The OECD has a report out about the shrinking middle class and all that. The trick being that they’re not talking about how a goodly portion of the population have incomes now higher than their definition of middle class. Which isn’t, you know, one of those grand problems we’ve got to do something about.
But then in that report they make a point which is simply a flat out lie.
The OECD has also documented that economic insecurity concerns a large group of the population: more than one in three people are economically vulnerable, meaning they lack the liquid financial assets needed to maintain a living standard at the poverty level for at least three months.
This is an outrageously barefaced lie.
Firstly, define liquid financial asset? Well, actually, the ability to borrow is one of those. Say I’ve a credit line of $8,000. Say I’ve cash savings of $8,000. So, now, disaster strikes and my household has no income. What can I live on? Makes no difference to whether I can maintain a standard of living whether I’m consuming a credit line or cash savings.
In the one I reduced past consumption in order to be able to consume now – I did less to build up those savings. In the other I reduce future consumption in order to consume now. I’ll be able to do less as I pay back that credit line.
That is, a decently functional financial system, one that allows borrowing, acts as that liquid financial resource we all need. It’s one reason why savings rates decline in richer countries in fact.
But now think about this a little bit more. Perhaps it is true that we should be paying now, saving, in order to survive in the bad times? Maybe you’ve some moral objection to debt? Or want to quibble about the interest that must be paid on a loan – without thinking about the opportunity cost of the foregone consumption from having had to save.
OK, so, we all should have saved. And what is it that the government does with 20% of everything? That welfare state? You know, the one that comes in and says we’ll have 12% of your earnings, your employer throws in another 13.8%, and in return you get unemployment pay, housing benefit, tax credits, income support and all the rest if you lack the liquid assets to finance a poverty level existence?
Our savings for these possibilities are now done at the office, not the bank. And if you don’t want to think of them that way then what the hell is the justification for the tax charged to provide them?
As I say, the OECD is simply lying about all of this here. We’ve all got liquid financial assets to cover the bad times – those assets being called the welfare state. And given that we’ve got to pay for them whether we use them or not it’s entirely rational for us not to save above that level of provision.