Financial plan for the homeless

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NZ is the arse-end of the world; neverthless within this stagnant economy there are cities which are doing relatively well, such as Hamilton, Auckland, Palmerston North, Christchurch (belatedly). But within those cities, as well as elsewhere, there are people who are struggling to make ends meet. We might well consider this to be the 'doughnut effect'.
From Hamilton, NZ comes this interesting story of a homeless man living on government job benefits but otherwise with $70K in savings. This is an interesting issue both from a personal finance perspective, as well as from a public policy perspective. In this post I want to consider 4 issues:
1. How this man is impacted by National Party policy
2. How he would be effected by Labour Party policy
3. How he would be affected by ACT Party policy
4. My public policy advice to these parties
5. My financial planning advice for this man - even though he is not asking


National Party policy impact
What I like about this guy is that he breaks the stereotype of what we have come to expect of homeless people. Anyone who has been to Japan realises how proud the Japanese homeless people are. Its as if the origin of their pride was their mistreatment by the Japanese government. Yes, another success for representative democracy. Hoorah!

The National Party is the current party and they are paying this guy $180 less $12 per week for the interest earned on his $70K savings. Firstly, the guy should be applauded for saving money, and working prior to his last decade of joblessness. It is not easy to work in a country when you are relatively unskilled, surrounded by more able-bodied persons, and amidst a labour oversupply. Its not all bad. He has a proven track record of working. 

What is shameless about the conduct of this administration, and indeed, all governments is their blatant ignorance and incompetence. Some voice should be shouting inside of them saying that "This guy is a value; not to me, but to someone. His life is not worth zero". Now you might say that the government gives him $168 per week, so they are not treating him as zero. Not right. Governments don't have money. You the taxpayer are financing this man to aimlessly drift around Hamilton in the vain hope of his getting a job. The sad issue is that he is just going to get more mentally ill, he is going to get beat up, so he will no longer be employable, or even 'useful'. Post-traumatic stress will probably ensue. So then we have a 'disability pension', with all the rights and 'obligations' upon you, the taxpayer that that entails. What is apparent is just how detached governments are for the money. If this was your money, you would have some discretion to withhold it if you did not like what the guy was doing with it. Maybe you wouldn't give it to him anyway, because 'it's not your problem'. The thing is - it is. The government is taking $168/week for this guy alone, from you & a great deal of other people. It's your problem! You don't take issue with it because you feel disempowered. It's not kindness. You're indifferent to this guy's existence; and you'd not allow yourself to consider his plight, because it's out of your control. The problem is too big! It's your problem. You have a government responsible for such things. Problem solved! 

I guess the National Party are hoping that this guy should hang on until the job market recovers. The problem is - he is 60yo - and there is going to be an excess of labour for the next 2 decades because of the liberalisation of global labour markets after collectivist (socialist) governments collapsed, and purportedly saw the error of their ways. It will take 20 years for capitalism to solve the problem caused by collectivism over centuries. It's a big backlog. So basically, the National Party is offering voters no respite. They are indifferent to this guy's happiness. It might be argued that it's his decision to stay on the street; but ultimately it's you - the taxpayer - who will pay when he gets beaten up. So there will be a hospital bill and invalid pension. The good news for indifferent taxpayers is that this guy will immobilised, and will probably die early of diabetes. Unless there is more costly intervention.

So, to you this guy is not looking good at a $168/week investment. He's what you might call a drag on the economy. He is right to feel like he deserves his money. He's playing by the rules, he's paid taxes, and so he has a sense of entitlement. Interestingly, in Australia, he could not get a jobless allowance if he had more than $10,000 in the bank or investments. But is that the issue? I know because I claimed for a time between jobs when I was young. It pissed me off too because, like him, I argued, why can't I get the 'dole' when I pay taxes. There are people with $500,000 houses who can get it because they manage to have less than $10,000 in cash. The implication for NZ is that welfare is a form of income insurance, whereas in Australia, it functions more as a form of nominal insolvency insurance. i.e. You get it if you lose your capacity to service costs of living. If you have cash, you can still service your costs. 

My interest here however is not the equity or inequity of welfare, but the waste. This guy could be doing something useful. He is not worth anything in this economy....and that ought not sit with people so well. He could function as a child carer's assistant, a trainee, carer for elderly, cleaning the streets. There are any number of things he could be doing, even if they entailed no sense of efficacy. What a waste when there are things needing consideration. Instead the government says, take the day off....just fill in these forms to say you are looking for a job, you have no chance in hell of getting for the next 2 decades - when he will be 80yo. By the way, I see no reason why he cannot be working until he is 90yo. Old people regret giving up meaningful activity.  

