income Single Kid). Salary expected to grow at 10% pa
  • Home Loan monthly repayment is Rs 22,700 (loan amount: Rs 25,00,000 (25 lakhs), loan tenure 25 years)
  • monthly household expense is ~Rs 18,100 (15000+3083 insurance premium) leaving a surplus of ~Rs. 14,000 for his investments

Objectives for this person:

  1. to pre-pay the principal portion of the home loan and to close the loan in 10 years
  2. to save for my child’s higher education, I may require Rs 40 lakhs
  3. for my retirement at 58 years (26 years hence) with a corpus of Rs 1.2 crore.
  4. planning to take a foreign tour in the next four years for which I need to save Rs 10 lakh

BusinessLine, please advise?

(Un)Known-(Un)Knowns: Choose your title 😉

  • The man’s wife must be reeallly good at managing expenses. If I could contact them, I would definitely be asking them questions on how they manage with Rs. 15,000/month in Mumbai 😎
  • Household expenses will shoot up for certain once his son starts (pre-)school. See here and here
  • for a representative sample. In fact, I get such appalling numbers and stories about extortion development fund and daylight robberies fees these days, I am looking at homeschooling as a very serious option. With our own IIT/IISc National Programme on Technology Enhanced Learning (NPTEL), MIT OpenCourseWare and Khan academy it has become more and more possible and easier than most people think! And yes, it’s legal in India too!

  • “Higher education” from an Indian context starts by college (UK: after A-levels), i.e., only by the time boy turns 16 years of age. The 40 lakhs isn’t needed until that point.

Foreign trip

I am going to tackle objective no. 4, chiefly because it is something I personally do not empathise with. My own sentiments on international travel concides with Jacob Fisker’s experiences, but compounded by my AVML/JVML requirements. So, if the man needs to have 10 lakhs for a foreign tour four years hence, he needs to invest all of that Rs. 14,000 surplus in equities, earning 12% pa (as per the journo), starting this month. This investment will return roughly Rs. 11.5 lakhs by the end of five years. I have deliberately omitted in this calculation, the additional contributions per month of approximately Rs. 1300, Rs. 2000 and Rs. 3200 that will be added to the surplus amount by years 2, 3, and 4 respectively due to the increase in pay. If those are factored the trip is a reality by the fourth year (It would seem the man isn’t stupid, for he seems to have worked these things out already and had a year in mind in his query).

What the journo doesn’t discuss in the paper is the “true cost” of the trip from a retirement/FI perspective, which is not Rs. 10,00,000, but Rs. 33,333,333 (that’s 3.3 !crores!). But true cost aside, this actually leads us to the classic discussion of “opportunity cost”, i.e., take the trip and you’ve totally foregone both your retirement corpus *and* your son’s education corpus for the next five years! Personally, keeping in mind the coming turmoil with onset of peak oil and job stagnation/outsourcing to other parts of the flattened world, I would say “to hell with the trip” and focus on the other priorities.

Retirement/Education Corpus Fund

According to the newspaper, Rs. 8000 invested for 15 years in equities yielding 12% pa would cover the 40 lakh education corpus and ~Rs 5600 invested for 26 years as above would cover the 1.2 crores for his retirement. Two factors not discussed by the paper, are additional insurance that the man needs to take (1.1 crores!) and how Rs. 8000 of the son’s corpus would give the retirement corpus a bigger boost from the 16th year onwards.

Pre-closing the home loan

The newspaper has treaded the hackneyed line (CYA?) in this regard.

“As long as the current tax benefits are extended for home loan interest repayment, it is better to avoid pre-payment of the loan”.

Personal Context: Yours truly is one of the many that was conned advised along the same lines and in a misguided moment of sheer adrenaline induced frustration madness, signed on the dotted line only to repent it in leisure since. After a long hard look at the facts and figures of this big concocted lie called “home ownership”, I have taken a somewhat contrarian position towards homeownership. I am not alone in this and here’s a few Indian articles questioning the rationale, empirically and with numbers.

So, back to the story, the fact that the man is being asked to base a long term, financially draining commitment on the whims of “tax-savings” and not based on numbers is a poor piece of advice, IMO. One main gripe I have with such advice is the outright refusal to consider increasing one’s monthly payments towards the loan to one’s advantage.
For the loan amount of Rs. 25 lakhs, based on his EMI amount, he is being charged 10% pa interest. So, by the end of 25 years he would have paid out Rs. 68,15,043 (68 lakhs) to the bank of which the interest is Rs. 43,15,043 (43 lakhs)!

Annually, the man pays out Rs. 2,72,400 towards his home loan (10% interest rate, revised every 3 months — only going to go up under current inflation trends!). Of this, he claims 1.5 lakhs as tax exemption under the tax code. Based on this, he would save Rs. 30,000 – Rs. 40,000 in taxes paid annually. By contrast, he pays out Rs. 1,22,400 in excess to the bank towards the mortgage which is his own money that can be neither reclaimed nor saved/invested.

Back to the big picture: He intended to pay back the loan by 10 years. So, let’s look at his loan outstandings and tax savings side by side for the entire loan period with his liabilities at 10 years from now.

Amount paid out towards interest Amount saved in tax during that period
10 years

23,40,136 40,000 x 10 = 4,00, 000
15 years 19,74,907 40,000 x 15 = 6,00, 000
Total interest 4315043 (43 lakhs) 10,00,000 (10 lakhs)

There is no contest between the two. When compared to how much he is making the bank rich and what a paltry “tax savings” he is making, the man needs to pay off his home loan pronto and make better judicious use of his own money the way he feels fit.

To do this, he ought to increase his EMI payments by Rs. 12,000. By this he will close his home loan by 10 years(*). Classic opportunity cost scenario, for now he’s not able to save for his son’s education corpus fund! If on the other hand he sticks with the Rs. 8000 investment per month in equities towards son’s education corpus and moves Rs. 5000 into the EMI re-payments, the repayment window extends to 14½ years instead. He kills two birds in one stone. Son’s education as well as home loan: SORTED!

(*) Only if he had started paying 12,000 right at the beginning of the loan term. If he’s already into the loan by a few years, then it won’t be 10 years but somewhat different. I don’t know how far into the loan term he’s into now.

Going further

  • If he keeps up a 12,000 payment for his housing loan as discussed earlier, the loan amount might be closed by 10 years. That leaves Rs. 2000 per monthtowards his son’s fund
  • A 10% increase in salary every year is too optimistic IMO and his household expenses will be increasing as the members start ageing. So, I factored a 5% increase in salary and a 5% increase in expenses and re-worked the numbers.
  • From the increase in salary, the man can increase his monthly contribution to his son’s fund by 2000, 4000, 6000, 8000 and 9000 by years 2, 3, 4, 5 and 6 respectively, and hold it steady from then on.
  • He would have approximately, Rs. 2000, 4000, 7000, 10000, 13000 to invest into his pension from years 6, 7, 8, 9, 10 respectively. If he holds this payment steadily into equities, he will actually be able to reach his target of ~1.1 crores at the end of 58 years of age.

Conclusion

Since he has pre-paid the housing loan, from the 11th year onwards, he will have an additional surplus of nearly Rs. 50,000 per month (which excludes the payments mentioned above!). Even if his salary stagnates (a very likely possibility) and even if returns from the market is not exactly 12%, he will still be able to meet his financial commitments along with son’s education and retirement corpus. If he wishes to still undertake that ‘foreign trip’ of his, he could look at investing this Rs. 50,000 in equities for a period of 3 years at 12% pa, earning himself 20 lakhs and then take that trip. His son might also better remember the trip at this age.

Keynesian Vs. Austrian School Rap!

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Enjoy this very slick rap video that tries explaining the philosopies behind the two opposing schools of economics: Keynes vs. Austrian school. The production values of the video is quite impressive. The actors ham it up well too. Best of all, the lyrics and the video go a long way in capturing what is the issue with Keynsian models (by using the last few years as a frame of reference) and also explains why the Keynes model is flawed. A timely video.



