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BornCynic

There were three things in my life that I really looked forward to reading:
- The new Iain M Banks novel
- The new Terry Pratchett novel
- Your blog / column
I am glad, as you probably are, that you are not dead like the other two. Thank you for all the years of insight / explanation / great financial journalism - I will miss it.
You neglected to mention that not only is Mrs Buttonwood not interested in pensions but has also kicked you under the dinner party table as a hint to drop the subject of pensions on a few occasions.........
My opinion is that you will be proved right - but it is going to take time.
I am a member of a defined benefit scheme (now closed) and I read the actuaries report. One of the key risks detailed was that the directors are getting huge pensions and if they live to a ripe old age the pension scheme is bust (the acturies put it more politely but that was the gist of what they said). Which made me smile - not only did they have share options and a huge salary back in the day but they now have the potential to bankrupt the pension fund. I bet they have all divorced their wifes and gone for a younger model who will inherit their pension rights..................wish my pension luck :)
Thank you once again for all the great articles. Good luck in your new post.

Tiptoeturtle

"All pensions are paid for by the next generation . . . "
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If a person is 65 years old when they begin receiving a pension, their government pension is largely being funded by a spectrum of taxpaying people ranging in age from about 18 years old to say 64 years old. It may be more accurate to rephrase "paid for by the next generation" as "paid for by the next generation as well as paid for by the generation subsequent to the next generation".
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If people delay retiring to 75, that is approaching "paid for by the next three generations" territory, as the spread of working taxpayers spans about 56 years from 18 to 74.
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In the case of China, with a one child policy for several decades, the situation looking forward is probably quite different, and rather more dire.
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Further pedantics, part way through the article, the ratio is "70 to 100", not the figure of "70" typed by Buttonwood.

"All pensions are paid for by the next generation . . . "
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This often and confidently made assertion seems to ignore, or at least to veil, the fact that until the day the person who receives the pension turns 65 (or whatever the retirement age is,) he or she has spent decades as part of that next generation paying into the pension fund.

You are quite right. We appear to both want to challenge or reject the assertion "All pensions are paid for by the next generation...". I think we both see the assertion as a simplification and distortion. But we may have different underlying rationales or biases.
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As more of my pedantry, and not part of my rationale, I will never receive a pension as long as I live. That is fair and just because under the Australian taxation system which has dividend imputation (until the next election, when imputation may be revoked if the government changes hands) - by structuring your income not to include any taxable salary - individuals can legally massage their tax affairs to be on the receiving end of negative taxation from an age 10 20 or 30 years prior to the common retirement age.
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Aside from the US and the UK and other developed countries, there are some cases where countries and their currencies have not endured and their pensions become worthless. Zimbabwe for example. I once upon a time used to work in Zimbabwe, where I paid tax, but as I am an Australian citizen I am not entitled to a (now worthless) Zimbabwean pension, and I have no moral right to an Australian pension inasmuchas I do not pay tax in Australia, rather Australia reimburses to me the imputation credits.
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I don't think the Australian government had this result in mind when it introduced dividend imputation back in about 1990. The idea behind dividend imputation was to eliminate double taxation.
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There have been some fascinating and salutary responses among the comments here on this article.

Houshu

The surest way to secure a retirement is not to have a retirement. People may have to continuously acquire less physically and mentally demanding, but still marketable skills... hopefully my last job will be hooked up with a machine that transmit my clickbait brain wave to TE's comments board.... hahaha....

guest-aanosjso

Ability to save is low. Youth unemployment, skyrocketing rents and low financial security hit accumulation of future rents. Buttonwoods should examine what can be done about it. Instead, the article recalls telling a starving pauper that he should eat regular meals.

