When share markets crash, it becomes clear that shares are only ever a potential claim on resources. They have to be converted into money before they can command the basics of survival. When the music stops, few want to buy any more. Today’s share market crash reflects not just the bursting of a speculative bubble but also a loss of faith in the viability of the underlying businesses associated with tourism and travel.
While housing is a real asset and still gives shelter, its monetary value can also fall steeply and its potential to provide a buffer for retirement spending can rapidly diminish. New Zealand has had the strongest speculative housing bubble in the Western world. What happens next is not hard to predict.
The emerging poverty among older New Zealanders was noted in the RPRC report on fiscal sustainability for the 2019 retirement income review. Much of this poverty is driven by the inadequacy of the benefit system for those aged 50-65, and the way the housing market has become a speculative bonanza for the well-off instead of providing basic healthy housing for everyone. Housing stress is bound to become a whole lot worse.
We also questioned the unscrutinised expansion of the NZ Super fund as if that was going to help us “afford” NZ Super. As share markets crumble, the old adage from Economist Nicholas Barr ( Myths my grandpa taught me) that pensioners ” cant eat pound note butties” takes on a new relevance. What Barr means is that a store of paper assets including money itself is not always a guarantee of the expected standard of living. The future depends on there being actual “butties” to consume.
CO-VID 2019 calls into question the belief that a treasure chest like the NZ Super fund will save us. Even worse, the NZSF is projected to deliver only a trickle, and that only by 2050. Under the current formula the fall in the value of the fund may push even this meagre contribution much further out.
Imagine if instead of squirrelling away $1-2 billion a year to this ring-fenced fund, we had used the money to shore up the health system so it was capable of handling the pandemic. Imagine if we had protected the welfare system so we didn’t have such a large number of families homeless, ill, and subsisting in overcrowded, badly built homes. These families will be joined by many more as jobs fail and the social costs of the failure to mend the social deficits become even more exposed in a crisis. Will they too have to queue for supplementary payments because benefits are patently inadequate? Poverty, existing ill-health and overcrowding make for a very fertile ground for the spread of the virus.
The major challenges we now face include designing enduring redistribution packages, keeping up the supply of basic commodities and essential services, and strengthening the public sector in light of 21st century, challenges that private enterprise is clearly incapable of solving. It is not to be found in storing up treasure on earth “where rust doth corrupt and moth decay” for some mythical future.
The security of the future of old people in NZ does not depend on the NZ Super fund, nor on the untrammelled and unstable economic growth driven by tourism and rapid population growth. It depends vitally on the health, education and security of the workforce and their children, the strength of our collective institutions, and a rapid reinvigoration of the ethos of public service.