Pensions again
Stephen Pollard joins the ranks of people who seem to believe that all demographic-related pensions problems could be solved by switching to a private system based on investments.See Eatwell for a good primer on why this is nonsense, but if you need convincing now imagine all workers are farmers, and the only thing pensioners want to consume is food. The government can tax food off the farmers to give to pensioners, or pensioners can have built up claims to that food through say owning stocks and shares in the farms. Now imagine the number of pensioners is rising faster than the number of farmers (or worse the number of farmers is falling). Assuming constant productivity*, there is obviously less food to go around, whether or not pensions are based on taxes or based on financial claims**/***.
* Here of course lies the correct way in which to argue for fully-funded pensions, which is in the build-up period they would increase the capital stock and thus productivity. The theory is debateable, the evidence almost non-existent.
** One can escape demographic realities by increasing the number of immigrant farmers, or similarly having claims on foreign farmers. Clearly this is not a solution for the world, but does offer one (perhaps part of one) for an ageing country like the UK. However again it's not really germane to the state vs private debate, as it's essentially a similar argument to the above asterisk.
*** Pensioners can still enjoy higher incomes. They just need to convince the farmers to pay either higher taxes (in PAYG) or to save more. The first can be achieved by government force, the second is harder.
posted by Matthew @ 9/02/2003 11:46:00 AM
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