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Raising the retirement age is not a solution but a dead end

Повышение пенсионного возраста - не решение, а тупик

To boost the economy by increasing the retirement age or tax burden is a dead – end solution

Very important post, dedicated to state plans to increase the retirement age and VAT wrote on FB economist Andrei Movchan:

“Akademicheskogo you the tape, sorry that a lot of letters.

Meaningful discussions on raising the retirement age and/or VAT is comparable to the meaningful discussion of whether the Russian team to win the world Cup, or standing to give the title to someone else. In modern Russia, even for strategic and extremely risky, is not dependent on the analytical community. They are not discussed with the “General public” – the population of Russia is for the government not the subject of the dialogue, and the object of fear: decision-making is made with an eye to the “popular opinion”, but only in the sense of – “it would not be rebellion.” But popular opinion does not matter takes much of what would not have to endure the society of corrupt democracy of Western countries.

The right questions in this situation would have been different: for example – what is the meaning of these decisions from the point of view of economic doctrine, the amazing malleability of society from the point of view of historical perspective, and finally – what is the future of our country.

Making decisions about increasing revenues through higher taxes and cuts in social security in fact is which the account is proof that power in Russia’s vision of the economy as a distribution model.

Here I want to digress: in essence, the ultimate economic models in a complex system can be just two (and the real is always a mixture of both): the first (generative) assumes that we start from scratch and create wealth. To create it we need to use all possible resources, primarily human. For this you need to create an environment in which the maximum number of effective economic agents will want to produce, invest and consume. If economic growth and/or wealth is insufficient, it is necessary to improve the conditions for economic agents; if the economic conditions of separate categories of citizens is unsatisfactory, we need to establish for these categories of citizens more opportunities; if there are not enough resources objectively requires collective spending, it is necessary to reshape the collective agreement with the economic agents, while not worsening conditions for them – in short, something has to give economic agents instead of collecting from them more funds; finally, the government should be small, its role must be limited to the role of arbitrator and of the fire brigade, intervening in a crisis or disaster natural economic mechanisms; the social role of the state should be to provide opportunities for all and protection for vulnerable minorities; the state naturally becomes limited in their rights – this is in the interests of economic agents. Built a system of laws that nobody can break – in the state.

The second distribution is based on the idea of having a fixed wealth that is necessary to protect and appropriately distribute. Such a system naturally gravitates towards centralization, not only because the consolidation of wealth gives power, but also because to reallocate centrally is much easier and more effective than to give a redistribution at the mercy of the free agents – try to imagine a polygon with millions of vertices and compare the number of diagonals passing through the center with the number of segments connecting any two vertices among themselves. In distributional models do not create wealth – his defending from outside invaders, from the plunderers and from careless users. The idea of wealth creation is absurd – it’s fixed. Labor, business, community, economic activity is only of secondary purpose – they provide the state less to share the wealth with society: “let anything in and of themselves will do it.” If the welfare is insufficient, it is necessary to increase the efficiency of the use of wealth to further consolidate it in the hands of the state, to strengthen control, improve discipline, to negotiate or to force better terms of exchange of their wealth for the in-country things from the outside world can be, if possible, to capture more wealth from the neighbors. If some people live too poorly, you need to take away from the other part of the hitherto distributed wealth, and redistribute to the poor. If the state is not enough to (presumably) the necessary expenses, have less to distribute to citizens or more to return back and to Finance public spending; public spending priority, because the state knows that it is necessary to allocate funds and people don’t. The state to take on such work and such responsibility, naturally becomes hypertrophied large and expensive, gets the privilege to make decisions that are not in circumvention of the law, on the basis of rational moment (and we are all human) for reasons of personal gain.

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In Russia, with its resource dependency, with its Soviet past, when “everyone pretended that work”, it is easy to believe that effective (and indeed exists) only distribution model. It is obvious that such faith is well-cultivated on the principle of self-fulfilling prophecy. The development of distribution systems hypertrophied state, leads to the destruction of the legislative framework and efficient horizontal economic relations, effective economic agents out of the game, and their place is bumbling and corrupt government and thieving private Remora, earning semi-legal to get the privileges. This picture easy to take and to give proof of the thesis that “all businessmen are thieves”, “people can not trust anything”, “still nothing, had to shut down the experiment” and others. It is obvious that in the presence of notable resource resource holders beneficial to maintain the distribution model of the economy, it they have an unfair advantage over other agents. Under these conditions, a vicious circle – the power belongs to the resource holders, it is profitable distribution model, the generative model is easy to discredit in the eyes of society. The result is called the resource curse: countries that are resource-if only for the appearance of the resource is not yet formed strong institutions, not giving to consolidate resources in the hands of the authorities, freeze in a distributive model of economy.

That is what happened with Russia. Sincere (based on the opinion and personal benefits) the representation of top officials about the economy does not fit the creation of an effective community of independent economic agents: moreover it is perceived as a threat to their power loss of the control over financial flows. In the logic of our government the problem of money shortage can be solved only by withdrawal of the desired money from those who have them, and if will miss to let go and work more – not all the state has to pull (I must say that in the view of these officials, that is in Russia already owned by the state, so even earned citizen of the funds are treated as received from the state, well, maybe not directly).


In this context, it is meaningless to say that the increase in the retirement age is not the solution, and stalled, that it will have to raise more and more that the only way to deal with the problem over 10 – 15 years to gradually switch completely to non-state accumulative pension system, over time, begin to pay retirees “from the state” and by taxes, regardless of seniority and merit the same small pension, only to enough life. Such a system will effectively provide citizens a pension, but it will print huge amounts of out of control officials; in addition, it will be unavailable based on the idea of economic self-organization.

Similarly, it is meaningless to say that the increase in the tax burden (and the VAT rise 11% this is a substantial increase) will lead to a reduction of the private consumption and declining growth rates (if any) of the economy; which is to raise funds for “decree of the President” is just silly – it is necessary to create the conditions under which the private sector will perform all these decrees just in the process of development of the business; that even if something need to find the money to get started is to look into the bottomless pockets of the credit monopoly, in favor of contractors from among the friends of the President, reducing its value meaningless projects; you would then look for them in the market borrowing in today’s world of low interest rates to increase financial leverage to the States is advantageous, it allows you to catalyze the economy, not hold it extortion. For the authorities in Russia, private business is the enemy, if he is not busy servicing authorities and failed to take the oath of allegiance, fastened with a couple of criminal cases on a large scale (in case of forgetfulness); but the contractors state monopolies – friends, and you can trust them: they have a lot of work, but at least not stolen anything; in the end, at exorbitant prices, but be built, and out of the country won’t run away (especially now). Take in debt to the state is not the reason for the debt you have to pay interest, debts must be repaid, and raising taxes gives free money forever.

It is noteworthy that the rise was related to the VAT is actually a tax on final consumption, the most sensitive businesses with high added value (i.e. not a resource, most efficient and most mobile), and businesses at an early stage of development. Neither these businesses nor consumers are in Russia voice. The question of raising the income tax removed from the agenda, because the income tax paid by officials close to the government “effective managers” from their significant salaries. Raising income tax would hit primarily in the resource businesses, the higher margin, and these businesses – the “class close” and mostly controlled by the authorities. It is true that VAT is easier to collect than income tax, especially the tax authorities of Russia for many years improved in its calculation and monitoring of schemes maintenance. But again – the logic of the Prince, collecting tribute, not the head, thinking about the prosperity of the country.

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Even worse, to discuss the question “how should we raise or lower taxes” or “what is the retirement age right” in Russia today is akin to the discussion of the question “what kind of candy it is better to use Ogre to attract little girls, so the latter was more pleasant before death.” The basic problem of the current Russian state is an extremely low level of institutional trust of all, which is a consequence of the already mentioned neglect of power in distributive economy to be inconvenient for Central Board thing like the letter of the law. The Russian government treats the law as a universal means of realization of their interests – writes vaguely and interprets as he wants (often in opposite ways in two identical situations), rewrites constantly, in the framework of the short-term interests and often even more inaudible, ignored when convenient and requires to be executed, when profitable, creates a critical mass of exceptions to any rule for their own convenience and on top of any resolution says opt out on informal bases. Economic agents in Russia copy power – our market is characterized by extremely low contract enforcement, the desire to fool the counterparty (including the state) or force them to accept unfair terms (and this is frequently practiced by state-owned companies), are non-market benefits and/or to engage in illegal collusion. Investments in Russia not long time coming, but the capital outflow was significant all the years of the 21st century except 2006 and 2007 (when foreign speculative capital outweighed the withdrawal of the Russian businessmen) – who cares what the VAT?

The direction of our state emerged very clearly (not today, but today there is reason to say this): generative model, which seemingly began to break through historically shaped distribution in the first 3-5 years of the 21st century, finally abandoned. Left to her only two roles: it can live on the barren margins of the economy, limited rare a small business, a small service sector, but a few “approved” business showcase in the field of high technology; it should serve as the basis of a cargo cult “economic breakthrough”, in which her clothes will dress up all of the long rows of dull public enterprises, “mastering” the budget under the guise of development and implementation of new technologies, innovative ideas, strategic projects and other buzz-words. Strange but true – as if apologizing, guardians of the distribution of the economy in Russia are trying to the maximum number of its manifestations to be given a name, similar to mixing with the names of the manifestations of the generative economy (this was not in the Soviet Union – it could be the effect of the experience of begging money from the IMF in exchange for reforms in the 90s).

While in itself, the state with sufficient resource and predominantly distributive economy can exist for a long time and steadily. Yes, in such a state, very high levels of inequality, weak social institutions, the majority of people living in poverty, and technology fields, serving the interests or ambitions of power, are thriving, while in ensuring the overall effectiveness of processes and/or welfare of the population are hopelessly behind. However, the existence of such a state depends on the amount of resource if it is smaller (it is cheaper), States it “gently” eaten apart, if more (it is more expensive) – they castaneum in their system clan bureaucracy and generations live, supporting impoverished existence 95% of the population, unstable income 4% and luxury for the 1%, elegant showcase to the outside world, bright picture in TV and complete lack of opportunities inside, but the opportunities to serve in the distribution of resources, suffering humiliation and deprivation, hoping to climb higher in the business hierarchy.

And why the state is, and what awaits him in the future – this is the next question: more precisely, it is a question for the next post.


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