One problem with cradle-to-grave social programmes that provide an excessively high social safety net is that some people tend to structure their lives in expectation of bailouts and continued support from gubmnt.
It is often a case of privatizing the gains and socializing the losses. The sense is that "If I am successful, I get to keep the gains; but if I am not successful, the gubmnt must take care of me." And this happens at every level of society. More specifically, cradle-to-grave social programmes are true social insurance in the sense that the programmes provide insurance for people who suffer losses.
What happens when such programmes are so prevalent is that people have less incentive to take care, to prepare for and to provide for contingencies.
Here is some evidence for what I am arguing. Several months ago internet correspondent MA sent me a link to this article about how the majority of people in the UK live on the financial edge.
Approximately nine million more adults are increasingly struggling to manage their money now in comparison to seven years ago, according to a major report into the nation's financial awareness.
More than half (52 per cent) of those surveyed are living on the edge financially, equating to 26 million people across the UK, the Money Advice Service (MAS) found.
This is a sharp increase from 35 per cent of people who were having difficulty maintaining household bill payments when similar research was carried out in 2006.
Nearly a fifth of those surveyed would go out for the evening even if they could not afford it and 17 per cent purchased they were not in a financial position to buy.
The article goes on to attribute this finding to two things:
- the lack of financial planning education. So of course the gubmnt branch that did the survey needs a larger budget to launch more "I'm ok, you're not ok" programmes for which there will be scant or no programme evaluation.
- the increasing adoption of existential philosophy by the masses. Well, that's not what they really said. The article talks about a "live for now" attitude.
This second point is ridiculous.
- If people were going to have a live for now attitude, we'd have seen much more of it during and after WWII and the cold war. Why now? Why now, when even the hippies of the 60s and 70s did a better of job of looking after themselves financially than people in the UK do today?
- You might know my answer. "live for now" is endogenous to the economic system. What I mean is, people learn to "live for now" from experience; they don't get brainwashed or taught to adopt existentialism as a philosophy. People learn that if they live for now, someone else will look after them if things don't work out. And in the western world, especially countries with a high social safety net, people are adapting to the widespread availability of these programmes.
Instead of wringing our collective hands about how people are not preparing adequately for economic downturns, personal misfortune, and retirement, we should lower the height of the social safety net. If destitute people learn that they may have to live four to a room with a washroom down the hall (not so uncommon even for the non-destitute 60 years ago), people will have an incentive to save more now to avoid those situations.
But reversing social insurance programmes is not easy. People have expectations of cradle-to-grave gubmnt care. And people vote for politicians who promise these programmes.