tag:blogger.com,1999:blog-2546602206734889307.post8553539869115718762..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Unfunded pension schemes and intergenerational equityMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2546602206734889307.post-8561662965530762082012-06-10T11:55:07.754+00:002012-06-10T11:55:07.754+00:00Dear professor:
- you are assuming government is ...Dear professor:<br /><br />- you are assuming government is simply transfering resources and that pensions adjust accordingly. However, the situation is more complex, with pensions adjusted slowly and therefore with room for not transfering all money, even in the medium term. This may help the government to build a better financial position, or in the converse case, to issue more debt. This should be considered as well. The assumption of full transfer seems to me very extreme. <br /><br />- with the same quickness that you consider uncertainty in funded pension system, you should consider it for unfunfed pension system since incomes are also affected by the cycle (particulrly employment, as wages seems to be less cyclical). If you keep assuming that all money collected is transfered to old generation, then there will also be volatility in pensions. Very likely, risk insurance is easier to get for financial assets (of a funded scheme) than for wages or employment! <br /><br />- funded schemes may also be compulsory, as it was since the beginning in Chile, first country to introduce it as a universal and unique system, in 1981. The problem however is that if a country has a very large informal market then people will not be on the scheme, linked to formal contracts (partly corrected with reforms in 00's by also adding a solidary pension for poor). <br /><br />- funded schemes boost investment and the development of capital markets (provided good regulation), which is relevant for less developed countries. This may move the economy closer to the point of dynamic inefficiency, but still not on it, hence improving all generations.<br /><br />- finally, is the issue of sustainability, key in european societies nowadays. It is politically inviable and welfare decreasing to keep unfunded schemes when g and n are so low, since that means pensions amount to decrease, and as you say, less optimal since r tend to be higher than both g and n (g+n?). And government debt or taxes cannot permanently be used to close the gap. There has to be another solution, in particularly considering that g or n will very likely not revert their tendencies in Europe.<br /><br />Best regards.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-85659721778651339112012-06-06T22:08:42.870+00:002012-06-06T22:08:42.870+00:00Your one period, two generations model suffers fro...Your one period, two generations model suffers from a bad case of the Doctrine of Immaculate Conception. Old and young generations do not just spontaneously arrive on the scene with capital endowments. This is obvious when you move forward in time because we know there is not last generation. But it works the same going in the other direction. In the old days adults would have a bunch of kids, hope half of them lived to adulthood, they provided the young with human capital skills (e.g., how to pull a plow), and then eventually the young would inherit some shack of a home where mom & dad would live out their days to the ripe old age of 42. So it was the older generation that provided the capital endowment to young workers in exchange for support in their old age. A more efficient way to handle support for retirees is to take some of the higher returns from labor mobility and offer mom & dad a pension. More efficient still is to have the govt handle that pension. Looked at in this light it's actually the last generation that reaps the windfall because they can consume all of their capital.<br /><br />Also, taking money out of a govt funded pension and diverting it to a private pension obviously increases risk, but less obviously it also lowers the return on the private pension and increases the return on the public pension.2slugbaitsnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18906319543350010122012-06-06T15:31:52.267+00:002012-06-06T15:31:52.267+00:00I find it helps to think of money as a "tool ...I find it helps to think of money as a "tool to mobilize and direct human effort." If I save for my old age, I trust that my savings will be sufficient to mobilize farmers, builders, caregivers, etc to do for me after retirement what I will not be able to do for myself.<br /><br />Money is not the only tool for that purpose -- in a society where there is little money paid out to the largest fraction of the society, effort can instead be mobilized through pity, charisma, threats, shaming, fraud and theft, among others. But these are less useful, requiring continuous luck and effort, and cannot be cleanly stored like cash can.<br /><br />However, in a society where cash has pooled in a small enough reservoir, two things happen -- you get inflation in the oasis and deflation in the surrounding desert and, if the pooling is severe enough, the cash ceases to be a universally accepted medium of exchange.<br /><br />Are Americans at the oasis/desert point? We're certainly approaching it. Only the fact that people here cannot live off the land, cannot withdraw from the cash economy, prevents the development of a parallel society of people abdicating altogether. I wonder how long it might be till lay-monasteries and beguinages begin to pop up? A generation, I would guess -- in the USA the pattern doesn't yet exist to be adopted easily (I imagine the memory of hippie communes has a lot to do with that.)<br /><br />Noni MausaAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-10486314992287659542012-06-06T01:28:11.005+00:002012-06-06T01:28:11.005+00:00Readers who want concrete examples could look at A...Readers who want concrete examples could look at Australia and New Zealand.<br /><br />NZ introduced a funded pension scheme in 1974 and, on a change of government, promptly replaced it with an unfunded scheme, for exactly the reason Simon gave. In 2007 NZ belatedly started to move back towards funding superannuation, a policy which has again been diluted by a change of government.<br /><br />Australia had various funded pension schemes in the 1970s, and progressively moved to consolidate and expand them.<br /><br />Comparisons of savings rates, growth rates (a function of savings in this, the short-medium run) and real wages in the two countries since 1970 illustrate the theory nicely.Greghttps://www.blogger.com/profile/11939046017258198038noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-50154880501605313272012-06-05T23:51:55.352+00:002012-06-05T23:51:55.352+00:00What do you make of this:
http://www.independent....What do you make of this:<br /><br />http://www.independent.co.uk/news/uk/politics/osbornes-latest-plan-ask-britains-savers-for-money-7818038.html<br /><br />?<br /><br />Looks like either:<br /><br />1. Just another drop in the ocean/wheeze (like "credit easing")<br /><br />2. Osborne has suddenly heard of this Keynes fellow and is trying to pretend he isn't uturning by giving the scheme a s*xy name ("growth bonds") and keeping everything off balance sheet PFI style (i.e. we already have "growth bonds - they're called "gilts")Alexnoreply@blogger.com