8 ms·

The world is sitting on a $400T financial time bomb (2017)

74 points by monsieurpng 7y ago

skrebbel 7y ago
That bar chart is terrible. It puts the US at a 137T shortfall and the Netherlands at 6T, making NL look much better than the US. But there's about 20x more people in the US as in NL. The shortfalls are about the same.
- heinrichhartman 7y ago
  "terrible" is the wrong word here. I far prefer absolute values, to arbitrary "corrected" values that are harder to interpret. I was looking at exactly that 6T figure, and was like: This is an AWEFUL LOT for a country with less than 20 Million people.
- josu 7y ago
  Also, there is really no reason to aggregate them all as if it was one huge problem. This seems more like a series of problems that each country will have to deal in its own way at its own time.
- neor 7y ago
  Shortfalls are about the same, but I do wonder if the problem is as big as well. I'm not sure about the US, but in the Netherlands the pensions are a hot topic in politics. The pension funds have to maintain a minimum amount of money, and need to take action if they risk getting below the minimum. Some/most funds are no longer indexing yearly based on inflation, and some funds are talking about reducing payouts to the retired. They are actively protecting their wealth to ensure the younger generation still has access to a pension when they retire. On a grander scale there are talks about a completely new pension system; the big funds where the current generation of workers pay the pensions of the retired is fragile with the general aging of the population. The amount of working persons per retired person is shifting, so they are talking about restructuring in a way where every working person saves money for their own pension. So when the article states that it is an invisible problem... not entirely true for the Netherlands.
asah 7y ago
How much of this is addressed by elderly parents selling their homes (which helps the housing crisis...) and moving in with their adult children? It's uncomfortable but frees up enormous amount of capital, and radically reduces costs of maintenance, food and even cable/internet/entertainment. Back of the envelope: 50M people doing this at $300k average home value and $20k annual maintenance/taxes/insurance over 20 years of lifespan, and costs drop to food and healthcare. Seems like a no brainer. (yes obviously this depends on people having had kids and not borrowed heavily against their house...) What am I missing?
- rogerkirkness 7y ago
  You are missing who will be buying those homes (?)
  - searine 7y ago
    The population is still increasing and there is a housing shortage. Old people sell homes and combine households with family. Young people (larger total population) buy up those homes. Thats how its supposed to work, but instead we have real-estate as investment and old people sitting alone in their massive houses until they croak.
    - onion2k 7y ago
      The population is still increasing and there is a housing shortage. I'm not sure that really matters. If young people can't afford to keep a huge house that costs a fortune to maintain then any shortage isn't going to get people to buy that house. They can't afford it even if the old people who own it lower the price.
      - simonh 7y ago
        Say an increased supply of 4 bedroom houses appears. More people with 3 bedroom houses will be able to upgrade than previously to replace them, which means more people in 2 bedroom houses will be able to upgrade, driving down the prices of 2 bedroom houses as well, which means more people will be able to buy a house at all.
ptah 7y ago
is this what greta thunberg means by "fantasy of eternal economic growth"?
- kome 7y ago
  exactly. but it's not the only mistake made: pensions are easily affordable as a society, but not for individuals. the idea to link pensions to financial markets was the first and huge mistake.
jv0010 7y ago
I would really like to see a system where people pay on their ultimate currency of time - it’s something I have occasionally pondered where young fit and healthy people donate their time to help the elderly in order to gain ‘credits’ for when they are older to receive benefits or benefit in some way for when they are sick or require elderly assistance.
- Erlich_Bachman 7y ago
  So like the pension system which is already in place in many major western countries?
  - jv0010 7y ago
    Yeah just tying it with time and not the financial system
- IanDrake 7y ago
  Swap the word "credits" for money and you have our current system. No need to create a tyrannical government to force people to do deeds of arbitrary value for elderly people.
  - jv0010 7y ago
    I just don’t understand why people see this as the same thing - the value of money is always vulnerable to a myriad of factors however our moral interest towards each other seems (maybe I’m optimistic ) to be more consistent
    - IanDrake 7y ago
      How does one measure value and then store it? That's kind of the definition of money. A money market account is insured and the real return is 0%, so it's not as vulnerable as you seem to think. You can call money a credit. Then you can assign credits to actions and create a moral police to assign credits to people who do these actions and enter those credits into a leger. And now you've recreated communist China. Congrats.
bko 7y ago
> The WEF (World Economic Forum) defines a shortfall as anything less than what’s required to provide 70% of a person’s pre-retirement income via public pensions and private savings. So people aren't saving enough to retire with 70% of their pre-retirement income. From the paper: > We have assumed that current global conventions of retiring between 60 and 70 are maintained, and that individuals do not simply remain in the workplace longer. I don't see how this is a financial bomb. 70% of pre-retirement income is pretty arbitrary. The paper discusses this in the context of increasing life expectancy, but doesn't take into account people working longer which seems the natural thing to happen. > Still, an overwhelming majority of the short-fall comes from government programs. In order to address this problem, governments must adequately and proactively fund their entitlements too, either by increasing taxes or by cutting benefits. Individuals alone cannot save enough to compensate for the unrealistic promises their governments have made. A better solution would be to stop providing public defined benefit pensions. Instead switch over to defined contribution. Defined benefit encourages government agencies to make promises in the future that they won't be around to carry out. As a worker, I wouldn't want to trust my retirement to the political process over 50 years. Defined contribution prevents you from kicking the can down the road and not properly fund the person's retirement
