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Friday lay day – Greek pension myths

This is my Friday lay day blog where brevity is the aim. There was an article in the UK Guardian yesterday (May 21, 2015) – Fight to save the Greek pension takes centre stage in Brussels and Athens – which described the personal consequences of the pernicious austerity for recipients of state pensions in Greece. The State Pension system is one of the beachheads in the current struggle between Syriza and the Troika. The latter want further cuts to the entitlements provided to retirees as part of their demolition of living standards in Greece. The former are resisting but are on the path to oblivion given they will not be able to honour their electoral mandate to introduce stimulus policies while remaining in the Eurozone. But I was triggered to examine the latest data on pensions given the popular perception that Greeks get life too easy.

The UK Guardian article notes that:

Nearly 45% of Greece’s 2.5 million retirees now live on incomes of less than €665 a month – below the poverty line defined by the EU. Over half that number fell below the threshold at the start of the crisis in late 2009. Only a fraction of the 1.4 million people out of work receive unemployment benefits.

Which doesn’t sound like Shangri La to me.

The Government recently said that the pension was “the last social safety net preventing Greek society from completely falling apart. The elderly population is literally feeding the rest of the family.”

The Guardian then trots out the stereotyped line – “Few areas reflect the dysfunctionality of the Greek state more, or its inability to rein in budgets”.

They quote some LSE academic (political scientist) who worries about fiscal deficit and has long railed about the excessive generosity of the Greek pension scheme as saying that “Since the 1990s, successive governments have always subsidised the shortfall of pension funds for political reasons. That in turn has removed any kind of financial discipline from the system.”

Which is a curious comment because when the Greek government was sovereign, the notion that it “subsidises” a pension scheme for political reasons is nonsensical.

All spending is politically-motivated. But equally, all spending for a sovereign cannot be considered a subsidy because there are no financial constraints necessary so in what sense does the pension scheme have to ‘earn income’.

Quite stupid.

Each generation can choose the composition of government spending and the level of taxation it desires. So if the Greek pension scheme was generous that is to do with the political choices made and clearly if the population didn’t want people to have a reasonable retirement after a lifetime of work then they could alter the system.

By entering the Eurozone, the Greeks lost that sort of autonomy though and the Troika only see beans to be counted rather than people and tradition.

The UK Guardian article also notes that:

Greece spends more than any other EU member state on pensions. Close to 18% of national outlay was still being allocated at the height of the crisis in 2012.

Precisely because no other issue has put the perceived profligacy of Greeks into such focus, the tug of war between Athens and Berlin over pensions has been unusually vicious.

That comment motivated me to examine the data. So over to Eurostat did I go!

The latest data is up to 2012. First, the following graph shows the proportion of people in the total population that receive at least one pension in 2012 for Europe.

Greece is EL and it is not in the higher group, which include Germany, for example.


It is true that Greece devotes the highest proportion of its GDP to pension expenditure. But it is not far above Italy, France, Austria, Portugal, and Denmark.

But it is hard to consider the total pension expenditure per beneficiary for old-age pensions to be overly generous in Greece. The following graph shows that statistic for the EU-28 as at 2012 (in euros).

There is Greece, in the middle of the pack, below Germany’s expenditure per beneficiary.


Clearly, this aggregate data can hide a raft of anomalies.

The Greek system favours earlier retirement than most. But then what is wrong with that? One could argue that forcing people to work into their dotage is anti-happiness and society would be much more productive and relaxed if people were encouraged earlier in life to explore their freedom from work.

The reality though is that the average age that Greeks go onto the old-age pension is 62.4 years whereas the comparable age for Germans is 63.2 years. So the claims that Greeks ditch work early, luxuriate on an inflated pension and then expect German workers to pay for that lifestyle choice via bailout payments is far fetched indeed.

Further, the real cost of running a state pension scheme is the real resources that the pension recipients consume once they stop working.

