Sustaining the Welfare State

The three pillars of every social welfare system, arguably, are health, education, and productivity support. A prioritisation becomes necessary where required resources are, or will be limited: we say health above formal education and both these above productivity support.

Formal education, ideally, itself, promotes productivity; while health is a necessity for both. Health is important because life is for the living to live healthy, and good health supports survival. Education is useful to promote enlightenment: the basis of civilised and healthy living, reasonable frugality, peace and order. Productivity support provides a humanitarian oriented survival line for individuals who lack the basic resources of food, clothing, and shelter in such a way as to help reduce their need for the same support.

A simple financial inequation for a sustainable welfare system:

(IPY – SAS – YOC) > (0.8*RMW)*(WEP) + FED + MIC

IPY = Income from previous year
SAS = Strategic annual savings for reserves (say, 20% of IPY)
YOC = Contribution from 0.8*IPY to current (non-welfare) operations and capital budget
RMW = Reasonable minimum wage per year
WEP = Estimated welfare eligible population for income support
FED = Computed annual cost of free public education through high school
MIC = Medical insurance support cost estimate for WEP

Obviously, it proposes that the current budget be funded from the previous year’s income, and promotes the elimination (or reduction) of deficits. A useful way to use the inequation is to observe and pursue fulfilling the demand it places on the management of the nation to ensure that the left-hand-side is maximised, and the right side minimised. Notable, reducing the WEP increases the value of the right-hand-side. And a well design education system might reduce the MIC. The devil is in the details, so what this translates to practically has to be worked out.

The RMW should be able to support local transportation to/from work, reasonable portions of home cooked meals of reasonable cost, basic shelter and clothing and the ability to save 10% of what is left after these basic expenses.

If a nation’s economy does not support delivering 80% RMW as minimum wage (allowing for a bearable 20% stress due to inflation or other factors) then its economy is imbalanced to the degree that it doesn’t sustainably support the RMW.

The foremost aim of the strategic annual savings is to develop a national reserve that can support continued operations for seven years without any other income. It is essentially an emergency reserve that may be used to bring financial relief during force majeure and major economic structural adjustments. A portion of it may be used for strictly capital projects.

Issues with the above inequation include that its terms are dynamic, and estimating the values of the terms on the right-hand-side might be challenging if not problematic. In order to alleviate this, at the most, half of the previous years SAS my be used to support deficits due to incorrect estimation. This, though, places an upper limit on uncertainty-based errors.

From this, with a view towards sustainability, and given global competition and a finitude of national income and resources, we surmise that the basic objective of the welfare state may best be defined thus: to eliminate or minimise the need for the welfare it provides. A complex problem that appears harder with higher population size, but also alleviated by cultural norms of mutual sustenance within familial groups.

When It’s Better To Owe A Thousand People And Not Just One

If you have many small credits, no single creditor can make a significant demand.

We know that the borrower is subject to the lender. That’s natural law. It thus seems better to owe a thousand people one Naira each than to owe one person a thousand Naira. Because if at all a creditor would make a significant demand, particularly in a near default, they’d have to negotiate with the others to make headway. If you owe a single country, then you might have created a threat to you national security. Because there’s no one else to help reduce their negotiating power.

Banks owe very many people; people not likely to make demands at the same time; people who will not demand all that they’re owed.

This is what it comes down to: negotiating power. However if the can all agree, you would still have likely bought yourself some time (during their negotiating period). It might be terrible short though, but there’s always that chance (and hope) that they would argue and squabble for a ‘long’ time, giving you some room to breathe.

If you find out that you owe too much to one country, diversify. Many normal companies try to diversify their product portfolio as in insurance measure. Diversify your debt portfolio such that one single country cannot try to claim your land without another crying foul.

This might be good news for China if the US can (or if they will ‘let’ the US) pull it off, because they can rid themselves of some of the, maybe, toxic debt stock they hold. On the other hand, it means China buys more from the US than they sell to them.

How is that going to happen?

It is possible, but I doubt that China would sit idly by.

What can other countries do?

Buy from others even though it might me more expensive. In the long run, you might actually save your country from its inability to not import certain goods and/or improve her overall balance of payments.

We sometimes do this at a micro level, buying from someone/somewhere for the emotional value of doing so when we had an equally easy option of buying the same thing cheaper from another.

In a popular Mafia, crime boss, loan shark scenario, what is the likelihood that one of the creditors would count their losses and ‘kill’ the debtor? Will the others sit by and let someone kill the hope of the return of their monies and get away with it?