I'd not be surprised to see National take the Australian approach in future. This would in a way be worse because it would give him greater financial apprehension because he's dwindling away his savings, and he might be more frugal with it, to the point of diminishing his diet, resulting in the decline of his health. It would incentivise him to find work if he was capable of competing; but realistically he is not. He has not worked in a decade. 

Labour Party policy impact

Now, looking at the NZ Labour Party. They have always advocated minimum wages. That will only make him less employable...even if he had a running chance. At 60yo, he doesn't in the contemporary labour over-supply. In fact higher minimum wages will add to the unemployment queues. I suspect Labour would increase benefits to people like him, but really no substantive change, to this guy's life, since he is saving for the future. 

ACT Party policy impact

Now, one might expect the ACT Party to be the 'economic rationalists'. I would expect however their position to have the most beneficial impact on joblessness, which would ensure a great many youths would get a job, i.e. they would lower/scrap minimum wage, they would cut regulation. The problem I have with ACT, is that whilst they hold the upper leg, they fail to consider: 

1. The impact of market distortion - stripping away some distortions creates other distortions

2. The legacy of market distortion - stripping away distortions creates other distortions

My policy suggestion

The value of this guy is not zero. The value of the taxpayer is not negative $168 per week. These people are important, if only to themselves. These people have hopes and aspirations. These people have real grievances; and most of them arise systematically, and as some horrid legacy of government intervention, often stretching back 100s of years. It will not be cured overnight, it will probably take a generation....but we are not solving the problem. These people are useful. You cannot rely on the market to solve the problem if you distort the market; if you market says they are worth 'zero' or 'negative' value, when by any objective standard, we know there are valuable things which they could be doing, but don't because centralised governments can't get around to organising solutions. Why is John Key so busy? Well, he's focused on changing the term of parliament. You have got to be joking? The problem is not his job term; the problem is the decision-making process which means he is ineffectual for the first and last years; not to mention the fact that it's an unaccountable, majoritive, extortion-based system. What does his priorities tell you? It's all vanity. He wants the job because it serves his vanity. He cannot honestly say he is doing a good job, so he blames the system (which is bad), but he has no solution. 

'
Now, I have a resolution for this problem, but it's another topic. I am concerned with this guy. The 'unemployable' worker who is useful. Offer people 'conditional support'. You can't help them get jobs in the current market if the market values them at zero, so:

1. Create opportunities for them to work 'staying alive', i.e. Growing food to live. NZ is currently importing foods from abroad, supermarkets are adopting huge mark-ups for these vegetables, and so people can grow here for own stake, or for sale, and live on the proceeds. 

2. People with sufficient resources like this guy can do it themselves. They have the time if they are spared the burden of 'useless job searching'. They will never get a job in market economy that is distorted. Pay them to produce food, i.e. If they have $70K plus, they can self-sponsor. If they don't, have a government sponsored scheme using contractors who tender for these programs. These people might need basic services upfront; but they will act if they are able because its meaningful work. People coming out of prison could go straight into these programs. Once taught some of these people could use their savings to build their own 'food production' scheme.

The world is currently reliant on foreign food increasingly because of low-cost emerging market labour. What is not appreciated is that, when in 20-30 years time, those country's surplus labour is fully absorbed by global markets, then their labour rates will match ours, and food production will make more sense locally. These are valuable skills we are loosing. These people could be the foundation for a budding industry; but more importantly - they are useful! And their utility to themselves and others is being wasted.

Want to rebuild NZ? Start with people left behind. Reduce the cost of looking after them; then you'd be surprised at how well the economy can run without useless government programs, without useless govt regulation. You'd be surprised how many problems like mental illness, joblessness will disappear!

