How well off are Estonia's pensioners?

A bit of number-crunching for you. I was just watching the new Have I Got News For You, and it mentioned that the new UK government was raising old-age pensions, to a flat rate of 140 pounds per week.

That's 20 pounds per day, or 600 pounds per month for ease of calculation - about 10 823 kroons. The Estonian statistics database tells me that the average old-age pension in Estonia was 4 766 EEK in the second quarter of 2010.

Of course, the cost of living is higher in the UK as well. I've yet to find a clear source of data for actual Purchasing Power Parity coefficients between countries, the closest data is GDP by PPP - and using absolute GDP numbers, you can use that to determine actual PPP factors. But an easier comparison is The Economist's Big Mac index. Here's the latest historical data: a Big Mac costs the equivalent of 3.68 USD in Britain, and 2.85 USD in Estonia. This gives us a factor of 1.29. So, the cost of living in the UK is 29% higher than in Estonia.

For a UK pensioner to have the same purchasing power in Estonia as they enjoy in the UK with this new increase, they would only need 8390 EEK. 

So on average, British pensioners are 76% better off than Estonian ones.

I'd love to compare working people's relative wealth as well, but the UK doesn't seem to be publishing good wage statistics - the closest I got was this, which is a bit out of date, and only reports gross numbers. If a reader can point me at a better source of numbers, I'd appreciate it.

The Krugman Fallacy

This started as a Facebook comment, but got long enough to post as a separate article on here.

It's in reply to an editorial by Paul Krugman in the NY Times:

The key thing to bear in mind is that for the world as a whole, spending equals income. If one group of people — those with excessive debts — is forced to cut spending to pay down its debts, one of two things must happen: either someone else must spend more, or world income will fall.

Krugman's being disingenuous. He says that globally, spending equals income, and if you don't spend, others don't get income; and that people with high debt levels stop spending, which is a Bad Thing(tm).

However, where does the borrowed money come from? Either from "quantitative easing", which means it really does come from nowhere, or from capital markets, which is money that was saved and invested (i.e. not spent) by others.

Spending your way out of a recession is a short-term fix. Long-term, the world needs fiscal responsibility (not necessarily austerity, but responsibility), so that people do save money and put it into banks and treasury bills, so that the capital markets do have liquid cash to lend to businesses. 

(The severity of the financial crisis was not due to a lot of lost money - it was due to the financial institutions' unwillingness to extend credit to businesses, even ones in good fiscal shape. Global business does not work on cash up front, it works on promises backed by banks, and when banks stop supporting the promises, the entire machinery seizes up. That was the main problem - the billion-dollar losses only impacted the banks' employees and shareholders.)

In this crisis, quantitative easing kinda-sorta did the job it was supposed to, in the short term. But its usefulness is limited to emergency relief. If you keep pumping liquidity into capital markets via quantitative easing, you just get hyperinflation.

Krugman says that government should pump money into the economy, if the private sector is too scared to spend. That's fine, but where does the money come from? Either from quantitative easing, which has been stretched to the limits already (because that's what the US and the Eurozone have been doing), or from capital markets. Where do capital markets get the money? Either from quantitative easing, or from private sector savings.

Krugman's advice for the US is to spend on public works, driving up internal consumption. That's money that will never be compensated by liquidity gathered from outside the US economy. (Germany pumped money into its economy briefly, before switching to austerity; and it actually managed to stimulate industrial production and export growth. The tax revenue from that, the influx of liquid cash into the German economy, will probably outweigh the money spent on the stimulus.)

Krugman advocates debt relief for homeowners, saying that it will do less damage to the economy than mass foreclosures. He's technically right, but the argument doesn't reflect the big picture: without great damage, there will be no change in behavior, and without a change in behavior, the mistakes that led to the global crisis will simply be repeated.

You can blame the greedy and unethical investment bankers all you want - and don't get me wrong, they are complete bastards and deserve every last morsel of hatred they are getting - but all of their evil schemes would never have worked if it was not for the greed and short-sightedness of the everyday consumer, who wants a McMansion and a BMW and a 60-inch plasma TV, and ignores the fact that he can't actually afford any of it. Politicians won't say it, for obvious reasons, but the underlying cause of the financial crisis is not the greedy lenders - it's the greedy borrowers.

The failure of the financial oversight mechanisms to prevent the bubble is so apparent because the mechanisms themselves are so obviously necessary: nobody ever actually expected the lenders to not be greedy. It was always assumed that their greed will expand to fill any available volume. That greed can be checked by two means: government regulation, and the common sense of the borrowers. Yes, government regulation failed. That is no excuse for borrowers to escape responsibility for their own common sense.

Back to Krugman's arguments. For capital markets, and by extension the globalized economy as a whole, to be efficient and healthy in the long term, there needs to be a supply of genuine assets, genuine liquidity. Any kind of deficit spending must be covered by money borrowed from people (or companies) who saved it. People who have actual asset-equivalent that is not being used right now, and can be given to someone else to use for a time.

These savings only appear when the private sector spends less than it earns. It's a crucial and irreplaceable component of a healthy financial system. It's not about morality, mr. Krugman - it's about mechanics.

Anecdotal Evidence for the Win

Picked up my new credit card today. It's one of those backup cards, that don't actually cost you anything unless you carry a balance (and this one apparently allows you to actually deposit money into its linked account, creating a debit balance above what the bank is willing to lend you). I've had one of these forever, but only remember actually using it once, after graduation, when I moved out of the student dorm and needed quick cash for the deposit on a rental apartment. Yeah; that would have been summer of 2005.