- bryanlarsen 7y ago
  There's a floor, though. Social Security and Medicare ensure that pensioners don't starve and have health care. That's defined benefit.
ebg13 7y ago
Now I'm not an economist, but percentage of my current income seems like a braindead metric to work with that doesn't factor in that I spend less than half of my income and the rest is invested for later and that when I retire I will stop doing that. Shouldn't they be looking for "sufficient assets to meet expenses"?
- sokoloff 7y ago
  People who are living on less than 50% of their income (particularly less than half of after-tax income) are a pretty much vanishingly small subset of the population. It's a smart policy, but it's quite uncommon. When economists think of simplifying assumptions that also help to communicate the essence of a situation, this one doesn't seem that bad to me. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...
  - IHLayman 7y ago
    I'm sorry but this comment comes from a very privileged position. Let's talk reality here: a large portion of the US can't afford a 400$ expense without going into debt (https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-cant-handle-a-400-unexpected-expense.html https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-...). The vast number of people live paycheck to paycheck; to be so surprised that the number of people living on less than 50% of their income is vanishingly small betrays a lack of knowledge of a vast majority of people.
    - ebg13 7y ago
      I agree that being able to save so much is a very privileged position. It also, though, represents a proportion of total dollars that is greater than the proportion of its constituent people. The headline number given isn't X people; it's X dollars.
      - jtbayly 7y ago
        That just makes it worse. Since your share of retirement savings is proportionally higher on the other side of the equation.
onemanstartup 7y ago
Bitcoin fixes this
drdec 7y ago
What's missing from this article is the current amount of the shortfall and what the historical value has been. Without knowing where we are coming from, there's no way to know how concerning this is.
atq2119 7y ago
The risk with this kind of story is that we end up focusing on the financial at the expense of the real. Ultimately, the goods and services consumed by retirees are provided by the real economy, not by financial instruments (which is just a fancy way of saying that you can't eat savings). The way to ensure their availability is to make real investments, not financial ones: build infrastructure, factories, accessible retirement homes; train nurses, doctors, etc... Unfortunately, focus on the financial can trigger (and arguably has already triggered) some extremely counterproductive reflexes. For example, we've been told for decades now that private savings are essential for retirement. This may be true at an individual level, but in the aggregate it causes a savings glut - those low interest rates aren't just the making of central banks - and it withdraws effective demand from the real economy, which disincentives many of the investments in the real economy we need to provide for an aging society. So yeah, good to see some focus on the aging society, but please try to look beyond the financial smokescreen.
- asciident 7y ago
  Fair point. In that case, the real issue then is that more people are retiring and living longer, needing more healthcare and labor, and the workforce is dwindling in comparison? Maybe the amount of resources that can be used as medical supplies is decreasing (and if you think single-use plastic like plastic bags and straws are a problem, wait until you see how much single-use plastic and other materials are used everyday day in healthcare). What's the solution in non-financial terms? Make more young people care for the elderly? Automate as much of the healthcare as possible? Let some elderly people go without healthcare?
  - atq2119 7y ago
    I suppose as other people have pointed out in the thread, the first step is figuring out how much of the shortfall is actually real. But yeah, ultimately the solution would have to be something along the lines of the things you mention. Of course, you don't necessarily have to automate healthcare: if you automate something else, it could also free people to then move to healthcare.
- candybar 7y ago
tomp 7y ago
> The WEF defines a shortfall as anything less than what’s required to provide 70% of a person’s pre-retirement income via public pensions and private savings. Oh come on... why 70%? Presumably retirees don't have childcare costs, can downsize on housing, no more daily commute so savings on transport and lunch costs, ... Also, does "private savings" account for accumulated housing equity? Also, I think that "retirement savings" are a fundamentally misguided economic policy... There's a fixed amount of wealth created at any moment (and a lot of it isn't transferable over time - in particular, labor, energy and food), so by "saving for retirement" we're actually causing a deflation (less money spent to buy same amount of wealth) and will cause an inflation when we start "spending retirement savings" (more money spent to buy same amount of wealth, so prices go up). This is a rat race, you only get ahead as long as you save more than others (similar to the housing bubble). The only sustainable solution is the working population to subsidize the non-working population (kids, students, retirees) in real time, year by year. If that math doesn't work out, we need to change it (make more kids who become new workers or make less retirees by having people work longer). Or post-scarcity economy of course.
- Retric 7y ago
  In a steady state economy and accounting for compound interest, more value goes into retirement savings than get's pulled out. The delta is people dying with retirement savings. In effect retirement increases economic activity by forcing huge numbers of people to save for benefits they don't receive.
  - jakear 7y ago
    Doesn’t saving money decrease economic activity? Seeing as the money is just sitting there, rather than being used to buy goods and services.