Under the Eurozone, with the emphasis on ‘counting beans’ (financial ratios) and mistaking the ‘beans’ as resource costs, clearly the concept of a real cost is lost and the conversation is about euros.

But had Greece retained is currency sovereignty the only issue of pension affordability would concern the availability of real resources to feed the pensioners. The government could fund such a system ad infinitum but could not necessarily guarantee it would retain the same standard of living in real terms over any particular period.

I don’t doubt that there are rorts and silly rules within the Greek pension system. Every nation can be accused of that – given that these systems evolve over decades and are the result of horse-trading between politicians.

But on the face of it, the data doesn’t reveal glaring differences between Greece and the rest of the EU.

And the UK Guardian article documents in a very personal way, the plight of the pensioner in Greece.

It always amazes me when the neo-liberal bean counters get started on people luxuriating on income support – whether they be the unemployed or old-age pensioners.

Then you dig a little and find these groups are living below the poverty line in many cases and suffer significant social exclusion and disadvantage as a result.

Then ask yourself the question – who would choose that sort of life?

Neo-liberal Australian Prime Minister becomes Marxian

Chapter 6 of Karl Marx’s Capital Volume I discusses the – The Buying and Selling of Labour-Power. It is a key chapter given that the identification of the difference between the commodity labour power, which the worker is forced to sell in the market to make a living and the service that flows from the commodity, labour, is central to understanding how surplus value is created, yet obfuscated under the capitalist mode of production.

“Money bags” (as Marx referred to the capitalist) “regards the labour-market as a branch of the general market for commodities” and is only interested in extracting as much use value from the labour power that he/she purchases.

As Marx notes:

One consequence of the peculiar nature of labour-power as a commodity is, that its use-value does not, on the conclusion of the contract between the buyer and seller, immediately pass into the hands of the former.

That is, the capitalist has to extract the services and thus has to set up control processes to ensure surplus labour is performed.

But in the process of exchange, capitalism was different to feudalism (or slavery) because the the owner of labour-power was free to contract with whoever they chose, although they had to contract with someone given the lack of access to the means of production.

However, as Marx noted, one the commodity exchange occurs (labour power for wage):

… we can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.

What has this to do with Tony Abbott, the Prime Minister of Australia. Well, on Wednesday of this week, the Prime Minister was outlining the new policy with respect to the long-term unemployed to an audience at the Queensland Chamber of Commerce.

Essentially, the government is proposing to provide unemployed workers to firms for up to four weeks at a time for zero cost to the private employer. The unemployed would be required to work and would receive the income support payment if they did.

Under 30s, would have to work for 25 hours, while those between 30 and 49 years of age would have to work 15 hours a week.

The single unemployment benefit is $519.20 per fortnight (or $37 a day per 7-day week), which is well below the current poverty line. Younger workers would be forced to work under the scheme at below the legally minimum wage.

So the bosses get the workers for free and the unemployed are kept in poverty and forced to work for below legal rates.

The Prime Minister’s take on the scheme was that for employers:

It gives you a chance to have a kind of ‘try before you buy’ look at unemployed people.

You know, just like when you go to the fruit shop and pick and choose or get a free sample of some commodity.

In a radio interview next day the interviewer confronted the Prime Minister with “These are people, not a pair of shoes”.

Abbott replied that he might have breached the “canons of sensitivities”.

But this is the recognition that the labour power of workers is a commodity.

Music from the past

This morning as I worked I was listening to – Lou Donaldson – and his band. This track – Bag of Jewels – is from the – Midnight Creeper – album released March 1968.

The band was Lou Donaldson on alto saxophone, Blue Mitchell on cornet, Dr. Lonnie Smith on Hammond organ, George Benson on guitar, before he virtually abandoned the instrument and attempted to convince us that he could sing, and Idris Muhammad on drums.

The track was written by Lonnie Smith. George Benson shines.