I had a very amused sterotype moment watching two Caucasian men play hard-core rappers. 😀 Don’t get me wrong, this video from the US version of “Whose line is it anyway” also refers to this point in an affectionate self-mocking way.



Ryan Stiles’ lyrics (tall guy wearing red shirt)

Well I’m a doctor, on the go,
And oddly enough, my name’s Doctor No.
If I could rap, it would be a sensation,
But I can’t, you see, I’m just a caucasian.
Say huh. (Wayne: Say huh, say huh, say huh.)
It’s all I can do, say hey. (Wayne: Say hey, say hey, say hey.)
Can’t rap.

Written by Surio

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Live long, not work longer: Some (Radical) solutions – I

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With regards to my earlier post, Deeply prevailing PWE sentiments: Redux, I got a few comments already as to the fact that I do not have alternative proposals lined up. I must confess I too would hate to be in the hot-seat for making such a decision, but please tell me, why is it that the easiest solution that does not inconvenience us but does inconvenience others, adopted all the time?

Some (Radical for many) proposals to keep the pension coffers running

It takes a lot of courage to do something as radical as this but certainly many of those cold-war fat cats and brazen hawks who continue to milk the war machine can be sent scurrying back to the holes they came from. An interesting film (with eye-candy) would be The Russia House for sound bites on how the war machinery triumphs by feeding falsity and fear. This sentiment is unacceptable in India too, as China/Pak are frequently cited as an excuse to procure armaments!

How about reinin in the healthcare industry (even the Indian ones) that are driving the costs up all the time (but we know how that one panned out in the USA), dismiss a culture of litigation that is source of much irony, both in US and UK. But I understand how the modern system works in the World today! We are a plutocracy!. Two illustrations from elsewhere.

Roy Brown, a homeless man from Shreveport Louisiana walked into a local bank, put his hand under his coat to mimic a gun, and demanded money. He rejected the pile of cash the teller offered him and took one $100 bill, saying that he was hungry and needed money for a place to sleep. He then turned himself in the next day, saying that his mother didn’t raise him that way. He was convicted of bank robbery and sentenced to 15 years in prison

Christian Milton, was an executive at American International Group, the international insurance firm bailed out with tax money. Mr. Milton engaged in a back-room scheme that defrauded AIG stockholders out of $500 million. Milton, a company vice president, committed securities fraud when he cut a secret deal with General Re Corp. to falsely inflate the asset value of AIG. He then lied about it to the Securities and Exchange Commission. The judge agreed with the prosecutor that Milton had known that the deal was a scam and had shown no remorse. Milton was sentenced to………wait for it…………4 years in prison.

Homeless, hungry, ashamed, and honest: $100 gets you 15 years
Rich, sleazy, brazen, and dishonest: $500 million gets you 4 years

Back to today, we have the oil mafia stealing headlines away from Egypt and Tunisia.

Forgot to mention earlier:

How about increasing the social security tax rate (*) to make up the difference, with a strict constitutional mandate the the Government is no…I repeat….not supposed to touch it under any ciscumstances?
(*) Gaaaasp! Sputter! Blasphemy, Heresy! Burn the Wicker man!

So all in all, it is likely that the soon-to-be-retirees would be asked to pack their lunchboxes again and one more round of bonuses will be paid out for “injecting experienced workforce into the global economy with radical proposal to increase working age”… Anastasia de Waal, are you listening?

Written by Surio

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Deeply prevailing PWE sentiments: Redux

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Or, Why your living longer shouldn’t equate to work for longer!

Over the weekend, I heard this podcast from Motley Fool (30 mins long) featured in Monevator recently. It was an interview with Dr Ros Altmann, director general of Saga, the old person’s youth club. Go on, give it a listen if you have the time.

