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You can have a "contract of the generations", where the younger generation finances the pensions of the older generation through social security payments. Many

You can have a "contract of the generations", where the younger generation finances the pensions of the older generation through social security payments. Many countries do it like that.

user5994461 9y ago
That's a ponzi scheme. That's what many countries in Europe do and that is currently collapsing. It takes something like 4 active workers to pay the pension of 1 current retiree. The proportion was fine after the baby boom, it's not anymore and it's getting worse.
- Joeri 9y ago
  It's not a ponzi scheme, it's a numbers game. Basically the formula is: X * Y = A * B, where X is the number of retirees, Y the number of years they live past retirement on average, A the number of people who work, and B the number of years an average career lasts. What is happening in europe is that the right-hand side of the equation is producing a lower number (due to later career starts and less actively working population), which requires reducing the left-hand side accordingly (by increasing retirement age or cutting pensions). The system cannot collapse (there's always a right-hand side), but it can require severe adjustments.
  - user5994461 9y ago
    The base is a ponzi scheme. Promise to pay people over 65 a guaranteed sum per month and hope that the taxes on working people can fund it. You're right that it doesn't have to be a ponzi scheme. The government could increase the age of retirement and/or lower the pensions. However that's not possible in practice, it doesn't get you elected and it'd provoke massive strikes for months. The government would rather accumulate debt for 20 years than cut any pension. Then the next generation has to deal with unfunded pensions and trillions of debt. It's actually possible to go beyond recoverable and collapse because of the non elasticity, this has happened before historically.
    - RobertoG 9y ago
      >"Then the next generation has to deal with unfunded pensions and trillions of debt" That doesn't make any sense. The next generation could have enough real resources or not. If they have they will be OK, if they don't they will have a problem. Real resources in the future come from investment now, not from "saving money". Saving money makes sense in a personal perspective, but not as a nation.
      - user5994461 9y ago
        You can't save money personally. The nation takes 20% of your gross salary to pay retirees. You don't have a choice. In exchange, the nation promises to give you 80% of your last average salaries as a monthly income after you retire (in half a century) until the end of your life. These numbers are not linked to real resources and are not adjusted periodically.
    - TheCoelacanth 9y ago
      The "guaranteed sum" is not really guaranteed because the sum is denominated in a currency that is not pegged to any real resource. If the next generation can't produce enough real resources, then the pension amount will just be decreased via inflation.
  - konschubert 9y ago
    Not exactly. More like: Number_of_retirees * averagr retirement_payment = number_of _people * average_retirement insurance_payments You can also prop up the right side with tax money from other sources. I'm not saying it's perfect or even that it works well. But there is nothing inherent in it that requires a growing economy.
  - RobertoG 9y ago
    Don't you think that your formula needs a productivity term somewhere? How is that when we talk about this, nobody mentions that if the gross domestic product per capita goes up enough, there is not problem. The 'savings' perspective makes only sense in the personal sense. I mean, the problem is not money. If in 20 years we have robots, infrastructure, cheap energy, etc enough for feeding and taking care of everybody there is not problem. If we don't, never mind the 'savings' that you have, because the real limit are real resources.
    - konschubert 9y ago
