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Wealth and income inequality matter too. It doesn't matter if dependency ratios are going down and productivity is going up if all of the productivity gains are

Wealth and income inequality matter too. It doesn't matter if dependency ratios are going down and productivity is going up if all of the productivity gains are being siphoned off (which they are). That's partly what's so toxic about the meme that social security is, or will be, unaffordable. It embeds within in an implicit endorsement of current and future increasing levels of wealth and income inequality.

nostrademons 7y ago
Over retirement-level timescales that shouldn't matter either. Either rich people spend their money on luxury goods & services, in which case it gets returned to the economy through the laborers who provide those goods. Or they bid up the prices of assets to the point where nobody outside of a small clique of people can afford them, start trading amongst themselves, and eventually get a financial crisis that destroys all that "wealth" when there are no more buyers. I would strongly bet on the latter, as that is how every other major period of rising inequality has ended (along with a war). Prices are just an information-carrying vehicle that reflects what people are willing to pay. No buyers = no price.
- elipsey 7y ago
  > start trading amongst themselves, and eventually get a financial crisis that destroys all that "wealth" when there are no more buyers > how every other major period of rising inequality has ended This is an interesting idea. Can you offer an authoritive source, or any canonical examples that are broadly regarded as such by economists (and say which ones think so)?
  - nostrademons 7y ago
    The idea that every technological revolution (and associated period of rising income inequality) is associated with a financial crisis comes from Carlota Perez, Technological Revolutions and Financial Capital. Her thesis is that a technological revolution results in an order-of-magnitude increase in productivity over existing industries; the resultant productivity gains let entrepreneurs (and associated parties: financiers, skilled laborers, landlords, etc.) dramatically undercut entrenched competition while still reaping large profits for themselves, eviscerating the incumbent industry. You get a phenomena of "two monies", where people & prices connected to the new industry deal with dollar values that may be an order of magnitude higher than those connected to the old industry. Eventually the new industry sucks all the money out of the economy and leaves people still attached to the old industry (which may be a majority of the population but a minority of dollars) unable to afford any of the new products. At that point all the expectations of future financial returns collapse, and you get a financial crisis that destroys much of the paper gains of the newly-wealthy. Very frequently you get a war, too, if the new technologies give a significant military advantage over the old economy. Eventually the horrors of depression and war convince the newly rich & powerful that regulation and redistribution is in their best interests, and the technology spreads across the general population (all of whom eventually end up working in the "new economy"), and the promised prosperity happens. The canonical example is the Great Depression (precipitated by the series of rolling bubbles in the 1920s, which themselves were fed by the prosperity generated by the new meatpacking/radio/electricity/automobile/airline industries, and which ended with WW2.) Other examples include the Panic of 1893 (overbuilding of the steel & shipbuilding industries and decline of agriculture), which led to the Progressive Era in the U.S, and the Panic of 1857 (overbuilding of railroads, ended in the Civil War).

nostrademons 7y ago

Over retirement-level timescales that shouldn't matter either. Either rich people spend their money on luxury goods & services, in which case it gets returned to the economy through the laborers who provide those goods. Or they bid up the prices of assets to the point where nobody outside of a small clique of people can afford them, start trading amongst themselves, and eventually get a financial crisis that destroys all that "wealth" when there are no more buyers. I would strongly bet on the latter, as that is how every other major period of rising inequality has ended (along with a war). Prices are just an information-carrying vehicle that reflects what people are willing to pay. No buyers = no price.

elipsey 7y ago
> start trading amongst themselves, and eventually get a financial crisis that destroys all that "wealth" when there are no more buyers > how every other major period of rising inequality has ended This is an interesting idea. Can you offer an authoritive source, or any canonical examples that are broadly regarded as such by economists (and say which ones think so)?
- nostrademons 7y ago
  The idea that every technological revolution (and associated period of rising income inequality) is associated with a financial crisis comes from Carlota Perez, Technological Revolutions and Financial Capital. Her thesis is that a technological revolution results in an order-of-magnitude increase in productivity over existing industries; the resultant productivity gains let entrepreneurs (and associated parties: financiers, skilled laborers, landlords, etc.) dramatically undercut entrenched competition while still reaping large profits for themselves, eviscerating the incumbent industry. You get a phenomena of "two monies", where people & prices connected to the new industry deal with dollar values that may be an order of magnitude higher than those connected to the old industry. Eventually the new industry sucks all the money out of the economy and leaves people still attached to the old industry (which may be a majority of the population but a minority of dollars) unable to afford any of the new products. At that point all the expectations of future financial returns collapse, and you get a financial crisis that destroys much of the paper gains of the newly-wealthy. Very frequently you get a war, too, if the new technologies give a significant military advantage over the old economy. Eventually the horrors of depression and war convince the newly rich & powerful that regulation and redistribution is in their best interests, and the technology spreads across the general population (all of whom eventually end up working in the "new economy"), and the promised prosperity happens. The canonical example is the Great Depression (precipitated by the series of rolling bubbles in the 1920s, which themselves were fed by the prosperity generated by the new meatpacking/radio/electricity/automobile/airline industries, and which ended with WW2.) Other examples include the Panic of 1893 (overbuilding of the steel & shipbuilding industries and decline of agriculture), which led to the Progressive Era in the U.S, and the Panic of 1857 (overbuilding of railroads, ended in the Civil War).