My takeaways were:

  1. It made for very chilling listening because the Government pension which was working fine in India has been replaced with all these private SIP schemes bleeding people dry in the present with various processing fees. A simple calculation of the various “fees”, suggests that it would be a minimum of three years before the fund is actually starting to work for the pensioner. And we’ve got hordes of lemmings flocking at these things, and engaging in “fanboyism” with anyone within a 10m radius! When these usurious “fees” were banned by the regulatory body, the private pensions lobby was so powerful that they were able to reverse the ban and also managed to frame another part of their business instead.
  2. She finished the interview with emphasis on bringing back a whole culture of savings and investments within the general public. In between, it was all downhill for me
  3. Suggested to have lotteries that pay out a million quid monthly for pension fund contributers to keep them “hooked to idea of savings”! 😮 That antagonised her in my eyes even more…. Lotteries as a concept cause more pain and misery and ruin than society cares to admit!
  4. She conveniently placed the entire UK pension blame at politicians’ feet (OK, there’s some truth in that!). But there was no politician to defend their point of view. So it is a boo-boo in my dictionary (see post – look for “Jungian shadow”)
  5. Argued that people must be prepared to work longer than 65-70 because they are living longer anyway! (I couldn’t beat that type of logic even if I tried/could)
  6. Yet more blame at Govt to tackle ageism to promote above proposal

However, there was a small prevailing thought that the last two points mentioned above “are right”. Oh dear! I decided to collect all my thoughts on “why it is not right!” and present it as a (hopefully) coherent narrative. The logic that acceded to the last two points as part of another conversation has been paraphrased here by me.

When social security was introduced, average life expectancy was somewhere around 55, so a withdrawal age of 62 seems reasonable. At an average life expectancy of 78, it doesn’t. So yes, if people want to use SS/a government pension system as their only retirement income, they should have to put up with working longer/withdrawing at a later age.

Don’t you sense the PWE sentiment that drives this kind of thought process? That’s the first objection I have! But it is not the only objection. Read on to share my thoughts.

The Humane objection to that:

If anything, that premise itself would be unacceptable (at least to someone like me) because we are acknowledging with that observation that we expect people to contribute a certain amount into this pension kitty throughout their working lives with the knowledge that most will never benefit from the resulting largesse. In any form of society, that would just be frowned upon. One small point; retirement age used to be 70, so most paid up but never lived to take benefit of it. When the lid was blown there, the retirement age was lowered

But let’s go with that story for the moment:
Let’s say, we have someone joining the workforce when they are 22. Young, fit and in their prime (There was a time when I was able to run a half-marathon at 27, but now in my mid-30s I no longer feel up for it. Basically, that is to highlight our own changing priorities towards things as we grow old(er)).

The workforce are brainwashed into believing when they joined the workforce, that if they slug it out for 30+ years they “will get a retirement cake” and they can take it easy and stop and smell the roses when they turn 60. I know from my own experience with the “great middleclass” that by 50, most are really looking forward to the time when they will simply sit down and enjoy their coffee without being a slave to the clock (I seemed to move with only people with that kind of wish. YMMV). In fact, many within the public sector banking, regardless of their rank/scale took “early retirement” with severance pay, despite having the chance of one more promotion (and with it, being able to draw more pension). So, it would be cruel for someone who was really loking forward to put their feet up, to be told today that it is not 6o, but maybe 72 or 75 because, guess what, you live longer, so you need to stay at work longer (If it had happened elsewhere, this kind of forced working would be termed as a communistic gulag! :-P).

By accepting this as a given, we are simply mouthing what “they” (the financial institutions) tell us as a given fact (an axiom). Why should it be? The workforce did not ask for longevity, it was a side-effect, a consequence so to speak. A stretched analogy would be: A rising tide takes all ships with it, but it would be rather foolish to overload the ships now, because you find the the waterline to be high, and therefore the ship’s rudder can sink more! Not fair to the ship, because the ship did not ask for the tide, nor is the ship in a position to reject the tide and sink itself to commit suicide!
So, in summary, forcing someone to re-join or stay in the workforce simply by looking at the numbers (age) on the left, the payouts to be made on the right(*) and asking them to grab their shovels and pick-axes once more because (Woo Hoo!) they will all be living longer anyway!
I propose a new term for this kind of attitude: “bean counter nazism”
(*) Most Western Governments have actually resorted to using up this pot for various cold-war funded activities and don’t have the money to pay-out. That’s the conspiratorial truth!