      This whole thread is weird. People think that paying retirements through social security means that future generations have to shoulder the burden. But if they instead "save" the money, somehow they won't have to? In the end, the bread that goes on the table in 50 years will be produced by a farmer of the future generation. Savings and social security are just two different ways of writing the same contract.
      - deleted 9y ago
        [deleted]
- Gibbon1 9y ago
  > That's a ponzi scheme. In no away shape or form a ponzi scheme.
  - dominotw 9y ago
    Seems to somewhat fit the defition, if you squint a little > A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading. https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme
    - Atheros 9y ago
      None of us are paying into social security expecting a positive return. That's why it isn't a ponzi scheme. There is no fraud involved.
- wavefunction 9y ago
  A ponzi scheme is an illegal act of fraud whereas a Social Security type pension is something society has agreed upon. Not surprised you're using a throw-away username and I'm going to downvote it accordingly.
  - delecti 9y ago
    Currently the only criticism you've made of the comparison is the name and amount of social acceptance. > A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors It's not a 100% perfect match, but there are certainly enough similarities between how Social Security systems work and the basics of a Ponzi scheme that you'll have to make an actual criticism of the comparison if you want to argue how they're not the same.
- Y7ZCQtNo39 9y ago
  The max FICA (Social Security) tax in 2017 was $7,886.40, which equates to an income of $127,200 (it's a 6.2% tax). There are many people making below that threshold, and not even paying that much. You can't live very comfortably on less than $8,000 / year. It takes nearly two workers (maybe three if you consider the average annual income, and that the fair majority workers aren't making maximum FICA payments) to cover every retiree -- which seems to logically require successively larger working age adults than prior generations.
zzleeper 9y ago
To double down on what user5994461 said, that's indeed a ponzi scheme and quite stupid if you know current population trends. It also creates quite perverse incentives, as older folks want to reduce their retirement age (even as they live way longer) and raise the contributions of younger people (to pay for the extra costs).
- ineedasername 9y ago
  Except that retirement age has been gradually extended, and there is no significant lobying effort by AARP or anyone else to go back in that trend.
hkmurakami 9y ago
Basically only works when you have a growing economy and a growing population. Both things are sort of not true anymore in developed nations.
- alkonaut 9y ago
  A declining/aging population is problematic but a stable one isn’t. And you need some buffers in the system to manage the variations in birth rates. I thought this type of system was the most common these days?
  - hkmurakami 9y ago
    Most nations have been set up with growth assumptions. I think you're right that in theory a nation with stable numbers for both can sustain itself. However, we'd have to redo much of the infrastructure assumptions in place today [1], and currently I don't see any nations that are ready to take that plunge. [1] The only systems I see are either underfunded due to growth assumptions they haven't been able to hit, or are funded through natural resources that the country just happened to have. If there are exceptions I would genuinely like to know.
  - RobertoG 9y ago
    A declining/aging population could be not a problem if there is an increasing in productivity at the same time.
    - MisterBastahrd 9y ago
      If wages were tied to productivity, that'd make sense. Workers today are vastly more productive yet lag behind when comparing wages to cost of living.
- ineedasername 9y ago
  Except the US has positive average Gdp growth in the range of 2%, and positive population growth as well.

