Transterrestrial Musings  


Amazon Honor System Click Here to Pay

Space
Alan Boyle (MSNBC)
Space Politics (Jeff Foust)
Space Transport News (Clark Lindsey)
NASA Watch
NASA Space Flight
Hobby Space
A Voyage To Arcturus (Jay Manifold)
Dispatches From The Final Frontier (Michael Belfiore)
Personal Spaceflight (Jeff Foust)
Mars Blog
The Flame Trench (Florida Today)
Space Cynic
Rocket Forge (Michael Mealing)
COTS Watch (Michael Mealing)
Curmudgeon's Corner (Mark Whittington)
Selenian Boondocks
Tales of the Heliosphere
Out Of The Cradle
Space For Commerce (Brian Dunbar)
True Anomaly
Kevin Parkin
The Speculist (Phil Bowermaster)
Spacecraft (Chris Hall)
Space Pragmatism (Dan Schrimpsher)
Eternal Golden Braid (Fred Kiesche)
Carried Away (Dan Schmelzer)
Laughing Wolf (C. Blake Powers)
Chair Force Engineer (Air Force Procurement)
Spacearium
Saturn Follies
JesusPhreaks (Scott Bell)
Journoblogs
The Ombudsgod
Cut On The Bias (Susanna Cornett)
Joanne Jacobs


Site designed by


Powered by
Movable Type
Biting Commentary about Infinity, and Beyond!

« Counter Insurgency Training | Main | Compare And Contrast »

Intergenerational Wealth Transfer

At 2.3% per capita real income growth, real income doubles every thirty years. That is, we can expect our kids to be roughly twice as rich as we are. In particular, we should stop worrying about them supporting twice as many retirees per capita. We should also stop worrying about their environmental legacy. They will have twice as many billions to devote to environmental cleanup and upgrade even if population remains constant.

One thing that would cause the social security crisis to come back in spades would be if, as is proposed in the UK, that social security is indexed to wages instead of prices. If wages are used, social security payments will double when wages double and longevity and early retirement will bear down on workers.

How much do we owe retirees? Is it the same absolute standard of living as they had when they were working? Their same relative position in the economy? These are expensive moral questions. But recognize a promise of a wage indexed gain for what it is: it is a heavy tax on the working to give more real dollars to the retirees than they gave to the retirees while they were working.

I am still in favor of privatizing government pensions, but that would in effect be a huge cut in subsidization of government borrowing. That is, without the whole social security trust fund invested in government bonds, it will be more expensive to finance government borrowing. That will either require higher taxes, increased borrowing or reduced spending to offset.

One thing I can say about that is that my daughter's generation will be twice as able to deal with it as mine per capita.

Posted by Sam Dinkin at December 15, 2005 03:50 PM
TrackBack URL for this entry:
http://www.transterrestrial.com/mt-diagnostics.cgi/4697

Listed below are links to weblogs that reference this post from Transterrestrial Musings.
Comments

I wish I could be as optimistic about the general growth trends, but part of my job at the bank is to be skeptical and try to figure out what could go wrong.

A couple of the issues that I see are the generational transfer of wealth. The Greatest Generation are starting to die off in increasing numbers, and those assets will be transferred to the Baby Boomers. This is good for the Baby Boomers, as they'll certainly be looking for an inflow of assets right about now.

The question is how that will affect the Baby Boomers sense of entitlement to a prosperous and healthy retirement. They've laid the groundwork for a robust medical system, so their life expectancy is terrifying in terms of how long we're going to have to support them.

The next generational transfer of assets probably won't happen for thirty years. Their first (GenX) and second (GenY) wave of kids are going to have to work very, very hard to support their parent' retirement while maintaining the vast infrastructure that has been put in place. I know our water infrastructure is creaking, and how much are we going to have to sink into maintaining the vast amounts of concrete we've poured?

One solution is massive amounts of immigration. There just aren't enough GenXers to fill all the cubicle chairs being emptied by the Boomers, and GenY won't be able to infill fast enough. Of course, since their kids aren't being well prepared, most of the more influential Boomers' jobs will be going to immigrants.

These immigrants will also settle and start voting. And their votes might not be so favorable to the social security structure we've put in place.

Posted by ken murphy at December 15, 2005 06:38 PM

"One thing that would cause the social security crisis to come back in spades would be if, as is proposed in the UK, that social security is indexed to wages instead of prices."

Um. From what I have read, SS is indexed to wages, not prices. Hence the problem. See Asymmetrical Information for a link to a SS reform proposal that discusses it.

Posted by ech at December 16, 2005 07:36 AM

Ech: SS is indexed to COLA=cost of living adjustments; prices not wages.

Ken: Kids won't have to work hard. They will be very rich and buy robots or prefabs or whatever. Things go wrong occasionally, but very rarely consistently for 30 years. Per capita growth has been higher than 2.3% and is as likely to accelerate as decelerate.

Posted by Sam Dinkin at December 16, 2005 12:51 PM

Productivity growth in the US has been on an increase in the last decade or so. I'm optimistic this will continue. The 'information revolution' has finally been having its effect on productivity.

Major intergenerational transfers of wealth start well before the parents die. College education is just such a thing -- a transfer of wealth from the parents' bank account(s) into their children's human capital.

Posted by Paul Dietz at December 16, 2005 12:59 PM

"COLA=cost of living adjustments"

Yes, but the COLA formula is based mostly on wages. I've had this confirmed by a couple of economists that have SS expertise.

Posted by ech at December 16, 2005 02:22 PM

Sell stock in those economists.

"The Social Security Act specifies a formula for determining the COLA. In general, the COLA is equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next. "

http://www.ssa.gov/OACT/COLA/latestCOLA.html

Posted by Sam Dinkin at December 16, 2005 04:07 PM

I suppose this all assumes that energy prices don't become excessive.

Posted by Kevin Parkin at December 17, 2005 04:14 AM

No assumption about energy prices. Prices have risen and fallen on lots of things, but real per capita income keeps rising ahead of prices.

Posted by Sam Dinkin at December 17, 2005 12:52 PM

These immigrants will also settle and start voting. And their votes might not be so favorable to the social security structure we've put in place.

Why should they be? Social Security will cost more than it returns (compared to a reasonable investment) by then. I think it would be rather pathetic to import workers for the express purpose of balancing Social Security only to have them vote in the not so distant future to dismantle it.

Posted by Karl Hallowell at December 18, 2005 08:43 PM

No need to import immigrants--robots, teleoperation, virtualization and other productivity increases will make my daughter twice as productive as I was.

Posted by Sam Dinkin at December 18, 2005 11:42 PM


Post a comment
Name:


Email Address:


URL:


Comments: