August 23, 2010

Compulsory savings still a good option

An infometrics economist published in the Dom Post this weekend trying to argue against compulsory savings schemes.  Apart from a vague philosophical point that compulsion is bad and freedom of choice is good he appeared to have very little new to say on the subject.  In fact he glossed over the central problem with NZ having insufficient domestic capital and being far too reliant on overseas funds for business investment capital.

There is a risk that politicians in the future might try to break into any savings scheme for allegedly urgent needs of the day.  But it should be possible to ringfence such investments - if necessary by placing it in the name of individual account holders.  The onus is on the opponents of compulsion to say in plain terms how, in the absence of a large pool of domestic savings, they propose to solve the decades-long problem of large overseas borrowings to fund NZ consumer and household-led consumption and housing spending?

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