Lou Donaldson is credited with introducing funk to the music scene before Parliament and James Brown (for example). He developed an “organ-sax groove sound” while relentlessly touring the US which many considered to be the precursor of funk.

Donaldson preferred to call the groove “swinging bebop” and said “Funk is James Brown and Earth, Wind and Fire, and I’m not about either one”.

If you want to know more about Lou Donaldson there is an excellent three part interview from 2010 available – Part 1 – kicks it off.

One of my favourite bands.

Saturday Quiz

The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

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    This Post Has 18 Comments
    1. Dear Bill

      You wrote that 2.5 million Greeks receive a pension. That is 23.2% of the Greek population of 10.77 million. That figure should be compared with the share of the Greek population that is 65 or older. I checked with Index Mundi, and it turns out that that 20.2% of Greeks are seniors. The 2 figures aren’t that far apart, which demonstrates that not all Greeks are retiring at a very early age.

      It is nonsense to say, as Merkel likes to do, that a country becomes less competitive if it has a bloated civil service or a generous welfare state. As you said, that is a political decision. With regard to competitiveness, what matters is unit labor costs. Suppose that a manufacturer in both Ruritania and Slobodia has to pay 20 euros per hour to his workers and that in both countries the workers produce 20 widgets per hour. Unit labor costs are then 1 dollar. Now suppose that in Ruritania the workers have to pay 25% of their wages in taxes while in Slobodia this is 50%, in order to pay for a bloated civil service and generous welfare state. That does not reduces the competitiveness of Slobodian manufacturers relative to those in Ruritania. What matters to the manufacturer is how much his workers cost, not how the income of his worker is allocated.

      As to a bloated civil service, obviously it makes a country poorer, but it doesn’t make it less competitive. If in a certain country there are 2 million civil servants even though 1 million would be enough to perform the tasks required of them, then 1 million people are in fact unproductive, but there is no reason to assume that his will impact competitiveness negatively.

      With regard to the retirement age, I think that it should be set at 70. People are living longer and staying healthy longer, so there is no reason to keep the retirement age at 65. Of course, not everybody can work till the age of 70. Not everybody can work till the age of 65 either. For those who become unfit to work before reaching the retirement age there should be a disability pension. On the other hand, as long as a lot of people under 65 are not in the labor force, it is nonsense to give priority to raising the retirement age.

      Regards. James

    2. Greece HAS to recover its monetary sovereignty.
      It should do what Britain did. Be a member of the EU, but not a member of the common currency union.
      It should also get all its external debts in Drachmas, and refuse to pay in any other currency. Since it cannot do it anyway it’s just a practical answer to its Euro obligations.
      No doubt there is more, but they should just get started and they have a ready example to show.

    3. The EU is allowing the UK to wipe out the state pension from next year for new pensioners.
      The Tories were already talking before the election, of cutting the current state pension.

      It was an EU Directive that rose the retirement age in all EU member states.

      Then the EU raided pensions of indebted nations from all sources, not just the state pension.

      It is the EU that directly threatens the lives of pensioners all over Europe.

      We can see that in how the EU has just ignored the shannigans of government about pensions in the UK.

    4. “Greece HAS to recover its monetary sovereignty.”
      The problem is that for some unfathomable reason the Greek people do not want to leave the Eurozone. IF the opinion poles are to be believed (a big IF following the debacle of the British General Election result). There would need to be a referendum, and I suspect that the ‘nos’ would win unless the benefits of sovreign money were properly explained and understood.

    5. “Money bags” (as Marx referred to the capitalist) “regards the labour-market as a branch of the general market for commodities” and is only interested in extracting as much use value from the labour power that he/she purchases.

      Again no difference is highlighted between people who hold money on a temp basis regardless of how much and those high priests who control the money outright.

      The current class struggle as presented in Marxian terms is clearly false.
      As seen in Ireland today the high priests who are simply replacing the older priests are introducing the final stages of their religious doctrine in return for access to tokens / the commons.
      One must accept this new doctrine of liberal materialism or die from starvation.