    - jtbayly 7y ago
      It’s not all just sitting there. Other people borrow it to spend it on things. The more people save, the more money is available to borrow and the lower the interest rates. Even if saving decreases economic activity, I doubt it decreases it that much.
graeme 7y ago
World savings is a misnomer. You redeem savings by drawing on the resources of the rest of society. The world can't be a net saver. Imagine a desert island of two people. They have a system of savings. You can bank away a voucher that makes the other person gather coconuts for you, and do other necessary work. One of the two people could conceivably work harder in their youth and then work less later using the vouchers. But: 1. They can't both do it 2. If the other person loses capacity to work hard in their later years, your savings voucher loses value. How can they both save? To a limited extent, they can store resources like extra coconuts, build infrastructure and tools while young, etc. But this only goes so far: food rots, infrastructure depreciates. On a global scale the world is no different. A savings shortfall means that global youth productivity won't be high enough to support global elderly retirement. We will need to either: 1. Get youth more productive 2. Make more youth 3. Take a greater percent of youth's income 4. Have old people live on less or not retire so early Notice that none of these are about saving now? That's because moving 1's and 0's in a ledger isn't a provisioning of future goods. You need actual future goods production.
- akerro 7y ago
  >1. Get youth more productive Youth is always more productive because they use tools and strategies worked out by the older. >2. Make more youth In some wealthier, western countries many people in their 20s and 30s can't afford to have a dog. >3. Take a greater percent of youth's income That's how you divide a nation, young will hate the old, riots will start. Check out "2030: The Real Story of What Happens to America" >4. Have old people live on less or not retire so early That's how politicians lose support, Brexit happened because more old people voted than young people, now opinions of old people are being listened to, young are ignored, because they have less voting power.
  - foogazi 7y ago
    > In some wealthier, western countries many people in their 20s and 30s can't afford to have a dog. How can anyone not afford a dog? They are free and don’t eat that much
tboyd47 7y ago
> The WEF assumes many people born recently will live beyond 100, which may be a bit much (the Social Security Administration expects most Americans born today to live into their mid-80s). The title of the WEF paper is "We’ll Live to 100 – How Can We Afford It?" The entire paper is an extrapolation of that one assumption. There is no country in the world with life expectancy over 84. There is also no US congressional district with LE over 84. The idea that any collection of humans can exceed even 90 years in average life expectancy is unproven, much moreso for the entire human population. In fact, the LE for the USA has been decreasing for the last 5 years.
buboard 7y ago
Retirement and pensions did not exist until 1-2 centuries ago. It seems the idea itself is about to be retired
gtirloni 7y ago
Imagine you're an alien visiting Earth on 2050 and it's the worst-case scenario as predicted. You see all the suffering, people starving, not a lot going on and then you look at all the arable land, the mineral resources, the factories, etc and nothing is happening. People refuse to help each other at a large scale. It's like the hungry ghosts story in planetary scale. You'd be very puzzled, wouldn't you? Food for thought...
- dfilppi 7y ago
  Yeah you'd wonder why they bought iPhones , pricey cars, vacations, private school and eating out instead of saving
- gibbonsrcool 7y ago
  Well it all happens for a reason. And I don't mean as part of some master plan, but cause and effect. Since we're talking about an alien civilization capable of traveling to earth, vastly technologically and intellectually superior to us, they'd probably be able to assess the problem pretty quickly based on human nature. It confuses us because we can't understand collective human behavior. This made me think of the line from MIB: "A person is smart. People are dumb, panicky dangerous animals and you know it."
akerro 7y ago
There's a book that describes it "2030: The Real Story of What Happens to America"
ckdarby 7y ago
A book I would highly recommend looking at the future of financial systems related to this retirement bomb is: "Sleeping on a Volcano: The Worldwide Demographic Decline and the Economic and Geopolitical Implications" Non-affiliated, just though it was a very good read: https://www.amazon.com/Sleeping-Volcano-Demographic-Geopolitical-Implications/dp/1793927758 https://www.amazon.com/Sleeping-Volcano-Demographic-Geopolit...
HashThis 7y ago
Your US Social security retirement "invests" their money in US Tresury bonds. The US will default by 2030. Those treasury bonds turn into "IOUs" that can't be paid back, ever (aka default). By 2030, people won't buy new treasuries as the last generation mature, so they will have to be paid back by money printing. 2030 is when US Social security retirement hits a big wall.
bryanlarsen 7y ago
An even bigger financial time bomb IMO is that society and our financial system was built on risk-free investment returns, and those have disappeared. Some have said that financial reserve banking enabled the industrial revolution. The party is over, we now have negative nominal interest rates, and very negative real interest rates. Society has adjusting by chasing risk. Comments like "as long as you hold for at least 10 years, investing in the stock market is risk free" become common. They make these statements by cherry picking American returns. Meanwhile an investment in 1914 German stocks would not return your investment until 2014. I don't believe that we're comparable to 1914 Germany, but potential isn't comparable to the last century of American growth either... A society does not become rich by moving pieces of paper around. A society becomes rich by increasing its capacity to provide goods and services.
raincom 7y ago
USA can sell debt to finance social security and medicare. This is possible as long as (a) US Dollar is global reserve currency (b) every other country want to export to USA (c) every non-American wants to immigrate to the states.