blue asgard

The real issue about pensions is that if they are considered in isolation, no good solution will be found.
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Instead, consider this. Every citizen in a welfare state imposes costs on the state which are broadly, and in aggregate, predictable. These costs have to be paid for. Either the state can afford to manage a welfare state or it cannot. If it prefers to spend its tax dollars on strutting armies and eye-wateringly expensive weapons then it probably cannot, but if its citizens have a say on how their taxes are spent then it is likely to be different, and they will find they can. The solution, surely, is to manage the individual's financial trajectory through life and aggregate over large enough categories to ensure that individual catastrophes are ironed out. Such a scheme is sometimes referred to as a 'lifetime fund'. The state which comes nearest to running one is Singapore and it is widely prised, internationally.
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As one might expect when referencing 'Singapore', that mans that the scheme will be more intrusive than some might like. In extremis it could work to keep the GINI index at reasonable levels, so might be labeled 'socialist' or 'communist'. However close examination shows that the scheme is essentially capitalist and can be managed entirely by private actors and the state acts only as regulator and mitigator. So not exactly socialist then.
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The essence is this. At the birth of each citizen the state sets aside a fixed sum of money which forms the basis if the citizen's lifetime fund. In the UK to-day that would need to be probably about £100,000. The state will have a central bank whose main task is to manage inflation, and the scheme only works with a managed inflation rate in the 2.8-3.8% region, i.e. a bit higher than the 2-3% target typical of to-day. Properly actuarialised that means that the individual's lifetime fund on death would on average be bigger, after discounting for inflation, than at birth, so the total wealth tied up in lifetime funds is actually increasing with time. For this to work the money has to go to work, i.e. it has to be invested. It also has to be paid for by on-going hypothecated contributions, like NI (although initially that would mean ~25% NI). So the scheme will work equally well if populations are increasing or decreasing. The total throughput through the stock exchange will probably double from present levels so investment moneys will be readily available, unlike the present time where there seem to be perpetual shortages or perpetual excuses for not spending the money on improving productivity. However such an increase is likely to be inflationary, so the increase will need to be managed e.g. through buying relatively more government bonds etc.
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For the individual the lifetime fund pays for everything the state would have to pay for, education, health, unemployment insurance, social services, criminal justice, final salary (DB) pensions. In Singapore it also pays for housing costs as well (and why not, more generally?). It could be topped up either by benevolent uncles or by the state itself if it became clear in adulthood that you were going to be more of a sink than a source of funds. Private top-ups buy higher-quality services but the basic fund must support a basic, acceptable minimum. Money paid into a lifetime fund cannot be retrieved outside paying for a better quality of service, but the state may require wealthy individuals to pay into their own lifetime funds on the basis of maintaining a certain GINI index. That is a political decision outside the normal working of the fund.
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In order to prevent excessive rent-seeking the private institutions which service funds (essentially insurers) will be shadowed by state-owned actors. There will be a rule which says that providers must use suppliers who charge in the bottom percentile range and the state actor would provide the baseline for this.
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In essence everything has to be paid for, but there is a fund which pays for anyone's use of everything. Immigrants will have to buy into the system or pay those costs directly (private means may exist to help to do this independently). If they buy into the system they are provided with an initial sum and their on-going payments turn into capital reimbursement plus interest. Emigrants either leave behind the initial sum but are reimbursed profits, or they take the entire sum to transfer to a new country's lifetime fund, if it exists.
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Why does it work? In essence the link between paying in and paying out again is broken. Instead there is a varying sized pot of money which goes to work stimulating the economy. In essence a Ponzi scheme is replaced by a well-found investment scheme. What is wrong with that? And why is it only Singapore which does it? We all sit round praising them but doing nothing to make it happen here. And instead, we have perpetual financial crises in the NHS, the education system, pensions etc. To our perpetual disadvantage.

ashbird in reply to blue asgard

Wow! Great comment, @Blue. Sounds like a really great system. Anything to break a Ponzi scheme.
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Q is Singapore's total population is 5.6 million (2016 figure), a fraction of that of most developed countries (UK's is 65.64 million (2016 figure). Can any government pull off Singapore's near-perfect scheme without encountering resistance from the usual bands of folks who cry: "Dictatorship", "Big Government", etc., etc. Imagine trying that scheme on legislative level alone in US (population 325.7 million, 2017). 20 years of partisan fighting will not get a law bearing the slightest resemblance to Singapore's model passed; and when/if passed, challenge of unconstitutionality through the federal court system, from district court to appellate court, to the USSC will invariably ensue on its first moment of implementation, and that'd take at least a couple of years to resolve and settle, optimistically speaking . Not to mention what largely has to do with cultural ethos more than politics is not transferrable between different cultures.
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blue asgard in reply to ashbird

Ohh! I am sure you are absolutely right! In fact I wrote an essay some years ago, supposedly delivered by the Level 5 supervisor in Hell to his fellow-demons in which 'he' (demons are sexless, unless on incubus/succubus duty in which case forget rationality) - he described such a scheme and then how to stir up the vested interests so that the outcome would be much worse than if the politicians hadn't tried to reform the system in the first place. Some of the things you suggest might happen I recognise from that commentary. And that was for the UK, where the NHS is regarded as 'sacred' and over which the battle would, in essence, be fought.
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We really do get the politics we deserve.
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There is a point I cannot resolve about 'moral hazard'. Of course a pioneering society had no safety net, yet somehow thrived. On the other had there is a very different 'communitarian' tradition in the USA which contends that people should help each other, and this was almost certainly inherited from UK politics as they were in the late 18th century. In a future in which AI and robots are the instruments of mass production and the sinks of mass employment, then a 'lifetime fund' could give potentially demoralisable citizens the confidence to build their own 'mittelstand'-style businesses providing bespoke services, specialist products and the sorts of things we don't do to-day like land reclamation and tidying up after heavy industry has rotted away. If we can't do that then we really do deserve the politics we get.
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BTW, I ran the numbers, the 'lifetime fund' scheme really does seem to work without excessive up-front costs or cash-flows. We could do it in the UK and it could be a flagpole around which a new, radical centrism could gather and flourish.

HE10393 in reply to blue asgard

Singapore is a modern,dynamic economically prosperous state strategically placed astride a major Asian trading route.
It's government constantly strives to act in the best interests of the state and places an emphasis on long term growth and stability.
Education is provided for all as is health care housing and transport.
It's people are well regulated,prosperous and secure,there are relatively few poor migrants, few drug addicts, no Roma and definitively no vast deprived areas of immigrant unemployment crime and social disorder.
Britain is none of these things.

commonman12 in reply to blue asgard

Hi I am singaporean and if i may i would like to put to you a man of the street perspective of pension in singapore rather than critique from afar like later replies or take the problem to an academic high ground quoting numbers and high sounding logic. Singapore has a pragmatic approach to retirement...you reap what you sow... in other words its entirely an individual's responsibility and peripheral to that is a system of medical aid and occasional disbursement that act as inflation buffers from time to time.