      In many ways this is in fact closely approximates a religious battle where progressives with their pet projects are used as Trojan Horses by the true elite.

    6. Thanks Bill for another week of great blogging. Have a great weekend!

      @Nigel Hargreaves
      Indeed I guess they dont read this blog for one.
      The issue of the euro would be tightly coupled with an emotional set ov values that say ‘we belong in europe’ needless to say the average citizen would not have an appreciation of the fiat currency system mechanics when polled.
      I have wondered why Yanis has’nt been on the greek TV explaining what could be done i dont understand some of what he says based on what he [i]should[/i] know.

      Thats awful. Also: Pensioners are keeping the whole show running over here in France.

    7. I have heard euro-lovers telling me defaulting on the national debt would be a bad idea due to people losing their pension. Now, it is not like the Troitka are demanding cuts to pensions now is it?

    8. Re PM Abbott (aka The Rabid Rabbott) – It is a pity that we,the people,can’t try before we buy when it comes to governments. Perhaps we could have a referendum for recall system as in some US states?

      Abbott would have to be one of the silliest,perhaps the silliest prime minister Australia has had. And that is a competitive field.

    9. ‘George Benson on guitar, before he virtually abandoned the instrument and attempted to convince us that he could sing’

      Reading thru the BB tributes last week, this comment from the great man (when asked about his favourite guitarists) stood out:

      ‘I think of guitar players in terms of doctors: you have the doctor for your heart, the cardiologist, then one that works on your feet, your leg. But I believe George Benson is the one that plays all over’

    10. “Essentially, the government is proposing to provide unemployed workers to firms for up to four weeks at a time for zero cost to the private employer. The unemployed would be required to work and would receive the income support payment if they did.

      Under 30s, would have to work for 25 hours, while those between 30 and 49 years of age would have to work 15 hours a week.

      The single unemployment benefit is $519.20 per fortnight (or $37 a day per 7-day week), which is well below the current poverty line. Younger workers would be forced to work under the scheme at below the legally minimum wage.

      So the bosses get the workers for free and the unemployed are kept in poverty and forced to work for below legal rates.”

      We currently have a similar thing in the UK called Workfare. It has caused huge anger, both by the public and the employees of the companies that have taken on these unemployed.

      Employees were either losing their jobs or having their hours reduced.

      The unemployed are threatened with sanctions (removal of their benefit entitlements) if they refuse to take the work placement. This makes it little more than a form of slavery. Do what we tell you, or face destitution.

      Many companies that initially started using this ‘free labour’ have now abandoned it, because they started to face boycotts and protests from sectors of the public. Obviously, your Prime Minister saw what we were doing over here, but didn’t bother to check out the consequences!

    11. “As to a bloated civil service, obviously it makes a country poorer”

      That assumes values are not created through work when it’s carried out in the civil service sector, which of course is pure nonsense.

    12. Dear Simsalablunder

      By a bloated civil service, I don’t mean a big one but an overstaffed one, that is, one that employs more people than are necessary to carry out the tasks assigned to it. Obviously, the public sector can provide many valuable services, but it should try do its job efficiently. Suppose that a food inspection agency has 180 full-time employees but that 100 could do the job without working overtime, then it is overstaffed. What is desirable about that?

      Countries with clientilistic politics, such as Greece, tend to have an overstaffed public sector. From a progressive point of view, this is undesirable. The clientilistic state is the enemy of the welfare state. The welfare state tries to help the weakest members of society. The clientilistic state favors those who are close to those who are in power.

      Regards. James


    13. “Countries with clientilistic politics, such as Greece, tend to have an overstaffed public sector.”
      Is this a fact about Greece that can be verified or is it what you believe it to be?

      “What is desirable about that?
      Well, perhaps the burden upon the workers is less when there are more staff, making the place of work more pleasant. What’s so undesirable about that?

