pensions and natality

Wed, 14 Apr 1999 12:35:11 -0500

Well I am an American economist and I seem to agree with my French
economist colleague.

The thing utterly ignored by my friend Fare is the effect of
the source and use of wealth on the relative quantities of
production and consumption.  This is the same error made by
supporters of communism.

In other words, if I have to pay taxes to support a bunch of
people I don't know nor care about, I will adjust my behavior
with one of my goals being minimization of taxes paid.  This
will (of course) result in difficulty in collecting adequate
taxes.  The spinoff effect from conflicting incentives is
a reduction in efficient economic activity generally.

And of course the recipients will enjoy wringing as much from the
labor of others.  Here in America, the American Association of
Retired Persons is a huge political bloc.  Its current members
receive far more wealth from our Social Security system than
they ever contributed.

These factors tend to increase consumption by those eligible for
benefits and increase tax avoidance and noncompliance by those
we are counting on to provide the benefits.  We see the results
in America.  Our Social Security "system" is a huge fraud.

So how are the elderly to be supported otherwise?  By their own
kin.  Ultimately their children and grandchildren.  If the
children are economically productive, they will be able to provide
the support needed.  As a father I am now aware of how good it
is for kids to have their grandparents around.  So these older
people will return value to their families (unless perhaps their
health is totally broken.)  In other words, there is a benefit
to family togetherness that perhaps does not come through in 
certain economic analyses but is partially explainable by 
normal incentive-based analysis.

What if there are too many children and the population explodes?
That's what Malthus asked and his theories have not yet been
supported by observable evidence.

David Quinn

>===== Original Message From Francois-Rene Rideau <> =====
>Dear Cybernethics readers,
>   french people are very concerned about the "pension problem":
>as people die older and older, yet work less and less, and have growing
>needs and expenses, state-managed pensions look tinier and tinier,
>and people complain about their being insufficient to lead a decent life.
>I once heard a cousin of mine, allegedly an economist, spread
>the all too common thesis (at least among french media) according to which
>"pensions are a problem in France because french people do not have enough
>children". I was appalled by this, and tried to convince her that having
>more children was a particularly stupid way of putting the problem back
>instead of solving it, but apparently, she didn't even understand that the
>sum of riches produced by all people during their whole lives didn't change
>whether you sum over people then over lives or over lives then over people.
>So I'm writing here to expose my simple economical views on the problem.
>Consider the sum of available riches (specifically NOT any kind money,
>unless it be considered by its sole intrinsic value; rather, consider
>food, clothes, tools, furniture, buildings, factories, infrastructure, etc)
>in a country, and its evolution over time.
>First proposition: there can only be life and civilization if the sum of
>available riches is positive. Take it as an axiom, if needed.
>Now consider each person's contribution to these riches: production
>and consumption of wealth. Second proposition: we assume that, to simplify,
>that there exists a way to measure riches and individual contributions,
>even though this way is not directly accessible to us humans.
>Third proposition: the sum of riches is the same as the accumulated
>contribution of everyone since the beginning of times. What is available
>is everything that was ever produced, minus everything that was ever
>consumed. Actually, we may have to consider "gratuitous" production and
>destruction of riches by natural means. But to simplify, we will share
>and distribute this natural contribution among individuals in some way.
>Fourth proposition: we can split the sum of riches between
>the part that was contributed by now dead people, and the part
>contributed by people still living during their past lives.
>Fifth proposition: the part contributed by dead people is positive
>if and only if people in the average produce more riches than they consume
>during their lifetime. This follows the very definition of average.
>Sixth proposition: unless the production of living people can outweight
>the sum of all riches contributed by their ancestors from aeons past,
>there can only be civilization if people in the average
>produce more than they consume. The fact that people of a given generation
>will in the average produce more than they will consume, I will call
>a _stable_ evolution of civilization.
>Seventh proposition: if the production of riches by active living people
>grows very fast (at least exponentially) thanks to gains in productivity
>and possibly thanks to increase in number of people, it becomes possible
>that people on the average produce less than they consume, if during the
>active period of their lives, they can outweight the accumulated deficit
>of past people as well as of inactive people. I will call that a
>_metastable_ evolution of civilization.
>A model of exponential growth in production (population*productivity)
>can account for the possibility of a metastable evolution of civilization
>[mathematically speaking, it can be that sum(i,c_i exp(-ki))>0 while
>sum(i,c_i)<0]. Note again that such an evolution requires that new
>generations have a combined weight and productivity during their active
>period such that progresses faster than the _accumulated_ deficit of
>living and dead people; it works by a bet on continuous progress, and is
>very instable in presence of accidental drops in production.
>The thesis according to which the only solution to the pension problem
>is to have more children is flawed. Having more children only helps when
>in a metastable evolution, and even then, it only makes the instability
>greater with respect to fluctuations in the evolution of production;
>anyway it isn't a parameter that can be increased without the good will
>of individuals, and the best way to encourage people is to provide them
>with a feeling of security incompatible with the metastability of the
>economical equilibrium.
>Even when in a metastable evolution, the essential parameter that counts,
>the one that politicians and economists are meant to help increase,
>is _productivity_. And since we are considering increasing it, the best
>and the safest is to strive toward reaching a stable evolution of the
>All in all, the only stable solution to the pension problem, in France
>and elsewhere, is to have people be more productive than consumptive;
>to have them produce more than they consume, create more than they destroy,
>be it by working longer and/or by otherwise working more efficiently,
>so they can finish their old days on the (individual or amortized) surplus
>that they helped create when they were younger.
>This is all so simple that it ought to be common wisdom!
>Yet it looks horribly heretical to my cousin economist.
>Shame on french schools of economics!
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