The simple truth of the matter is that the Singaporean Dream when i was growing up was work hard trust the government and your savings will see to your retirement. That changed to work even harder save more buy a government house and your assets will see to your retirement. The latest is work hard save more buy a government house invest wisely and cross your fingers you are on your own. In the end no economist, fund manager, intellectual thinker, government scholar and indeed the government itself foresaw this era of low interest. And retirees who did their math assuming 6% interest now contend with 0.25%. That is the reality of the situation. Pension planning was a state problem that became is nation's problem and in its latest iteration is nobodys' and everbody's problem

As i have posted in my comments on asset cycles being the drivers of retirement, this is not about one generation leeching on another its a more fundamental issue of how we match life cycles to asset cycles. No amount of dictatorial, Big or Socialist government can force markets to provided money when there is none.

I am sad to see that the gamut of solutions propose still come from the financial people who think that numbers are the solution. I would like to hear from the welfare workers who deal with the destitute old for example. A solution that comes to mind is communal living. Perhaps stronger community based approach to retirement will yield a more optimal solution through shared expense and responsibility. If numbers alone were the solution than perhaps the end is nigh.

blue asgard in reply to commonman12

Superficial reading about the Singapore system didn't reveal that it has some substantial differences to a true lifetime fund. What you describe doesn't seem like a scheme in which a precalculated sum is set aside from birth for each and every citizen. It is true that a prolonged period of effectively zero interest rates will put a dent in the system but that can be insured against if anticipated. If you are going to run a welfare state then a lifetime fund will always mitigate against costs taken directly from taxation receipts and will support investment generally (making interest rate famines less likely). If wealth always increases (once there was zero wealth, now there's lots) then this will always work in anything but the short term. Lives usually aren't short term.
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What matters is as much what the lifetime fund facilitates as to its existence. I didn't address that but it isn't true either that 'the numbers only are the solution'. The entire scheme can go down the tubes if it becomes a feeding frenzy for corrupt rent-seekers, and issues about retirement communities are political matters outside the fund's administration. If people want them then lifetime funds don't preclude them and may encourage them administratively. The other element is healthcare costs for the elderly, which arise steeply in old age, but if anticipated, the numbers would seem to be able to bear that. Again the management of the system lies outside the fund but needs to be considered in the fund's context.
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This is all about a sound basis for a welfare state (but it is also the ultimate in creating moral hazard). What you grow on top of it will no doubt shape your society, but isn't addressed here.

R77wYfR8Qw in reply to HE10393

You said - Singapore is a modern,dynamic economically prosperous - ......no Roma and definitively no vast deprived areas of immigrant unemployment crime and social disorder.
(I would add - no Blacks)
Britain is none of these things.
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Singapore is also VERY selective about who is allowed to live there. You let no trash in, there will be no trash in the streets.... Simple as that.
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commonman12

I think that a lot of the problem maybe be cyclical in nature. We often talk of savings and investing like its a sure thing but in the end its all about cycles and being in born in the wrong part of the cycle can mean that you may never retire. In the end most of us has to face 3 to 4 major asset cycles. FIrst we have to come to the work force at the right part of a GDP growth period which provides high paying job and its got to last long enough before we start to buy a house and the housing cycle has got to be long enough so that we can benefit from rising prices to not get loans called on and build enough equity to save for retirement. Well what if you bought your home in 2007 just before the crisis hit got retrenched as the recession started and your savings pay little interest when you retire. So governments can say what they want but the economic forces that determine retirement are very cyclical and is dependent on asset cycles to build wealth. Its not always controllable. We got to recognise that and think in more dimensions to solve the retirement problems

HE10393

How does all this planning ahead and pension building actually work in a world where people will have no job, due to 'A.I and Robotics' nor any realistic prospect of paid employment let alone a career?
How does one prepare to retire from lifetime unemployment?

blue asgard in reply to HE10393

This sounds like 'give us a job', and it is defeatist nonsense.
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If mass production and its management is indeed to be mitigated by AIs, as no doubt will eventually happen, then there is an entire class of work which mass production methods have elbowed aside. This includes artisanal and bespoke work, and includes tailoring, shoemaking, vehicle customisation, hand-production of vehicles (which still goes on), architect-designed homes and builders of same, specialist food providers including bakers, brewers, distillers and the providers of speciality meats. Then there are industrial plant recovery and demolition teams, land reclamation and restoration, and exterior maintenance, roads, railways, rivers, canals, wetlands etc. The model or employment will be the small business, perhaps built around only a single 'master', but maybe larger when the work is too varied to be managed by an AI, or too hard to be manipulated by a robot. It will be centuries, if ever, before this kind of work can be automated and turned over to AIs. Meanwhile the sector can come out of its niche and consume and redistribute all those surplus dollars which would otherwise be hoarded by high GINI types, for what, exactly?

HE10393 in reply to blue asgard

You can't plead 'give us a job' when there are no jobs ever to be had.
Your collection of 'artisan' and 'bespoke' providers will always be a feature of any economy but actually employ very few people and represent a tiny fraction of any significant economy.
Activities such as 'land reclamation' maintenance of roads, railways, canals and so on are ripe for being automated and soon will be.
The idea that it will be 'centuries if ever' before work that is 'too varied or 'too hard' before A.I can cope with it is simply reactionary Luddism, 50 years, say 2050, and the third 'industrial revolution' will be complete and attention turning to the next step in Human development

