On more than one occasion, I have been told that the articles I write are too ‘cheem’. They require too much thought, my wife would say. Why can’t you write something that does not give the reader a brain haemorrage by the second paragraph?
Well there are two reasons actually. The first is that I believe bigfatpurse readers are sophisticated and advanced in the ways of investing and money matters. You are here because you want to be exposed and educated. You want to see your minds stretched. If you had wanted entertainment, you would have gone for cat videos.
The next reason is purely self serving. I like to let my mind wander. I am curious about many things. The more obscure they are, the more outlandish they seem, the more it turns me on. I derive pleasure from linking what I read back to investing and money matters. The more crude amongst you would call it an act of intellectual masturbation. I have no objections to that.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
Ok. Preamble over. Now that you have been warned, I can safely go on to talk about Liberal Paternalism and the Singapore Budget 2016.
Liberal paternalism first. The term originated from behavioural psychologist Richard Thaler and Cass Sunstein. In their 2008 book entitled Nudge, they explain how liberal and paternalism, two words seemingly at odds with each other, can come together as a ‘movement’ to get people to make better choices.
The liberal aspect lies in giving people the freedom to choose. In the authors opinion, every individual should have the liberty to decide for themselves.
Yet in giving people that Liberty, we also need to be mindful that human beings do not make rational choices all the time. We give in to our yearnings. We opt for immediate gratification even when the delayed rewards are much more significant.
If human beings are half as rational as we imagine ourselves to be, there would be no obese people, no smokers will die of lung cancer and stock market gyrations and financial crisises would not exist. These lousy choices we make will eventually hurt ourselves and the society we live in.
Thaler and Sunstein understand that governments, institutions, businesses and even individuals are able to frame choices so that people decide better. They have a term for these influencers. They are called ‘Choice Architects’.
A cafeteria operator for example, he can choose to put fruit at eye level and sinful dessert lower down on the shelves. This simple nudge will cause people to eat healthier. In doing so, he has become a choice architect.
The Government of any country is the biggest choice architect. As decision makers in many aspects of peoples life, they are able to influence and impact via the policies they choose to implement. Tobacco is a classic example. The argument is simple. Smoking brings about health problems to individual and impacts the society negatively. An outright paternalistic approach would mean a total ban.
A liberal paternalistic approach on the other hand, involves restrictions on tobacco advertising, having cigarette makers install gruesome warnings on packages, installing no smoking zones and of course, slapping on the hefty tobacco tax. In doing so, no one is deprived of the freedom to smoke, but the act of smoking itself is made more cumbersome and more expensive. In the authors own words, it is a nudge against smoking.
Singapore Budget 2016
On 24th March, Heng Swee Keat spoke in Parliament and delivered the Budget Statement for 2016. It was his first Budget since being appointed Finance Minister.
At its core, the Budget aims to lay out the Governments’ book. It speaks of how well we have done as a country financially.
Over the years however, the Budget has evolved into an event where the actual finances of the nation is relegated to second place. Singapore is in such great shape that we no longer waste time worrying if we can have enough money to go around. Even when then Finance Minister Tharman ran a budget deficit in 2015, he nary raised an eyebrow.
Instead, people listen in expectantly to see what kind of ‘goodies’ the government would dangle and how as individuals and companies, they would benefit from each scheme.
I do not mean this in a bad way. The reality is, human beings respond to incentives (and disincentives). The Budget has become the de facto time for the Government to lay out the carrots and nudge people along with the policies it has set out to pursue. Amongst the many, here are a couple from this year.
The Minister has announced a $3000 First Step Grant to all parents of babies born on or after 24th March. There is also a Fresh Start Housing Scheme to help children of families living in rental housing. Yet another $20 million will be appropriated for a pilot scheme called Kidstart to help children receive the appropriate learning, developmental and health support.
These schemes are on top of the one week paternity leave for all fathers announced earlier this year.
It is not difficult to see the rationale behind these policies. To counter the issue of the aging population, we need to more births. Left to their own devices, young couples often choose to focus on their careers. On top of that, they worry about the cost of raising children and additional responsibilities that comes along with each kid.
By making it easier and cheaper to have kids, the Government is prodding and nudging more couples down this path. It is a great demonstration of Liberal Paternalism.
For Property Investors
On yet another note, Minister Heng also announced that there are no plans to relax property cooling measures put in place during the heights of the property run some years ago. This is despite many parties lobbying for the removal to jump start a placid property market. Here is his exact statement.
Some have asked about the range of measures that we have introduced to stabilise the property market since 2010. These are intended to keep the market stable and sustainable. Based on the price level and current market conditions, our assessment is that it is premature to relax these measures. We will continue to monitor developments in the property market closely.
The message is simple. We are monitoring. It is not time yet. We know best. That is paternalism speaking.
The CPF Investment Scheme
I do want to take this opportunity to bring up one more instance of Liberal Paternalism in Government Policies. To some, our CPF system is more complex than the entire Harry Potter saga. To others, it has more locks and mechanisms to keep our money in than the Marina Barrage has to keep water in. (Both are extremely effective by the way).
Critics constantly lament that their money is locked up, that they have better uses for the money. Investors in particular complain about the paltry two and a half percent returns on their savings. Hardly beating inflation, they say.
To them, we have one retort. Data from the CPF Board over the years indicate that 9 out of 10 investors who have invested monies in their CPF account do not beat the OA interest rate of 2.5%.
Given that this trend is stable over many years, it would be better off for the Government to abolish the entire CPF Investment Scheme and stop people from investing their retirement savings. 9 out of 10 persons would be better off.
Instead, they have opted to give people a choice and allowed them to mess around with their retirement funds via certain ‘safer’ instruments and within reasonable limits. To me, this is classic Liberal Paternalism.
Thanks for staying with me so far. There are two points I want to make and both are rather simple.
One. We do not make right decisions all the time. In fact, many of the decisions we make as individuals are downright wrong. To make better decisions and lead happier, healthier and wealthier lives, the very first step is to be accepting of our own fallibility.
Two. I believe Liberal Paternalism is the way to go and I am supportive of what the Government is doing. I believe the Government plays a much larger role in our lives than many of us choose to believe.
It is so important to have a good team running the country. It is so important to have them making policies that will benefit the people. And most important of all, it is also crucial that a system of checks and balances is in place in case they mess up.
There. Done. Cheem? Not at all.