Parallel systems

Parallel systems

Public education was examined. Students and retirees are age segments of the population that are not working. In advanced countries, most people go to school for at least 12 years. Likewise, most people get pension for 15-25 years. Public pension works partly like education. In education those that are 22-65 years old and working, pay for those that are 6-22 years old. The ages used are approximations, 22 is the age that most people finish undergraduate studies and 65 is roughly the age that most people retire.

A small percentage from those in the working population (22-65) have kids in school but others, an older generation, paid for them when they were students. It is the principle of solidarity among generations. The working population pays for retirees’ pensions so that others, a younger generation, will pay for theirs when they retire. The other part of pension works like an investment. People pay a small amount every month so that it will have compounded to a big amount when they retire. From that big amount they will take a small amount each month as long as they live.

Unemployment and health benefits work in a different principle, like an insurance. Some people never get sick or never become unemployed. They pay though so that in the case it happens to them, they are insured. Older people tend to get sick more, so we have a bit of the “solidarity among generations” principle in public health services.

Advanced nations guarantee education and health services, unemployment benefits and pensions. That is the right think to do. They fail though to guarantee more important thinks like food, shelter and a minimum level of income. All these are attained when people have jobs.

Unemployment benefits are supposed to assist someone for a short period of time. The system is not designed for long periods. Unemployment is not good for anybody. Taxpayers will have to pay benefits but the unemployed receive less than if they were working. It is better for everyone when people work. It is better for the unemployed because not only they make more money but also feel better.

There are people that are struggling all their lives with long unemployment periods and very low wage jobs. Establishing minimum wage creates unemployment. The idea with co-entrepreneurship, remote work nets, co-franchising is that people will help themselves. Reducing working hours per week may be a solution to unemployment. The hope is that these will solve problems for everybody.

There still might be a small percentage of people that will have a hard time. They may have long unemployment periods and/or have low paying jobs. Their overall income will not be adequate to provide for essential needs. Solutions like negative taxation have been proposed. Unemployment benefits and negative taxation are a burden for taxpayers.

In socialist systems, the means of production are in the government’s hands. They guarantee food, shelter, minimum income but at the same time have a bad performance in terms of GDP per capita, reduce freedom and have other problems as well. In free market economies, whether center-left or center right parties are in power, the means of production are in the private sector.

What if government had means of production only to solve the problems of the lowest economic class? In this way we could have the best of both words, free market for the vast majority and socialist practices for the very poor. It is like having two parallel systems. If these government companies and organizations manage to operate at no loss, the taxpayer will have no burden.

In free market system, supply and demand determines what is essential and what should be produced. A lot of services provided by govenments are of questionable utility. What happens is that a party in power will start an agency or an organization. Mostly center-left parties do that because they like big governments but center-right do it as well to a lesser extent.

When the opposing party comes to power, it will leave those in order to avoid conflict. Some of these may had utility at the time they were created but not anymore. Others never had. Nothing is completely useless but we should have in mind costs associated and the principle of opportunity cost. If a cost is resumed by the society i.e.  taxpayers, it should lead to the best possible results. From time to time reevaluation of all government agencies and organizations should be done and only the essentials should be left.

In this way, parallel systems will not increase the public sector as precentage (Table 4) but will replace non-essential services that the tax payer pays with government companies and organizations that will employ the weakest economically at no cost to the taxpayer. At the same time the taxpayer will not have to pay for unemployment benefits, negative taxation or income redistribution. So, the gain is double for the taxpayer and the only loss are services of questionable utility.

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