blue asgard in reply to HE10393

I'm sorry but I cannot agree. The present wave of interest in AI is overhyped. At present it is possible to train neural networks to perform specific tasks, even learn now to do them from scratch, given the right inputs in the right form, but how do you generalise from that? Some of the simplest-seeming tasks, like moving round in a roomful of unknown obstacles are actually extremely difficult to handle. So AI-based machinery for, say, land reclamation or decommissioning a nuclear reactor will remain far in the future. Also the necessary dexterity of robots will be hard to achieve without using organic avatars, and the technology for those lies more than a century away. Just look how present-day robots deal with 'play' in their joints, something we humans don't need to deal with. And don't think human-level dexterity - specialised surgical robots aside - is just around the corner, it isn't. This is why industrial robots are encased in safety cages. This is why Tesla are dialling back on their highly roboticised car factory - they believed the hype and are now regretting it.
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What's missing in AI is some kind of aggregation layer(s) whose nature isn't understood yet. Also the computational power needed to simulate neural networks currently means that you need specialist circuits to implement the neurones of a complex AI and if you go there you lose some of the essential flexibility of a simulated system. We are reaching the limits of Moore's law, so progress here is going to slow, radically.
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Where AI will succeed (and that is becoming increasingly dubious by the day) is in automating driving (easy to get 70% of the way there but really hard to get to 100% as a few well-publicised crashes demonstrate), low-level classification of legal documents, interpretation of images, progressive automation of tasks where humans don't demonstrate much skill. Think of building a ship, with its various and varied requirements. They take a long time to build and by then time one is completed the technology has moved on somewhere, so the next one will be different. While many of the mundane tasks involved in designing the ship, planning its construction, organising the materials and parts, then actually building the thing, can be automated, the sheer range of understandings about the nature of the task is well beyond automating it to the point where few humans will be required to build, test, and run it. You need a lot of general-purpose components to build the specialist components which either form the scaffolding or the ship itself. And we certainly don't know how to make the general-purpose components, let alone the specialist components in a sufficiently reusable form to be useful again and again. In essence all the stages need to be re-thought from scratch for each ship, and each ship will itself be different, for example capable of different tasks. Where AI will be most successful will be in managing an unchanging task, where it will be least successful is in managing a task which changes every time you do it. Cars lie part-way in between, but shipbuilding lies at the 'changes every time you do it' end, likewise decommissioning plant and land reclamation.
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Meanwhile as jobs do get progressively automated out of existence, and as the task (automation) gets harder and harder, there will be people who want to do the artisanal kinds of tasks because of the spiritual values they bring to the world of work. Brewing, baking and winemaking are good examples. People even now are dropping out of the paper-chase-based rat-race even now to embrace such things, and making money at it (see the last but one 1843). This sector has every propensity for inventing new forms of itself and filling the supposed vacuum which AI and robotics will find increasingly hard to create. 2050 is wildly optimistic.

HE10393 in reply to blue asgard

The point of the debate is not actually about the precise mechanics of the final phases of the third industrial revolution but pensions for those who having worked for an income most of their lives now wish to 'retire' and enjoy the benefits of an accumulated 'retirement savings' in the pursuit of leisure and dotage.
This 'pension' appears now to be the latest insurmountable crisis in economics as it appears, superficially, to be financially ruinous and unable to deliver promised benefits to the millions of emerging retirees.
I would suggest the whole argument is pointless given that many millions of previously able bodied working people are now unemployed or employed under the most tenuous of circumstances, ( zero hour contracts, pay day loans and the like). Many of these would, in the 'post war' world have found permanent secure employment in manufacturing and service industries. In the UK ,miners,steelworkers,shipbuilders,secretaries,machinists, bank tellers, fishermen,farm labourers, car mechanics, PABX operators, high street shopkeepers and street sweepers. All of these millions of employed workers contributed toward an eventual 'age pension' so that they could retire in at least some comfort and many employers added extra pension schemes,the NHS for example.
This is eroding fast and apart from the millions of long term unemployed whose eventual economic fate is totally in the hands of the 'welfare state' millions more have little real opportunity to divert resources into building up a 'retirement nest egg'.
So discussions of the varied merits of this scheme over that one are pointless and increasingly so as swathes of jobs vanish and for many retirement begins at 21!

blue asgard in reply to HE10393

I suggest you look at the discussion of 'lifetime funds' later in time than your original comment. If you are saying the capital no longer exists to set up such a scheme then I would say that was excessively pessimistic. Think of the value of the remaining state-owned industries. How much cash would be released if they were all privatised, ditto the implementation of most ministries, sale and leaseback of government properties etc. If this were all done it would wipe out the present level of the national debt and all those interest payments would disappear as well. And suddenly it is all all-too feasible.
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One way of looking at your argument is that states get increasingly sclerotic in time (e.g. through ever-expanding bureaucracy), which one might fairly regard as a measure of entropy - which always increases. But the state could, if it had the will, divest itself of those sclerosis-inducing elements. Yet somehow they don't seem able to do that, something about 'selling off the family silver'. They cannot bring themselves to let go of the shiny stuff.
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We really do get the politics we deserve.

HE10393 in reply to blue asgard

Firstly if you 'sell off' all 'state owned assets ' you get a lot of cash if you think in those terms but it's what the mathematicians call a 'one way function', you can only do it once and the money you get from that is it.
Once privatised, leased back or whatever the first thing the new owners are going to do is rationalise and inevitably more jobs are going to go,hours will be cut,contracts renegotiated and so on so how is this going to help pay for everybodies pension?
Of course the government might generate an income stream from this sort of economic idiocy but it's all going to go into the pension and later Universal Income pot because as everyone seems to be forgetting ,there will be few jobs, few careers and most people are going to face a lifetime of episodic,random ,low waged employment.

blue asgard in reply to HE10393

I take it from your insulting comment 'economic idiocy' that you are only interested in winning arguments and not addressing the issues. What happened to 'be respectful of others'?
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Did you read the other comment about 'lifetime funds' before replying? No? Didn't think so. What's the point of hanging on to an expensive pile if your fellow citizens (nominally co-owners) go hungry as a consequence? If you're not interested in engaging, why bother? (Also advice to self.)