Here's an interesting observation. Since there is no actual cost for having the card in a desk drawer somewhere, I figured I might as well raise the credit limit, to the maximum of what they'll give me. The previous limit had been set somewhere around 2006 or 2007, and my income's grown a bit since. It used to just be a matter of asking for it - the bank teller would bring up my account history, see how much money was coming in, and the software would calculate the pre-approved max limit.

Not so any more. Despite being a fiscally very responsible person with most of my financial business at the same bank and no history of payment troubles at all, I could not reset the credit limit right then and there. Any change now has to go through an actual credit approval board.

Overall, this is a good thing. It's not like I actually needed credit, and a layer of sanity checks at Estonia's large consumer-facing banks is healthy for the country.

The Curious Correlation of FennoSwedes and EstoRussians

Here's a bit of a controversial thought for you. This gets really tangential, so try to keep up.

One uniquely Estonian experience is that of two native Russian speakers meeting outside Lasnamäe and talking to each other in Estonian. It's been twenty years; there's plenty of people in my generation who have grown up, gone to university, and gotten office jobs in Estonian-speaking teams. People who have no problem defaulting to Estonian.

But this is a very difficult language, and even if you're fluent, it's incredibly hard to lose an accent. I'm told that my accent in Estonian is not that of Russian, rather an odd and indistinguishable blend, but it's there; with anything more substantial than a conversation with a Selver cashier, people will realize I'm not a native speaker. There is also the issue of names. There is very little overlap between Estonian and Russian namespaces; with the exception of a few universal copouts, once you learn a person's name, you will know whether they are Estonian or Russian.

This is not a hard & fast rule. I've known people with Russian-sounding names who spoke no word of Russian and looked about as Nordic as you can get, and I've seen people with Estonian names born & raised in Ida-Virumaa, struggling to make themselves understood. I've also seen Russians who get married and take the Estonian spouse's last name. This can result in two kinds of hilarity: a girl with a Russian family name that stays in its masculine form, against the rules of Russian grammar, or a guy who took his wife's last name because he thought it might help him succeed in the workplace. (People who think this is a significant factor tend to underestimate the importance of actual competence, and as a result, fail.)

Anyway, as a native Russian speaker in Estonia you will occasionally find yourself in the very awkward position of speaking to somebody else in a language that is foreign to both of you, trying to figure out a non-offensive way to switch to the language that is far more comfortable. The difficulty is that if you just switch to Russian outright, you may end up being perceived as one of those assholes - the ones who go through life with a massive butthurt about linguistic discrimination. The people who actually have an opinion about the Language Inspectorate.

The interesting thing I've noticed is that these encounters have been getting a lot more frequent, and more importantly, people will often not bother switching to Russian any more. Yes, we both know that we can express ourselves more clearly in a different language, but the difference isn't that great any more, and there is a social penalty to switching away from Estonia. That social penalty is higher than the comfort.

You can call it conformism. But there's a more interesting parallel.

One of the enduring memes of Estonian minority politics is the status of the Swedish language in Finland. It's an official language, even though only about 6% of the population are native Swedish-speakers; all the street signs are in both Finnish and Swedish, and so is all the communication with state agencies. This is trotted out as an example to Estonia, proof that a nation state can be accommodating to a national minority, and that Estonians should try not to dislike the stubbornly Russian diaspora so much.

Previously, my reaction to this was that Sweden is not to Finland as Russia is to Estonia. Russia is to Finland as Russia is to Estonia; and Sweden is to Estonia as Sweden is to Finland. Sweden has conquered Finland at some point in the distant past, true; but this is now pure history, not the experiences of any living person. Hell, it would be quite difficult to find a Finn today who was alive before 1917 - the last time that Finland was not a sovereign nation! Finnish society, as it is today, is not threatened from within. It can accommodate the Swedish majority with little effort, and feel good about itself doing it. Just as the 9%-strong Russian community in pre-WWII Estonia enjoyed a broad cultural autonomy - broader than it's been since 1991, despite the fact that Päts's republic had every reason to expect trouble from eastwards. Travel today to the countryside around Haapsalu, and you will find road signs with village names in Swedish; the same will happen in Jõhvi fifty years from now, when Estonia is full of people for whom Russia is a land of St. Petersburg schoolteachers, coming over for a cheap coach tour of medieval castles, or filling up Old Town hotels in the mid-January off season because that's when they celebrate Christmas, the weirdos.

What I've discovered recently is that Finns actually don't like their Swedish population very much, and will not be particularly welcoming (even by Finnish standards) to a tourist attempting to engage them in the Swedish tongue. I've seen it happen, in the Academic Bookstore in downtown Helsinki, of all places: a younger saleswoman pretended to not know Swedish at all, but spoke it passably when chided by an older colleague.

Furthermore, the FennoSwedes - native Swedish speakers living in Finland - are quite actively disliked and distrusted by the general Finnish public. Not just because they speak a different language, but - and here is where I get to the point - because they tend to be the most wealthy, accomplished and happy demographic in Finland.

And the native Russian speakers who no longer care about switching away from Estonian? Maybe it's my own selection bias, but they tend to be yuppies. In the good, original sense: Young Urban Professionals, educated, with above-average incomes, and proud to be self-made. I'm not claiming causation; to say that just learning fluent Estonian is enough to succeed would miss the point completely - in fact, that's exactly what the discrimination paranoids would say. But perhaps there is a correlation. Perhaps the people who have it in them to become proficient in a foreign language or two, to improve their skills and work on their own careers, and to stop caring about nationalities, seeing the Estonian nation as a culture instead - perhaps they will evolve into the natural, meritocratic upper class of EstoRussians that will come to be despised by Pets from Väimela for a completely new set of reasons.

Personally, I can't wait.

Also, Wednesday the 13th at Drink Baar in Tallinn. Tickets for the Tallinn show on sale now at the venue, get them early if you want to be sure of getting in!