The thread on why the government cannot just print money reminds me of something I have been thinking about for a while and I would like to know what others, especially economists, think of it. Rather than hijack that other thread, I think it best to start a new one. It perhaps belongs on GD, but I feel there are enough factual points here to at least start out on GQ.
We often hear that in 30 years (or some such time) there will be only two people working for every pensioner. This of course supposes that people are retiring at an average age close to 65, which they will do only if they have some expectation of getting a decent pension. Notice that this includes all their sources of pensions, SS, employee pensions, 401k’s, whatever. And be a decent pension, I mean one that gives them a living standard that is not too much lower than what it was when they worked. Otherwise they will continue to work until they can afford to retire.
Now this is often stated in terms of money. Both private and government operated pension plans are woefully underfunded and the idea seems to be that if we can only fund them sufficiently generously, all will be well. Build up the SS trust fund, force employers to fully fund their pension plans, etc.
I claim this is nonesense and for the same reason that doubling the amount of money in every pocket does not increase anybody’s wealth. No matter how much money there is in the pension pool, the fact that there only two working stiffs for each retired means that the worker will have to start by giving 1/3 of his production to the pensioners. (I acknowledge that 1/3 is too much since the average pensioner’s standard of living does decline.) And this would be true even if the pensions were fully funded, for it is not a matter of money but of goods. If there were all that money around and not enough goods, the price of goods would rise until the quantity of money and of goods were balanced.
Of course, there could be a massive increase in productivity, but I still don’t see the workers putting up with 1/3 of their production sucked off for the care and feeding on retireds. So what I see is the return of relatively large inflation accompanied by a reluctance of people to retire until their 70s at which time they can perhaps see the way to stretching their savings to the end.
Just for the record, I retired four years ago, just before my 63rd birthday and have a comfortable pension. But I was born during the depression and my cohort has always had it very easy because there were so few of us.
You’re right. They can’t last as they now exist. Social Security is sure to die a painful and explosive death, full of rioting and protests, if it is not amended. Likewise, Bethlehem Steel (IIRC) recently has had major viability issues b/c it now has far fewer workers than it does former employees who are collecting pensions.
My guess, is you’ll see a few things.
(1) “Retirement age” will be increased–as it should, to reflect people’s longer lives today. This will affect SS, private pension plans, IRAs/401ks, etc., and will doubtless face much screaming opposition before it goes through (esp. from those who thought they were only a year from reaching retirement age).
(2) There will come a major attitude readjustment, as people stop thinking about retirement as the time when they kick back and enjoy a few quiet years as reward for all of their hard work, and instead think of it as merely essential funding for a time when they are no longer ABLE to work, but aren’t yet dead.
(3) As various public and private pension plans fail to meet the needs of older people (esp. in that period right around when the age limit is raised), more and more adults will move back in with their children. We will see a move back to the more traditional family model seen worldwide throughout history, where the kids care for the parents in the parents’ final years. One could imagine our current society, with parents living out their final years in autonomous retirement communities, to be quite an aberration. Perhaps a short-lived one.
We are letting in record numbers of immigrants, so there will be plenty of people(“potential” workers) in america, 400 million total people here by 2050, to support all the retirees.
The trick is, to create enough jobs for all the new immigrants, as well as american citizens.
YOu cant do that by outsourcing all of our jobs to asia, or by moving all of our high tech jobs and factories to asia. The jobs we are creating in asia, are not contributing a single cent to the social security trust fund. You may be able to get cheap NIke shoes by using cheap foreign labor, but it does not help our social security trust fund, nor does it help balance our federal budget by using workers who pay no social security taxes and no federal income taxes.
Running trillion dollar deficits($500 billion federal budget deficit plus $500 billion balance of trade deficit) each year like we are doing now, will eventually cause a lot of inflation, and your social security pension of $3000 a month, even though you may still get it, will not buy much of anything 20 years from now.
Yes, SS cannot survive as it now is (unfunded). My point is that it couldn’t survive even if it were fully funded because that would bank only money, not goods. And you can’t eat money, it neither clothes nor shelters you and so on.
Will immigration save you? One thing it might do is bring in an army of workers happy to work for peanuts. A solution of sorts, I guess.
Where pensions are backed by financial assets, then the ratio of workers to pensioners doesn’t affect the pensions.
That’s one of the big differences between government and private pensions. Government pensions are backed by promises, the pensions are paid by current tax revenue.
Well my point, which does not seem to have accepted, is that while that may be true for an individual, it cannot and will not be true for society as a whole. In a situation with too many pensioners and not enough producers, inflation will inevitably wipe out a large part of the pensions.
Keep in mind, Hari, that with respect to privately funded pensions, labor and capital markets are global. It’s perfectly possible for one country to have a disproportionate number of retirees supplying capital, while others have a disproportionate number of young people supplying labor. St. Petersburg, Florida has a large percentage of retirees and gets along fine, because the retirees can invest in companies that hire workers where labor is more plentiful.
(This isn’t possible with publicly funded pensions, of course, because one country can’t tax the citizens of another country.)
If we ever reach a situation where birth rates fall and labor becomes scarce all over the world, then wages will rise and returns on investment will fall until equilibrium is restored. The result would in fact be a rise in the retirement age—although by choice, not by law—because people would choose to work longer for higher wages. It seems unlikely that this will happen any time soon. But it’s a theoretical possibility at some point in the future.