guest-aaawwwmj in reply to HE10393

There's plenty of jobs out there.
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They're Out of Work and Taking Prescription Opioid Painkillers
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"Legions of young American men who have dropped out of the labor force have this much in common — they’re on prescription painkillers."
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"Nearly half of these men “take pain medication of a daily basis, and in nearly two-thirds of these cases they take prescription pain medication,” Krueger wrote. “Labor force participation has fallen more in areas where relatively more opioid pain medication is prescribed.” "
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http://www.nbcnews.com/storyline/americas-heroin-epidemic/they-re-out-wo...
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Women addicted to opioids turn to sex work in West Virginia
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"It’s hard to quantify just how pervasive a problem prostitution driven by opioid addiction is in West Virginia, a conservative state that gave President Donald Trump a landslide victory in 2016 (68 percent, to 26 percent for Hillary Clinton)."
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" “They go from prescription painkillers to heroin to prostitution,” he said. “It’s very common.” "
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http://www.nbcnews.com/news/us-news/women-addicted-opioids-turn-sex-work...
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"Don't be funky, hire the junkie."
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NSFTL
Regards

HE10393 in reply to blue asgard

If you find the term 'economic idiocy' is 'insulting', not respectful of others and is used 'only to win an argument' without 'addressing the issues', may I suggest that you are perhaps a 'snowflake', and an economically illiterate one at that?
The rather bizarre and self referential 'advice to self' at the end of your reply would tend to reinforce this impression.
Remember TE is a serious weekly dealing with important issues, perhaps you should look to the Beano whose weekly economics page by Prof Moneybags may be less challenging.

HE10393 in reply to guest-aaawwwmj

Are you suggesting that in the future most women will be engaged in prostitution having first tried prescription painkillers and then heroin?
If so then ,in light of the article ,how are prostitutes going to fund their retirements?

guest-aaawwwmj in reply to HE10393

Are you suggesting
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Read the article.
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I am suggesting that the woman made a stupid choice of doing drugs, which led her down a path.
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Do you really want to work with a junkie?
Buy a product made by a junkie?
Let your kid on a school bus driven by a junkie?
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"You Can't Fix Stupid."
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how are prostitutes going to fund their retirements?
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Her pimp should offer a 401(k). She should have asked about that during the interview for her drugs.
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If she doesn't have a pimp she can set up and fund a IRA/Roth IRA.
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Or should the gov't do that for her?
(If you are so concerned, perhaps you will volunteer your monies to set up a fund and you can make monthly contributions.)
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NSFTL
Regards

ashbird

Thank you so very much, Mr Buttonwood, for the piece. Truly will miss you for this great column. The generosity in sharing some personal info is thrice appreciated.
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The points were carefully read and etched in mind. Each is important to bear in mind.
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I wouldn't mind sharing a little of my personal info by way of a contribution of thoughts on the subject.
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And then there is the Q of un-expected catastrophe in the course of living a life. "Unexpected" means "not planned", however carefully one plans. Unexpectedly, I met a thing that changed all my financial planning and necessitated a reconfiguration of where my $ goes or should go. The "thing" is a catastrophic illness for which doctors gave me 27% chance of survival. To make a long story short, the cost to cure my illness and save my life amounted to nearly 1/2 million USD. My savings were exhausted and retirement plan postponed. Obviously it wasn't anyone's fault that bad luck struck me. Anyone could get a catastrophic illness on the way from cradle to grave.
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I often wonder what would haven't happened if I hadn't saved? The answer is I’d be sleeping on the streets begging for pennies for food.
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The American system is a little different from the British system. I have family who lives in UK. They too are savers, nonbelievers in spending on things you don't need, such as a $100+ mobile phone case, sweaters and handbags graffiti-ed with rhinestones for which it is considered a “bargain” to borrow at 19.99% interest on a credit card to acquire.
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I am all for saving before one gets old. The earlier you start the better.

Glad you've survived your medical crisis. And, indeed, "expect the unexpected" is a suitable definition of Life. I would lend you a copy of "The User's Guide to Life," but my parents never gave me a copy. Nor of the Warranty. While we're immensely better off than all previous generations, live longer, have magically better medical care, and maybe lots more to enjoy ... the world system of economics is going to force virtually all of us to make choices along the way. And the whole system feels like it's all a bit wobbly and tumbling out of control. Or to again quote Douglas Adams, “There is a theory which states that if ever anyone discovers exactly what the Universe is for and why it is here, it will instantly disappear and be replaced by something even more bizarre and inexplicable. There is another theory which states that this has already happened.”

