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In some sense, isn't this inherently how something like a pension fund works? Forget about the layers of obfuscation, and think about how the economy works. So
by notJim 7y ago
In some sense, isn't this inherently how something like a pension fund works?
Forget about the layers of obfuscation, and think about how the economy works. Some people work and produce stuff, some people do not. The norm (and a defensible one, IMO) is that young people work, and old people do not. This means that some of the output of the work that young people do has to be funneled to old people.
You can do that by building up vast stores of wealth and funneling it to people over time, or you can do it by directly taxing current production, but either way the effect is to direct resources from people who produce to those who don't.
Theoretically, we take the store of wealth approach, but in actuality that store of wealth depends greatly on the economy backing it to be sufficiently productive that there are enough resources to go around. The pension funds don't control the entire economy obviously, so they have to predict as best as they can. It seems extreme to call it a Ponzi scheme unless there was actual fraud occurring.
Edit: thrustvectoring[1] probably does a better job making the point I'm trying to make (or at least a related one.)
[1]: https://news.ycombinator.com/item?id=21174917 https://news.ycombinator.com/item?id=21174917
- pjbk 7y ago> Some people work and produce stuff, some people do not. And some other people print money, whose value should be tied somewhat to the stuff that some people did or will certainly produce, but now most often does not.
- ThrustVectoring 7y ago>You can do that by building up vast stores of wealth and funneling it to people over time, or you can do it by directly taxing current production, but either way the effect is to direct resources from people who produce to those who don't. The "vast stores of wealth" approach is "hoard financial assets, and then sell them to current workers" - that is, savings. Note that this includes financial assets such as mortgages and student loans, and "selling them to current workers" includes them paying down the principal. I don't view it as a Ponzi scheme, per se, but there's a very big problem with defined-benefit schemes: if our future society is not productive enough to support the promised benefits, the only choices are to renege or to increase the transfer from future workers. Defined-contribution schemes have the political advantage of automatically reducing benefits when the economy does poorly.
- ssivark 7y agoIsn't a solution to defined benefit schemes just inflating the currency? That seems like an effectively equivalent way of passing (some of) the responsibility from the earners to the retirees.
- ThrustVectoring 7y agoCost-of-living adjustments are pretty common, especially among state and municipal pension programs. Inflation does more to erode the purchasing power of nominal assets like bonds.