      “Efficiency” is a highly loaded word and is used a lot to trim down civil service, making too few employees work them self to sickness all for a lousy pay check.

    14. Dear Simsalablunder

      I have no first-hand experience with Greek politics, but so many people report that tax evasion and clientilism is widespread in Greece that it probably is true, just as it is probably true that corruption is rife in Nigeria. Of course, those are not the cause of Greece’s current economic crisis. It didn’t start just before the recession.

      True, people may prefer to get paid for 40 hours per week but only work 20. However, that isn’t fair to those who pay them, which in the case of government employees is the rest of us. Suppose that we have 2 schools. Both have exactly the same number of pupils and teachers but one has an administrative staff of 6 people and the other has 12 people. If the 6 of the first school are not overworked and don’t have to work overtime, then perhaps the administration of the second school is overstaffed.

      Efficiency is indeed an ambiguous word and it can be abused. Last winter there were several days in which I received my mail after 7:00 PM. The reason is that Canada Post makes the routes of letter carriers longer and longer. As a result, some of them work 12 hours on some days in the winter, when there is often a lot of snow on the sidewalks, which of course slows down the letter carriers. I know that many neoliberals believe that all government employees are overpaid and underworked, but I’m not one of them. Still, I recognize that there can be inefficiency in government and that sometimes government employees are indeed overpaid.

      On a totally unrelated matter, how do you pronounce kj, tj or k followed by e, i, y, ä or ö? How do you pronounce sch, ch, sj, skj, stj or sk followed by e, i, y, ä or ö? I’m getting conflicting answers on this. Tack så mycket.

      Regards. James

    15. James,
      Lets conclude that you assume that it is a certain way based upon what you say you’ve heard and nothing more.

      “that isn’t fair to those who pay them”
      Fair is just another loaded word. What is not fair might be the result of a grudging attitude based on your own hypothetical examples.

      Sure there can be overpaid people in public sector but I would say you’ll find them amongst the highest paid.
      For instance some consultants can get a really good pay check doing official reports that really isn’t worth more than the paper used in the report. I’ve read some myself where most of the content where copies of irrelevant material to make the report look thick and heavy, mixed with a few pages of the consultant’s own bias opinions buried in a language aimed to sound profound.
      Inefficiency are not ever on the table regarding these really well paid. The assumption is that they are highly efficient, which in some cases are more than questionable.

      kj and tj sounds like sh as in shirt.

      sch followed by e doesn’t have a similar sound in English. The closest I can come up with is how Germans pronounce ch in Bach. I would say the sound is not created as deep back in Swedish. But it’s a starting point.

      sch can also sounds like sh as in shirt. Which sound to use depends on what word is used. It’s inconsistent.
      Same goes for ch, it can be both the above.

      sj, skj, stj or sk is as in the example with ch in Bach.

    16. Dear Simsalablunder

      Our views aren’t really that far apart.

      Tack för ditt svar om svenskt uttal. Reading foreign languages is a hobby of mine. Three years ago I started reading Swedish, after studying its grammar. I got a subscription to Fokus and Populär Historia. Dutch is my mother tongue and I can read German fluently, so Swedish isn’t that hard for me, but I’m still far away from real proficiency.

      Cheers. James

    17. Dear Simsalablunder,
      regarding overstaffed public sector, or to be precise overstaffed “enterprise”. Overstaffing isn’t something that affects only public sector, but can affect also monopolies.

      1. Those extra workers are workforce that is bound without producing any values. So they are unavailable for labor market, where their skills can be put into production of value. Instead they are just consuming resources.

      2. It is not a straightforward, but ‘unused’ workers tend to create reason for their existence. This leads to inefficiency, in public sector – bureaucracy. This applies event to sufficiently large enterprises, but in less extend than in public sector.

      3. Staying at work full time (8h a day) and having something to do for only 4 hours won’t make you happier. Quite opposite. Human psychology is a bitch.

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