@Richard S in Northern California,
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Thank you very much for your kind reply. It is very nice indeed.
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I am not wholly done with the "survival", but am happy enough I am not dead. Which brings up the subject of what life is for, what our Universe is for and why - Q's you thoughtfully raised.
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Allow me to give you my take for an answer, a personal one. There is no evangelism or moralizing in it.
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Living with an unexpected, unplanned for experience that takes a person to the brink of death is actually a most life-affirming experience. It is as if one (speaking only for myself, but you will find there are others similarly situated who would whole-heartedly agree) is face-to-face with an "enemy" who is worth its medal. Neither of you can use any trick or treachery to beat the other. It is sword-to-sword combat of the most worthy kind - combat with a worthy opponent. The experience is exhilarating if one chooses to see it that way (and I am not the only person who says this. There are plenty of others, Karl Sagan, for example, who used the opportunity to learn about the side effects of Rx, which include transient alteration in consciousness) Physical pain, of course, is a tough one, there is nothing romantic or poetic about it (unless you are a Benedictine monk cirica 1200 AD, not today's version - today they keep their red shoes even after they resigned), but today's medicine provides much needed relief from physical pain, provided the patient is under the care of a competent and ethical doctor who makes sure the patient is not at risk of becoming addicted if the Rx used is an opiate, and the patient is not of a pre-illness personality type that seeks addiction for "pleasure".
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On balance, pitting my bank account against the catastrophe, I come out ahead. By that I simply mean I have learned more from it than I am sure it has learned from me!
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So. My theory about what the Universe is for and why it is there, or here (one of the two - it probably does not matter which, technically speaking). My take could be seen as bizarre. If it is, it is bizarre in a way that works for me. And that's not so bad. I think a life, which is one infinitesimal stretch of time a person is given to live, before its shelf-life expires, is for people to learn about themselves, and learn about others. That is all. When the grade received at the moment of expiration arrives is an A, and all people get this A, civilization shall have arrived at this ultimately thing we all seek (of course, minus the folks who seek the opposite - they happen to inundate a big track in a field called the TE community forum) - Peace. I don't think that moment is likely to happen any time soon. AS most folks are stuck in grades of C, D, F and some F-. But for what is required to start - to learn about ourselves and learn about others - it is always better late than never.
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You must excuse me. I am drunk on mineral water - an Italian brand, which I consume 750 ml a day. Ah..... what pleasure! :)
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Please don't call me "vain". I am just exercising my First Amendment right. :) :) No malice, no anger, certainly no ill-will.

I think Lago di Como is possibly the best place in the Universe to be "drunk on Italian mineral water." I think God's going to retire there (George Clooney likes it). So, yes, and remember to have some joy along the way to enlightenment. To quote someone else, "Seeking Perfect Total Enlightenment / is looking for a flashlight / when all you need the flashlight for / is to find your flashlight." I've given up on figuring things out and, in recognition of the universality of this failure, I have drafted a fairly decent epitaph for the Human Race. "Really? Ooops!" We all find our own unique way through, and that's ours exquisitely and uniquely in the entirety of everything. So, "last call for orders. Drink up, the world's about to end." Be well. Do good.

Thank you again, @Richard S. Thanks for the reminder: "Be well. Do good". That we must ALL do, in sickness or in health. But first, need to figure out what "good" is. Different strokes for different folks. Witness the fights - and I mean the kind of fights that draw blood by the tankfuls and mothers' tears by the tubfuls - since the first man cried" "My God is better than your God!", Or, "My spiritual fulfillment is superior to your spiritual fulfillment!" (how bizarre can a claim get! I suppose they know their orgasm is "better" than everybody else's too!) <<--I kid you not, these claims ACTUALLY appear on TE's Religion column! By the same token, there is the counter-cry: "My Science is superior to your Superstition", a most remarkable idea as well, if you consider the fact that on the level of what is metaphysical and spiritual, proof is not the point, faith and the experience of the faith is. Folks ought to respect other people's religious faith, even if they themselves do not have one, unless the religious faith is one that tells its adherents to put people on rack and turn on the screw, hang them upside down, slit their throats, or trespass on other people's belief system and "harass the hell out of them", invent an 11th Commandment, and vote for Trump. All that is so distressing! My epitaph is a copy of someone else's - a brilliant stage actor who committed all of Shakespeare's sonnets to memory (and demonstrated it by challenging anyone to name the title or number of the sonnet and he would thereby recite the entire sonnet. Unreal, the man not only had a super-human memory, but when you watch him act, had depth). His said on his tombstone he wanted to leave these words: "It distresses me to return [to the Maker] work that is not perfect." :) I don't profess to chase after enlightenment at all. I merely wish to see fewer fights in this life, before we move on to the next if there is one. Thank you so much for the chat. Btw, I noticed an English error I made - it is "worth his mettle", not "medal". Regards :)

Thank you! That was quite a read!
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For some reason, I am not concerned at all human civilization will be taken over by AI. For some reason, I see that what is human - the good, the bad, the indifferent - will override any machine it creates. But only time will tell, right? Again, thanks for the link, a great one.

Richard S. in Northern California

So, Plan B is let's not die until all the money is gone [grimace.] My wife and I retired 2 years ago, we're healthy 72 year-olds, own our home, and have no debt whatsoever ... and yet we're far from immune to the vagaries of world and national economic consequence. The demographic imbalance (with young supporting the old) is increasing (as noted), and we're retiring at what may well simply be too early a sage in our now-extended lifetimes. Not to mention the cost of healthcare, disproportionately for those older folks. The whole thing seems very dicey. I wonder whether the coming robot overlords will have a streak of empathy (like a little share of the wealth) for those they'll increasingly be replacing. My plan is Plan B -- die before the money runs out. It beats the alternative [grimace].

jouris

Employers may match contributions but even in a generous scheme, you would do well to get 15% of payroll.
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An even bigger problem is that an amazing number of people don't even bother to contribute the maximum that the employer will match. I could never figure out what they were thinking. This is, essentially, free money just being left on the table. In an environment where, as Buttonwood notes, adequate money for retirement is in short supply.

ashbird in reply to jouris

In one of my employments, I was one of those who "didn't bother". Not because I wouldn't bother, but because I wasn't aware (please believe me, I really wasn't) I could do that! I had a bad attitude with $ in those days. I thought it wasn't important (believe me again, I really thought that way, still do!)