My financial planning advice for this homeless guy

This guy has $70K of cash and a benefit. My advice to him is to buy a house in a depopulating place like Wanganui. The nice thing about this solution is that you have an asset, a place to retain possessions (which if you are poor, might include things other people don't want). The bad news is that you have an expense - your rates. Given the waste of money on rates, you should question the value of government. Most of you clearly don't. $1800 per year in NZ; I pay just $300 per annum in Japan for a 18-year old house. This guy could be eating salmon & rice bento box in Japan at Hokka Hokka Tai for Y420 ($NZ5.50). Back to expensive, over-serviced NZ. I would suggest he pays $65K for a house - yes they exist. If he contracted with a tenant, he might be able to secure one ahead of time. Here is how I would do it. Probably settlement takes time, so whilst being on the street for 3 months, I would try to meet someone in a similar position. It might be easier in Auckland city. I would say to them: "Look mate...we could be dead on the streets if we stay here. I have money saved for a house. If you pay me $60/week, I can give you a home, or $80 with minimal services, leaving his friend with $100/week for other costs. That gets him and a friend off the street, gives them spare money, and if gives them land to grow vegetables. The house might not appreciate, but it gives him more cashflow than the bank. Now he is discouraged from doing that because the government will say he has rental income, so his benefit will be reduced. For this reason, he will probably not declare that income, and will instead receive cash.

Perhaps the government could save money by offering financial advice because according to this guy's plan, he is living on the streets to get cash, placing his life/health in jeopardy, and his prospects for an early death from diabetes are enhanced. Good job gov!

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Artists: Its not just about the money!

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The last thing we need is the government picking winners....even those people who profess or appear to be worth the effort. Successful recording artists are highly lucrative. Why does government need to finance them? If you want to sanction the support of artists et al, then I suggest you invest your own money in these artists. My suggestion is - request a share of the royalties - say $5 for every dollar invested in their first album, $3 from their 2nd album, $1 from every sale from their 3rd. That seems fair! Just in case they are a one-race horse.

Is it plausible that Pip would write better music if she struggled with the need to pay her own way? No one writes lyrics about how they lived off the government. Is it possible that she did not write the lyrics she professes to 'feel'. Feel it girl...feel it! Feel the pain of taxpayers paying your way. My guess is - living overseas is part of the process of forgetting that others paid for her 'success'. That goes for all those artists who look to government for support, or sanction governments who support them and others. Its not about giving. Its about the 'taking' that makes this giving possible.

Spare a thought for those struggling to survive on the money they actually earned during this recession who cannot afford Pip's album. Even if they attended one of her free concerts, if she offers them to investors, I wonder if the message of her lyrics is...how do I got money from the government. Nope....no one sings about that. You might wonder. I reckon I could string together a swanky tune. Are you the type of cynics to request a verse?

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Redefining the way New Zealanders think

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John Key might be a bit "queasy" but at least he has some sound thinkers on his advisory committee, with plans to radically overhaul welfare. The challenge for him is to incentivise welfare, such that people have a vested interest in working. The problem has always been:

1. The ease with which people can pretend to be working in order to get the payment they want.

2. The higher cost of providing the intervention needed to ensure they are looking for work, or are indeed prepared to perform it. i.e. Adquately trained.

3. The inability of governments to provide 'productive work' and complaints when they would have to displace 'real' jobs undertaken by people employed under standard arrangements.

The Australian scheme suffered because people would just do their minimal 2 job interviews a day, not really caring if they got the job or not. The other problem is ensuring that there is jobs at the end of the training or welfare 'conditionality' clause, which is what really provides the incentive to work. Not tried, is the prospect of engaging with these unemployed...selling the idea that working is actually good for them. Too many are disillusioned, and too many bosses have a short fuse for disillusioned workers with an attitude.

The demand side is the most difficult side to address. The problem is that NZ is at the end of the world. It is difficult to attract investment here. NZ has to find something the rest of the world wants. I have several suggestions:

1. Drop the minimum wage - you have to earn a wage - an attempt to short up wages only creates unemployment

2. Wage differentiation between a 'recession wage' and bonuses retained by employer trust fund for bad times, to help the country build savings. I actually don't like the idea of government intervention in people's income, but in the context of current problems, people need to be encouraged to support themselves. The NZ economy is not doing that, so people need to be encouraged to save. Better if people are individually incentivised, so they take responsibility. i.e. They are required to save their pension until they have a surplus above minimum, thereafter they spend their money as they will.

3. Immigration - I am not a fan of governments using immigration to stimulate economic activity, but NZ needs growth, so siphoning off some of the better-skilled Asians is probably a good idea, at least until the nation's population reaches 8-10mil. i.e. Double current numbers. We all love contemporary NZ as a place to visit...what about escalating it to a place we want to live. Of course greater integration with Australia effectively will help, so the required number could be considerably smaller.

4. Oil discovery - The NZ government ought to be offering subsidises for NZ oil explorers to go out and find oil in its vast offshore basins.

