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An economic perspective because the article didn't really touch on it: There are two main schemes for creating a pension system like social security: Pay-as-yo

An economic perspective because the article didn't really touch on it: There are two main schemes for creating a pension system like social security: Pay-as-you-go (PAYGO) and Fully-funded. Under the PAYGO system, contributions from the current labor force are shared among retirees. Under the Fully-funded system, current earnings are collected as taxes from workers when they are young and invested by the government on their behalf, then paid out at retirement age. Social Security in the US is a PAYGO pension system. PAYGO works great when 1) the working-age population is increasing relative to the retiree-population (tax-base is increasing relative to tax-drain) and 2) worker productivity is increasing (more taxes extracted from tax-base). Fully-funded doesn't depend on population growth as the rate of return is generally determined by return on private investments, such as bonds and equities. There are benefits and drawbacks to both systems, but with the shift in employment dynamics (less young, more old), the slowdown in the growth rate of the US population, and observed 6-7% market returns over the long-run [1] it seems like it would be worth considering phasing out PAYGO and switching to a Fully-funded system, or a hybrid of the two. Here's more info for those who are interested (article is from 1998 but seems even more prescient now): http://www.frbsf.org/economic-research/publications/economic-letter/1998/march/on-the-transition-to-a-fully-funded-social-security-system/ http://www.frbsf.org/economic-research/publications/economic... [1] http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1.neDMy8DEU http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1.ne...

wazoox 11y ago
There is a common misconception in your description or the return rate on bonds and equity. At some point, you need to sell your bonds to get actual money to buy things. When many older people sell their bonds to earn a living, they flood the market and bond price crashes, and they're actually no better than using the pay-go system. in the end, retired people must live on the surplus created by those still working; the way you redistribute that surplus doesn't really change the equilibrium.
- yummyfajitas 11y ago
  This ignores the effect of buying bonds earlier in life. While people are working, they are reducing consumption and directing some of their productive capacity into investment. This raises future production, resulting in more future surplus to go around.
  - toomuchtodo 11y ago
    You're assuming future production will always be higher than present day. No one can be sure of this. The federal reserve can't even raise rates above zero today, let alone us assuming future productivity or production gains.
    - yummyfajitas 11y ago
      I'm assuming that if we invest in the future, production will be higher than if we don't. Do you believe this to be false (i.e., do you believe that all possible investments are receiving optimal resources)? I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates.
      - toomuchtodo 11y ago
        > Do you believe this to be false (i.e., do you believe that all possible investments are receiving optimal resources)? I believe that we've tapped out as much consumer demand as we can in the first world, and that emerging economies (China, clearly from recent events) is unable to bootstrap their own local demand. It doesn't matter if production is higher if there's no consumer demand; you're "pushing the string" as it were. > I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates. The Federal Reserve is the level by which the US (and through it, the world) economy is governed. Rates go lower, you (supposedly) throttle up the economy. Rates go higher, you throttle it down. The Federal Reserve won't raise waits until there are enough positive economic indicators that their actions won't push us back into recession; if you want to see what I believe the Fed can't raise rates, look at Japan: http://www.bloombergview.com/articles/2013-04-25/zero-rates-are-harder-to-escape-than-the-imf-thinks http://www.bloombergview.com/articles/2013-04-25/zero-rates-... Now, I'm not one to hold Japan up as a failed experiment. Even with interest rates at zero, everyone has a fairly high quality of life. I'm saying: Once consumer debt is sapped, either because of a populace aging (which reduces demand), stagnant wages (which also reduces demand), and so forth, there is no economic driver.

wazoox 11y ago

There is a common misconception in your description or the return rate on bonds and equity. At some point, you need to sell your bonds to get actual money to buy things. When many older people sell their bonds to earn a living, they flood the market and bond price crashes, and they're actually no better than using the pay-go system. in the end, retired people must live on the surplus created by those still working; the way you redistribute that surplus doesn't really change the equilibrium.

yummyfajitas 11y ago
This ignores the effect of buying bonds earlier in life. While people are working, they are reducing consumption and directing some of their productive capacity into investment. This raises future production, resulting in more future surplus to go around.
- toomuchtodo 11y ago
  You're assuming future production will always be higher than present day. No one can be sure of this. The federal reserve can't even raise rates above zero today, let alone us assuming future productivity or production gains.
  - yummyfajitas 11y ago
    I'm assuming that if we invest in the future, production will be higher than if we don't. Do you believe this to be false (i.e., do you believe that all possible investments are receiving optimal resources)? I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates.
    - toomuchtodo 11y ago
      > Do you believe this to be false (i.e., do you believe that all possible investments are receiving optimal resources)? I believe that we've tapped out as much consumer demand as we can in the first world, and that emerging economies (China, clearly from recent events) is unable to bootstrap their own local demand. It doesn't matter if production is higher if there's no consumer demand; you're "pushing the string" as it were. > I'm also not sure what the federal reserve has to do with anything, or why you believe the fed can't raise rates. The Federal Reserve is the level by which the US (and through it, the world) economy is governed. Rates go lower, you (supposedly) throttle up the economy. Rates go higher, you throttle it down. The Federal Reserve won't raise waits until there are enough positive economic indicators that their actions won't push us back into recession; if you want to see what I believe the Fed can't raise rates, look at Japan: http://www.bloombergview.com/articles/2013-04-25/zero-rates-are-harder-to-escape-than-the-imf-thinks http://www.bloombergview.com/articles/2013-04-25/zero-rates-... Now, I'm not one to hold Japan up as a failed experiment. Even with interest rates at zero, everyone has a fairly high quality of life. I'm saying: Once consumer debt is sapped, either because of a populace aging (which reduces demand), stagnant wages (which also reduces demand), and so forth, there is no economic driver.