Zero-resilience consumers

In the second summary page on this site, I attempt to summarize the ills posed by the gradual erosion of personal liberty and personal responsibility by our dangerous slide towards total welfare states. Personal health was the primary emphasis of that page, but here we will focus more on personal finances.

As stated on the first page, the fundamental root cause of all our financial problems is the lack of financial resilience of individuals. The rate of change within our global society is becoming greater by the day and this volatility is driving rapid labor market restructuring. Naturally, such a situation leads to job losses in some sectors and job creation in other sectors, but the problem is that individuals lack the financial resilience to navigate such a transition without the aid of their insolvent governments.

Widespread personal financial resilience is the one and only road towards a truly stable and prosperous economy. If everyone had taken the time to build a financial buffer that can sustain their lifestyles for five years, we would be completely immune to the ill effects of change. A few months of looking for a new job would be absolutely no problem because everyone would have a buffer of 60 months to realign and get back to further building on their financial buffers. If this buffer is not there, however, people topple at the slightest little push, metaphorically crashing into other equally unstable people and causing a domino effect as discussed on the previous page.

A good analogy of a system filled with people with a high degree of financial resilience is a table stacked with dominoes where most of these dominoes are glued to the surface. Unlike the zero-resilience dominoes we have today which topple at the slightest little push, these dominoes would be able to resist even relatively large forces and remain standing. Even if one or two financially irresponsible dominoes are toppled by the forces of change, they will only crash into some of these resilient dominoes that will remain standing and stop any potential domino cascade before it can even begin. It would simply be completely impossible to create a destructive domino effect on this table filled with glued-down dominoes.

In practice, absolutely idyllic economic stability would result from the fact that people would be able to keep their consumption patterns stable even when they are impacted by some adverse change such as a job loss. Since they can independently maintain their lifestyles, such a temporary setback will not change the demands within the economy and no further reactive labor market restructuring will be necessary. In short, the more glued dominoes there are on the table, the lower the risks for disruptive domino cascades. Financial resilience is the glue and we certainly need a lot more of it.

In the defense of our current system, such stability and resilience probably is the aim of the excessive welfare states we are stuck with today. If someone loses his job or runs into some unexpected health problems, the state gives him welfare so that he can continue his life with minimal disruption. Unfortunately, well-intentioned as it might be, this system is deeply flawed. Firstly, it strips away incentive to build a personal financial buffer through savings and investment, leading directly to the system of zero-resilience dominoes we are stuck with today. Secondly, it forces responsible citizens to subsidize irresponsible citizens – thereby rewarding irresponsible citizens for their irresponsible behavior and penalizing responsible citizens for their responsible behavior. Nowhere is this more evident than with massive state health insurance schemes forcing everyone (including future generations) to pay the massive healthcare costs of people stricken with lifestyle induced degenerative disease.

Finally, and most importantly, it gives politicians the ability to promise the labor of today’s responsible citizens and the responsible citizens of future generations in return for votes of today’s irresponsible citizens (the majority who have near-zero financial resilience). This is essentially what politicians do when they promise more benefits and more government spending in their campaigns. The financing of these welfare payments will inevitably come from taxes levied on productive citizens and bonds issued to take on more government debt (which is essentially a pledge of the labor of future generations). This is a massive and poorly understood moral hazard and gets abused as standard in each and every electoral campaign.

No, I am afraid that total welfare states are deeply flawed on every level, all the way from economics to morality. It is simply physically impossible for government to provide a complete safety-net in a fair and sustainable manner. Government would be much better advised to incentivise people to take responsibility for their own lives and construct their own safety-nets. People have to take responsibility for building up a solid financial buffer by accumulating personal wealth and keeping living expenditures moderate. The next page will start exploring how this can be done.

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A DIY guide to saving our world while building a happy, healthy and wealthy life

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