Objection 2: If we decide to keep them on the job

OK, laying aside the humane side of the issue for a moment, it is decided to keep their nose back to the grindstone, what happens then? Wel, it so happens that the world population is at ~6.9 billion (last time I checked), and it was relentlessly moving up not stopping, not slowing…nothing! What about the number of youg people coming to work every year out of this number? For ease, I halve it for employable age? Now I halve it for young people as well? So, I have 1.72 billion people left. This is a global number. Last time I checked, this FLAT world was full of sovereign nations, capable of deciding what can and cannot pass over their borders (visa fees hike (USA), cap on immigrants (UK)), and under what conditions they pass (import tariffs, EEA, EEC, GATT, NAFTA……), which means these numbers get accounted and broken at a local level, i.e., country level. Please bear with me while I quote a sci-fi writer who berates us all for obsessing ourselves with numbers and quoting them to bamboozle and impress:

On the other hand, the statistics of Chapter One are beyond reproach. They tell how many people there are נand thus how many living human bodies נin each minute of the 525,600 minutes of the year. How many bodies means: the amount of muscle, bone, bile, blood, saliva, cerebrospinal fluid, excrement, and so on. Naturally, when the thing to be visualised is of a very great order of magnitude, a populariser readily resorts to comparative imagery. The Johnsons do the same. So, were all humanity taken and crowded together in one place, it would occupy three hundred billion liters, or a little less than a third of a cubic kilometer. It sounds like a lot. Yet the worldӳ oceans hold 1,285 million cubic kilometers of water, so if all humanity נthose five billion bodies נwere cast into the ocean, the water level would rise less than a hundredth of a millimeter. A single splash, and Earth would be forever unpopulated.

So, on with the story:
Already the soon-to-retire generation have had to go through upheaveals of their own where the carpets were pulled under their feet constantly (as jobs farmed out everywhere else in the name of globalisation). These people had no part to play in it, except when the axe landed on them. Indeed everyone talks about how having a $100,000 UAW auto-worker is making Detroit uncompetetive with regards to a $5000 SAIC worker, but I ask you, he didn’t demand that much. The bulk of that amount being quoted is taken up by their heathcare! But we convinently ignore that aspect (And Obama hinted further medicare/medicaid cuts in his state-of-the-onion-speech) while piling more misery.

Now as part of the “worker-bee” economic model, new workers must replace the old guard (either by promotion, new graduates joining the workforce, or if everyone wants to mooch off benefits, import them from other countries) for the existing jobs in the market! What happens when educated youth who have been led to believe in the “brave, new world” where everyone can be an investment banker, find themselves completely unemployed for many reasons (one of them being oldies have to work for 10 more years, say)?

Sudden Death Outcome

Providence, with a heavily ironic sense of humour has provided me with two revolutions: 1) Tunisia and 2) Egypt whose agenda seems to be high unemployment and food inflation channelled as a discontne towards incumbent Govt.

Yet another footnote in relation to those revolutions. That was written in Feb/June 2010, depending on which country you are reading it from! Chilling premonition, or self-fulfilling prophecy, I leave you to decide!

In 1950 Egypt population was 22 million, now it is 75 million! More than three times larger. They still have the same amount of arable land, but it is less fertile now and less water from the Nile River, their main source of livelihood. Result? More poverty and population dissatisfaction. Western people are unable to grasp the level of deep poverty in the slums of Cairo, for example, it is similar to India’s notorious slums. Obviously, this population growth leads to larger use of resources, more food, more clothing, more electricity, that is: more energy and more GHG emissions. Egypt has to be governed by dictatorship since otherwise the population would revolt.

