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Productivity gains certainly help, but it's not something that pension plans have any control over. They can only estimate what it's going to be going forward,

Productivity gains certainly help, but it's not something that pension plans have any control over. They can only estimate what it's going to be going forward, and try to hedge their defined-benefit terms around it. Defined-contribution plans have a much better time, since they can foist this risk onto future retirees.

roenxi 7y ago
There might be others, but I recall 2 styles of pension setup. One we use in Australia is that workers set aside x% of their wages into a fund where they can't access the money until they have retired at >60 years old. The other is a transfer-payment from current workers to retired workers. In the second case what you say is true; pension funds would be basically a thin abstraction for what is basically a welfare system. People's benefits are not linked to their productivity and life choices. Pension funds would have no power. However in the Australian system the funds have enormous power because they sit on a vast pool of capital they have exclusive control over. They have the means and power to start their own business/create demand for new businesses that meet their retirees potential needs. This shows there is no theoretical reason why pension funds can't actively participate in shaping the economy to meet future retirees needs. But your main point goes to the fact that 'investment' is typically in pieces of paper rather than real things. This is probably a result of government policy favouring people who own financial assets over real assets. Governments have been running a 'war on investment' for many years; look at how well companies like Uber do that take capital and basically burn it. How is a productive company supposed to compete with that sort of business plan? There is far too much credit in the system and that is a direct result of government policies or situations quietly accepted by government policy. All those resources could have gone into things that retirees were going to use. If a company losing billions can make its owners billions; there is no particular incentive to do the legwork to actually think about the future and come up with a plan that works. We are starting to see the results of that thinking, which is pervasive, in the pension funds. Addition For Clarity; real investment is supposed to be about making it much cheaper and easier to secure useful resources in the future. If there are broad scale pension crises, which there are, then whatever has been going on isn't real investment. It was a likely outcome of the '08 crisis that real investment would be squelched; because people who were exposed as not stewarding money sensibly were left in charge. I'll bet the Europeans are in a worse spot than the Americans and doing something foolish like following their financial lead but with a more extensive welfare state.
- ThrustVectoring 7y ago
  The first style of pension setup is also a thin abstraction over a welfare system. The only difference is that instead of taxation, it uses savings to inflate asset prices to generate additional retiree consumption at the expense of current worker consumption. >But your main point goes to the fact that 'investment' is typically in pieces of paper rather than real things. Investment in tangible things also is typically in the form of pieces of paper allocating economic rights. Real estate and corporations are investing in titles and shares, respectively. Extra money doesn't generate any more land or any additional business ideas, it simply bids up the prices of what's out there. >If a company losing billions can make its owners billions; there is no particular incentive to do the legwork to actually think about the future and come up with a plan that works. We are starting to see the results of that thinking, which is pervasive, in the pension funds. I'd characterize it more that simply adding more money to the system does not materially increase the pool of useful ideas and innovation out there. I know that I couldn't come up with any better of a business plan if I was handed a hundred million dollars rather than a million, and anyone I hire to do so would just be a zero-sum activity that reallocates who owns their resultant plans.

roenxi 7y ago

There might be others, but I recall 2 styles of pension setup. One we use in Australia is that workers set aside x% of their wages into a fund where they can't access the money until they have retired at >60 years old. The other is a transfer-payment from current workers to retired workers. In the second case what you say is true; pension funds would be basically a thin abstraction for what is basically a welfare system. People's benefits are not linked to their productivity and life choices. Pension funds would have no power. However in the Australian system the funds have enormous power because they sit on a vast pool of capital they have exclusive control over. They have the means and power to start their own business/create demand for new businesses that meet their retirees potential needs. This shows there is no theoretical reason why pension funds can't actively participate in shaping the economy to meet future retirees needs. But your main point goes to the fact that 'investment' is typically in pieces of paper rather than real things. This is probably a result of government policy favouring people who own financial assets over real assets. Governments have been running a 'war on investment' for many years; look at how well companies like Uber do that take capital and basically burn it. How is a productive company supposed to compete with that sort of business plan? There is far too much credit in the system and that is a direct result of government policies or situations quietly accepted by government policy. All those resources could have gone into things that retirees were going to use. If a company losing billions can make its owners billions; there is no particular incentive to do the legwork to actually think about the future and come up with a plan that works. We are starting to see the results of that thinking, which is pervasive, in the pension funds. Addition For Clarity; real investment is supposed to be about making it much cheaper and easier to secure useful resources in the future. If there are broad scale pension crises, which there are, then whatever has been going on isn't real investment. It was a likely outcome of the '08 crisis that real investment would be squelched; because people who were exposed as not stewarding money sensibly were left in charge. I'll bet the Europeans are in a worse spot than the Americans and doing something foolish like following their financial lead but with a more extensive welfare state.

ThrustVectoring 7y ago
The first style of pension setup is also a thin abstraction over a welfare system. The only difference is that instead of taxation, it uses savings to inflate asset prices to generate additional retiree consumption at the expense of current worker consumption. >But your main point goes to the fact that 'investment' is typically in pieces of paper rather than real things. Investment in tangible things also is typically in the form of pieces of paper allocating economic rights. Real estate and corporations are investing in titles and shares, respectively. Extra money doesn't generate any more land or any additional business ideas, it simply bids up the prices of what's out there. >If a company losing billions can make its owners billions; there is no particular incentive to do the legwork to actually think about the future and come up with a plan that works. We are starting to see the results of that thinking, which is pervasive, in the pension funds. I'd characterize it more that simply adding more money to the system does not materially increase the pool of useful ideas and innovation out there. I know that I couldn't come up with any better of a business plan if I was handed a hundred million dollars rather than a million, and anyone I hire to do so would just be a zero-sum activity that reallocates who owns their resultant plans.