Tom Meadowcroft

The only realistic solution for most people and most countries is to move that 65 number closer to 70. Governments should encourage this by not subtracting benefits for those who continue to work.
Longer working lives may require a career change to something less physically or mentally stressful for some.
Nothing but golfing and art classes from age 65 will not be the norm. Personally, I wouldn't want to spend 20 years on permanent vacation anyway, but the economy needs to invent some new alternatives that pay and utilize skills better than working part time at Walmart, but are not a full time job.

It is amazing there are still those fossil liberals. According to you, the reality is the economic system, not the fact that human body ages. Fact is that humans age, and most people cannot work productively after 60. Minority who has extreme brainpower and connections to be e.g. an university professor until 70 is not a human average.

B. Hotchkiss

Finally, an article that points out something missed in many discussions of the state of the U.S. Social Security system:
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There is no money in the Social Security Trust Fund. They lent the money to the government, and the government spent it.

The funds in question consist of federal general obligation bonds backed legally and morally by the full faith and credit of the government of the United States. They are money in exactly the same sense as any other federal bond, note or bill, all of which are also just as much "only money lent to the government" as are the trust funds.

That is exactly the point. I have no doubt that the obligations will be honored, though perhaps with depreciated dollars. But the only way in which actual value can be delivered to the recipients is to subtract it from the value available to the then-current working population. The trust fund is not a store of value reserved from production now for use later; it is instead an accounting device to allocate claims against future production.

Up until about 100 years ago, some (?) all (?) US dollar bills were fully redeemable for gold, and this redeemability was printed (displayed in words) on the banknotes.
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See 1928 series $20 US Reserve gold certificate at http://barrygoldberg.net/currency20.htm
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About 100 years the redeemability became partial, and the wording on the notes of their redeemability changed. Then about 45 years ago (after the first oil price shock I think) redeemability of US banknotes for gold was finally eliminated. I think the US was driven to do this (under Nixon) because France and Germany were cashing in their sizable holdings of US banknotes for large amounts of gold.
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The US still has more gold than any other country in vaults at West Point, Fort Knox, Philadelphia, Denver and San Francisco. Germany comes in second worldwide. Italy third, France fourth.
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I suspect the value of US notes now in circulation around the world dwarfs the US physical gold reserve. Uh oh. Paper (linen banknotes) are now backed by ... paper. It is unpredictable how long this legal backing can hold back or suspend reality.
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There have been about eight dynasties in China over the past 2500 years. In each of the eight cases the demise of the current dynasty was accompanied by a debasement of the currency. The US could be an exception to this generalisation, who knows ?
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Pedantically, a distinction needs to be made between "currency" and "money".

In all honesty, I've never understood the metalist position.
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Why is a twenty dollar bill accepted as money? Because people accept it as money.
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Why would a little piece of gold be accepted as money? Because people accept it as money.
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The idea that gold is more "real" money as having some intrinsic value seems to me nonsense. Something that has intrinsic value is valuable FOR SOMETHING. Apart from being money, the intrinsic values of gold and of a paper note are pretty equally trivial: if the one quits being accepted money, you can still use it to make a thin neck chain so you'll look cool; if the other quits being accepted as money, you can burn a pile of it to make s'mores.
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In other word, the intrinsic value of gold currency is almost entirely that it can be used as money, and the intrinsic value of paper currency is almost entirely that it can be used as money.

Thanks for your counter-comment.
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I agree with you about the usefulness of gold being that it is accepted as money. Intrinsically, gold is one of the less useful metals, compared with the usefulness of iron, copper, aluminium, manganese, tin, zinc & silver. I disagree with your last sentence however.
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People need food, to a lesser extent they need clothing, and to an even lesser extent they need shelter. They do not need gold. Lack of food is a short cut to death in a matter of days.
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In a monetised (?) society all these essentials (food clothing shelter) can be bought, or rented.
Neither gold, silver, emeralds, banknotes nor plastic cards can be eaten, or worn, or used for shelter.
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Focussing on food as the primary basis for life, where people reading this comment live, there will be supermarkets or shops where food can be bought and there is a redundancy in food supplies. Although there are remote places, where people do not read Economist articles, with people, but without shops.
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I think that if (a big if) that food redundancy evaporates, the first thing the shops will stop accepting as payment will be plastic cards, secondly as stocks run lower they will stop accepting banknotes, and finally, when food stocks completely run out customers will not be able to buy anything with any category of money.
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For example if I went into a shop in Livingstone in Zambia in 1985 (and I did) I would not be able to buy anything except an electric fan, which was the only item the shop had in its window, for - as I recall - a price of 300 kwacha, say half a year's salary for an African domestic servant.
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Getting back to pensions.
The African (Zimbabwean) waiter, "Office" by name, where I used to work 1981-1985, earnt $45 a month, and at the time a Zimbabwe dollar was roughly similar in value to an US dollar. This African waiter had been working since 1946. He retired on 30 June 1981, and went onto a pension of $16 a month. Or - a pension of about 50 cents US per day. He will have long since died. I feel rather sad about the whole setup now.
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About 10 years ago, after hyperinflation, the Zimbabwean dollar was supplanted as the national currency by the US dollar. If you had bought say $16 of gold in 1981, that gold would now be exchangeable into say $80 US, whereas if you had bought $16 of US dollar banknotes in 1981 you would still have $16 US in banknotes. Zimbabwe $16 is now worthless.
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This gets me to a significant distinction between gold and banknotes. Fiat money (most modern currencies) is self-reproducing in interest bearing deposits, whereas gold is not self-reproducing. Fiat money increases as it reproduces. As fiat money increases in quantity the lucky or ravening few at the top of the financial food chain can become extremely wealthy, both in terms of realty (land) and in terms of personalty (goods).
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Finally, consider Venezuela.