You can have a "contract of the generations", where the younger generation finances the pensions of the older generation through social security payments. Many countries do it like that.

user5994461 9y ago

That's a ponzi scheme. That's what many countries in Europe do and that is currently collapsing. It takes something like 4 active workers to pay the pension of 1 current retiree. The proportion was fine after the baby boom, it's not anymore and it's getting worse.

Joeri 9y ago
It's not a ponzi scheme, it's a numbers game. Basically the formula is: X * Y = A * B, where X is the number of retirees, Y the number of years they live past retirement on average, A the number of people who work, and B the number of years an average career lasts. What is happening in europe is that the right-hand side of the equation is producing a lower number (due to later career starts and less actively working population), which requires reducing the left-hand side accordingly (by increasing retirement age or cutting pensions). The system cannot collapse (there's always a right-hand side), but it can require severe adjustments.
- user5994461 9y ago
  The base is a ponzi scheme. Promise to pay people over 65 a guaranteed sum per month and hope that the taxes on working people can fund it. You're right that it doesn't have to be a ponzi scheme. The government could increase the age of retirement and/or lower the pensions. However that's not possible in practice, it doesn't get you elected and it'd provoke massive strikes for months. The government would rather accumulate debt for 20 years than cut any pension. Then the next generation has to deal with unfunded pensions and trillions of debt. It's actually possible to go beyond recoverable and collapse because of the non elasticity, this has happened before historically.
  - RobertoG 9y ago
    >"Then the next generation has to deal with unfunded pensions and trillions of debt" That doesn't make any sense. The next generation could have enough real resources or not. If they have they will be OK, if they don't they will have a problem. Real resources in the future come from investment now, not from "saving money". Saving money makes sense in a personal perspective, but not as a nation.
    - user5994461 9y ago
      You can't save money personally. The nation takes 20% of your gross salary to pay retirees. You don't have a choice. In exchange, the nation promises to give you 80% of your last average salaries as a monthly income after you retire (in half a century) until the end of your life. These numbers are not linked to real resources and are not adjusted periodically.
  - TheCoelacanth 9y ago
    The "guaranteed sum" is not really guaranteed because the sum is denominated in a currency that is not pegged to any real resource. If the next generation can't produce enough real resources, then the pension amount will just be decreased via inflation.
- konschubert 9y ago
  Not exactly. More like: Number_of_retirees * averagr retirement_payment = number_of _people * average_retirement insurance_payments You can also prop up the right side with tax money from other sources. I'm not saying it's perfect or even that it works well. But there is nothing inherent in it that requires a growing economy.
- RobertoG 9y ago
  Don't you think that your formula needs a productivity term somewhere? How is that when we talk about this, nobody mentions that if the gross domestic product per capita goes up enough, there is not problem. The 'savings' perspective makes only sense in the personal sense. I mean, the problem is not money. If in 20 years we have robots, infrastructure, cheap energy, etc enough for feeding and taking care of everybody there is not problem. If we don't, never mind the 'savings' that you have, because the real limit are real resources.
  - konschubert 9y ago
    This whole thread is weird. People think that paying retirements through social security means that future generations have to shoulder the burden. But if they instead "save" the money, somehow they won't have to? In the end, the bread that goes on the table in 50 years will be produced by a farmer of the future generation. Savings and social security are just two different ways of writing the same contract.
    - deleted 9y ago
      [deleted]
Gibbon1 9y ago
> That's a ponzi scheme. In no away shape or form a ponzi scheme.
- dominotw 9y ago
  Seems to somewhat fit the defition, if you squint a little > A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading. https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme
  - Atheros 9y ago
    None of us are paying into social security expecting a positive return. That's why it isn't a ponzi scheme. There is no fraud involved.
wavefunction 9y ago
A ponzi scheme is an illegal act of fraud whereas a Social Security type pension is something society has agreed upon. Not surprised you're using a throw-away username and I'm going to downvote it accordingly.
- delecti 9y ago
  Currently the only criticism you've made of the comparison is the name and amount of social acceptance. > A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors It's not a 100% perfect match, but there are certainly enough similarities between how Social Security systems work and the basics of a Ponzi scheme that you'll have to make an actual criticism of the comparison if you want to argue how they're not the same.
Y7ZCQtNo39 9y ago
The max FICA (Social Security) tax in 2017 was $7,886.40, which equates to an income of $127,200 (it's a 6.2% tax). There are many people making below that threshold, and not even paying that much. You can't live very comfortably on less than $8,000 / year. It takes nearly two workers (maybe three if you consider the average annual income, and that the fair majority workers aren't making maximum FICA payments) to cover every retiree -- which seems to logically require successively larger working age adults than prior generations.

zzleeper 9y ago

To double down on what user5994461 said, that's indeed a ponzi scheme and quite stupid if you know current population trends. It also creates quite perverse incentives, as older folks want to reduce their retirement age (even as they live way longer) and raise the contributions of younger people (to pay for the extra costs).

ineedasername 9y ago
Except that retirement age has been gradually extended, and there is no significant lobying effort by AARP or anyone else to go back in that trend.

hkmurakami 9y ago

Basically only works when you have a growing economy and a growing population. Both things are sort of not true anymore in developed nations.

alkonaut 9y ago
A declining/aging population is problematic but a stable one isn’t. And you need some buffers in the system to manage the variations in birth rates. I thought this type of system was the most common these days?
- hkmurakami 9y ago
  Most nations have been set up with growth assumptions. I think you're right that in theory a nation with stable numbers for both can sustain itself. However, we'd have to redo much of the infrastructure assumptions in place today [1], and currently I don't see any nations that are ready to take that plunge. [1] The only systems I see are either underfunded due to growth assumptions they haven't been able to hit, or are funded through natural resources that the country just happened to have. If there are exceptions I would genuinely like to know.
- RobertoG 9y ago
  A declining/aging population could be not a problem if there is an increasing in productivity at the same time.
  - MisterBastahrd 9y ago
    If wages were tied to productivity, that'd make sense. Workers today are vastly more productive yet lag behind when comparing wages to cost of living.
ineedasername 9y ago
Except the US has positive average Gdp growth in the range of 2%, and positive population growth as well.