Slow, painful death outcome

OK, some people take the population growth argument and turn it around its head. The argument goes like this:

  • World population growth is slowing and will begin to decline soon.
  • This creates a problem for social services that depend on a large number of employed people supporting a small number of unproductive people.

Ergo, keep the existing workforce going. This is a linear progression of thought that fails to take the “leapfrog” technologies that seem to overtake us everyday, leaving us feeling like “lower animals” (see quote referred here). In other words,

  1. The Japanese, faced with a negative population growth and surfeit of elderly needing care, have simply resorted to creating various types of nurse // robots
  2. Who needs teachers anymore? All those English teacher-bloggers living in South-Asian countries advocating lifestyle design, please take note 😉
  3. And then to add insult to injury, who needs waiters anymore?

So, I note with ironic hilarity when consumerist junkies that promote debt-driven economies suggest (as Ros Altman does in her podcast) that part of the solution of the decling population is that younger people can find jobs in restaurants or work in hair salons to service this already worked-to-death senior citizen who is being asked/forced to continue work for 10-15 more years. Hmm, will there be a waiter job for humans, going forward? On that note, will there be a job for the soon-to-retire?

The persistent myth of the pension pot

Companies engineer movement of jobs all the time with deliberate intention of keeping workers in a state of anxiety…. “M&A”, “outsourcing”, “JVs”, “synergistic partnerships with offshore collaborators”, “virtual office assistants”, etc…etc… OK, I don’t want to sound Marxist here, but take a look at the announcements here
and scan for the following words: closures, downs shutters, cuts working days, shut down…… Granted it is 2008 news, but I am too lazy to refine my search… I leave it to you to refine it, but I do know that in 2009, this happened among others, and in 2010, this lockout hapened near my neck of the woods – and they are one of Bangalore’s biggest blue-collar employers! For Apple fanboys, here’s the latest on Foxconn India! And I will take a bet, those jobs rarely, if ever come back to original state of play.

It is those type of workers all over the world, who were brainwashed that the trade would feed them, clothe them and put a roof over their heads (iPods, FTW!) after they retire, rely on a small pension towards their “planned” (by someone) obsolescence. The college-educated jobless can frequently move to find other paper-pushing jobs “wherever” they may be available, but what about these types of “blue-collar” workers?(*)

(*) It takes five fingers to make up a hand, in the same way it takes all kinds to workers when you talk about “workforce”, right?

OK, the jobs have moved from USA to Malaysia to China to Vietnam to India to wherever it goes next. In the process the organisation has stayed in the black and its operations run “as usual”. What about the workforce it leaves behind, who are unable to find a job? Yes, there’s a severance that’ll take care of them while they hunt another job, in the same way the Indian Government will extract all the Swiss black money and create a brave new India.

So, where is the “pension pot” for the original worker who signed up 30 years ago, not knowing he will be left hanging 20 years down? Where’s the “job” for him to go back to in order to continue working for.

Already, the new wave Indian companies who are themselves products of “flat world” outsourcing are becoming smart enough to open “offshore” centres of their own in SE-Asia… So, what happens to the jobs that used to come from the “mothership” to the “offshore centre”? What happens to the unemployed that are left behind as the Indian operations farms it out to SE-Asia “offshore centre”? Presumably some cynical t**d will create an Indian version of this and this to keep the masses opiated from joining a revolution!

As the post is going beyond 2500 words and I will stop for now. Based on the interest I recieve on this topic, we can take up Part II/IIIs if needed.

Frankly there are no easy solutions to this. And I don’t have the answers for these problems. But it is certainly not the airily worded solutions from the “experts” that we should continue to “soldier on”, since that is what “they” tell us to do, since it is the “only way forward”! Bah! Humbug!

As one modern philosopher puts it:

“the task of the philosopher is not to act as the Big Other who tells us about the world but rather to challenge our own ideological presuppositions.”

I have challenged myself on this one for long. Have I managed to challenge you today?

Written by Surio

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