My own view of money is one which I haven't found in any economic theorists, though maybe I just haven't read the right ones.
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I agree with the common theory that money is basically an objectification of debt, but it seems to me that this objectification is the result of a deeply ingrained human mental categorization -- so deeply ingrained that, like language, it may be both cultural and biological. The human mind perceives debt as having characteristics beyond simple obligation. Debt is, or should be, permanent, portable, recordable, and capable of being precisely specified, and its supply should remain undiluted, retaining value by remaining limited. It just so happens, by an accident of nature as it were, that gold (and to a lesser extent other metals) is the thing in the natural world which most closely embodies the qualities of this mental construct "debt." Once society reaches a certain level of social organization and technical expertise, it can create artificial constructs which also fulfill all these instinctive characteristics of debt, and in some ways do it better. The main problem is that this sort of objectified debt embodiment, or "fiat currency," being a human construct, is more subject to human manipulation than gold is.

That is an interesting description of money. However, anybody that wants to can issue a debt obligation. If he is regarded as sufficiently credit-worthy, the obligation can circulate as money. Banks got their start, and still make money, by lending this kind of money that they have created. It's a pretty good business model, using credit-worthiness to generate a stream of profits without actually having to do any work.
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As I understand it, the "real bills" theory was an effort to regulate the quantity of money by tying it to goods moving in commerce: requiring the debt to be the result of the purchase and sale of such goods.
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The metallists are probably right to suppose that tying money to specie has the effect of tending to limit expansion of the money supply through excessive creation of debt obligations. But as long as debt obligations can be created at all, even if payable in gold, the overall money supply is not going to be fixed. Limiting the effective money supply to a fixed amount would probably require making any extension of credit at all illegal.
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The way in which money works in the economy depends not only on its overall amount (the money supply) but on its rate of circulation (velocity). The latter depends in part on the speed with which money can be moved. In a few hundred years, we've gone from sending chests of gold across the Alps on mules and across the sea in galleons, to sending money almost instantly over the internet. One could speculate that a single dollar, if transferred fast enough and repeatedly enough, would support all the commerce in dollars that exists -- though I suspect that a model of this kind would end up involving something that looked much like debt obligations.
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The other thing affecting velocity is the extent that money is kept out of circulation. People like to have nest-eggs, and money under mattresses is not money in circulation. Banks are required to have reserves, though much of the reserves are probably entries on the Fed's balance sheet, and I'm not sure how much out-of-circulation that money is. I also expect that banks can't keep their loan portfolio exactly the size necessary to make sure every possible dollar is always lent out and in circulation.
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One thing that amazes me is the fact that over the last 120 years, people have been willing to shift to the acceptance of fiat money, from money that for a couple of thousand years needed to be perceived as being founded on something that was thought to have real value. The fact that taxes can be paid with the money no doubt helps to reinforce its value. But there is nothing that ties the amount of such money issued to the amount of taxes that will need to be paid for the foreseeable future. In effect, money that bases its value on its usefulness in paying future taxes is a claim on future tax revenues, which have limits. I believe that some of the American colonies, having achieved independence, satisfied obligations with warrants that could be used to pay future taxes. These could circulate as money, but I don't think their value held up.
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In short, money is a very difficult problem. I don't claim to understand everything involved, but I am satisfied that a lot of political decisions about money (especially those that in some way involve voters) get made based on misapprehensions that ought to have been avoided.

Nick Naylor

"All pensions are paid for by the next generation . . . what gives those equities, bonds and properties value in 2030, or 2050, when the pensions get paid? It will be the workers and taxpayers of 2030 and 2050 who will generate the income needed to pay the dividends on the equities, the interest on the bonds and the rent on the properties."

The workers may be generating income, but they will have the benefit of the capital accumulated by retirees' contributions over the years - capital that wouldn't exist if previous generations hadn't saved and invested. That extra capital will allow the next generation to produce more.

Some of the fruits of the extra production rightfully belongs to the retiree investors, and some will certainly go to workers in the next generation. If they are like most generations, they will have a higher standard of living than their predecessors, partly due to their own efforts, and partly due to those who built the economy they inherit.

B. Hotchkiss in reply to Nick Naylor

You are right -- as long as retirees' contributions actually result in additional capital investment. Buying equities from other people or lending money to the government or (through intermediaries) to consumers, does not necessarily have this effect.

Tiptoeturtle in reply to B. Hotchkiss

I understand the first pension scheme was introduced by Otto von Bismark in Germany in the 19th century, not to benefit the retiring workers, but as a policy initiative to get himself re-elected as chancellor while at the same time securing Germany's pool of factory fodder.
The German economy was subsequently crippled, temporarily, by World War 1. French seizure of the German industrial capacity in about 1922 - because of Germany's failure to pay war reparations - lead to strikes by German workers - which shut down industry, which cut the German government's revenue stream from taxation, which led to printing money (Marks), which led to hyperinflation, which led to the Rentenmark, then to the Reichsmark. The Reichsmark did not last a thousand years. Next came the Deutschemark, which lasted just over 50 years. Or 40 years in the case of the Ostmark. Now they have Euro.
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How this fits in with German pensions and Greek pensions I am not sure. Time may tell.