5. Social reconciliation - The problem in democracy is that there is no effective reconciliation of interests. People are able to delude themselves, to retain a self-righteous vested interest group and lobby govt. No respect for facts. Its all about influence. There are people like the animal rights groups who need to be challenged. Parliament needs to be opened up and accountable to meritocrats in the community. At the moment, parliamentarians are as accountable as welfare recipients. I would argue they are honorised welfare recipients at the moment, except they receive it as extortion of taxpayers rather than as a passive recipient of 'entitlements'.

6. Redefine Christchurch as a 'modern city' rather than attempting to 'prop up' its stilted old buildings, only to see them fall over with the next earthquake. Use modern design to create a futuristic city, and at the same time build innovative products that can be exported around the world. We no longer need big homes if we are living in public spaces. Find new economic ways of living, commuting and develop those schemes. Make eco-living an affordable and sensible concept so NZ can absorb 10mil people, and gain the respect of the world. Do that for Christchurch and people will want to live there, irrespective of the earthquake. I would allow Japanese companies who have already designed such schemes to come in and develop a 'mini-Japan' for Japanese retirees. This could be the basis of a free trade agreement with the Japanese, giving NZ'ers the opportunity to live and work in Japan.

There are too many NZ'ers living in a delusional world of government support, and these people are sanctioned by taxpayers who stand too readily to indulge their every indulgence and hard luck story. The fact that people were hurt by the earthquake is a testament to their unpreparedness for life. Those better NZ'ers need to require more of the 'other half' lest this country stays a nation of parasites. I know a number of aspirational New Zealanders overseas and they convey the psyche of parasites, manipulators and con men. Its the welfare mentality permeating this nation. A Christian-socialistic-collectivist culture that needs to be eliminated. A nation of perpetrators and victims, but always with a delusional smile. They can endlessly drop their expectations or standards, but at the end of the day...someone is going to pay. The brain drain is the inevitable result of the moral discourse in this country. Is John Key brave enough to confront it. On two levels, one is inclined to think he is:

1. He came out critical of those on welfare....I hope to does retain a level of engagement with welfare recipients....not a detached, self-righteousness. They do have legitimate issues, i.e. There are few jobs.

2. He has embraced the need for welfare reform.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Retirement age deferred to 67yo

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The NZ government has announced that the retirement age is being deferred from 65yo to 67yo. The reason of course is that the NZ work horse is not working hard enough, so he has to work longer in order to carry his costs. Is that the real lesson? I would care to differ in several respects.

1. The government is not very efficient. We have a lot of costs placed upon us by inefficient government. Government is incredibly centralised, which is great for economies of scale. The problem is that too much depends on slow government decision-making. There is also the problem of poor cost recovery, which makes capital investments unsustainable. The implication is that NZ has one of the worst funding provisions for capital infrastructure in the OECD. Note all the failures in the telecom sector. There is a great deal of inefficiency, particularly in local govt. Its all too common to see council workers standing around, or performing wasteful expenditure.

2. Youth is not well-prepared: The tough love evident in NZ is really a sign of poor values. NZ really remains caught in 'old world' 1970s values. There is too much indulgence, lack of pride, purpose, self-esteem, and self-awareness. There is really a need for some structure or self-discipline in a great many lives. There is a need in this country for the affluent and enlightened decision-makers to engage with the Maori and 'white trash' as we might euphemistically call them, in order to give them positive incentives to work hard, provide constructive support for their children, and to develop a sense of personal identity which differentiates them from others.

There are too many vacant minds in the country. Too many kids who are idle. There are too many people who hate their jobs, who are thus inclined to work 3 days and charge for five.

Living standards are supposed to improve....so why is the retirement age falling? The simple answer is we are living longer. But that is not the reason. The average life expectancy of people in Western countries is probably rising 1 year every 7 years. i.e. A rate of 1.3%. This compares with real growth in national income of just 1.2% per annum between 1975-2005. That is very low growth. Check out the history of economic growth here. Aside from slugging population growth, the problem is constrained national income. There is too little provision for capital spending and too much spending on recurrent items. This can be partially attributed to the welfare state which gives primacy to giving, as opposed to creating; however this reflects the deeper issue of values. There are some unhealth, reactionary, short-term, deluded egos in NZ who are simply keeping this economy down, and the NZ government is financing them. I would suggest the public sector is one and the same problem. This is the problem with middlemen. Politicians will flog the beast for every working hour it can get without reflecting on its own impact. So long as it preserves its moral relativism, we will be voting for National-Labour. It is a deluded or false dichotomy which serves no one. Get rid of democracy. Its poison!

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com