74 points by monsieurpng 7y ago

That bar chart is terrible. It puts the US at a 137T shortfall and the Netherlands at 6T, making NL look much better than the US. But there's about 20x more people in the US as in NL. The shortfalls are about the same.

heinrichhartman 7y ago
"terrible" is the wrong word here. I far prefer absolute values, to arbitrary "corrected" values that are harder to interpret. I was looking at exactly that 6T figure, and was like: This is an AWEFUL LOT for a country with less than 20 Million people.
josu 7y ago
Also, there is really no reason to aggregate them all as if it was one huge problem. This seems more like a series of problems that each country will have to deal in its own way at its own time.
neor 7y ago
Shortfalls are about the same, but I do wonder if the problem is as big as well. I'm not sure about the US, but in the Netherlands the pensions are a hot topic in politics. The pension funds have to maintain a minimum amount of money, and need to take action if they risk getting below the minimum. Some/most funds are no longer indexing yearly based on inflation, and some funds are talking about reducing payouts to the retired. They are actively protecting their wealth to ensure the younger generation still has access to a pension when they retire. On a grander scale there are talks about a completely new pension system; the big funds where the current generation of workers pay the pensions of the retired is fragile with the general aging of the population. The amount of working persons per retired person is shifting, so they are talking about restructuring in a way where every working person saves money for their own pension. So when the article states that it is an invisible problem... not entirely true for the Netherlands.

asah 7y ago

How much of this is addressed by elderly parents selling their homes (which helps the housing crisis...) and moving in with their adult children? It's uncomfortable but frees up enormous amount of capital, and radically reduces costs of maintenance, food and even cable/internet/entertainment. Back of the envelope: 50M people doing this at $300k average home value and $20k annual maintenance/taxes/insurance over 20 years of lifespan, and costs drop to food and healthcare. Seems like a no brainer. (yes obviously this depends on people having had kids and not borrowed heavily against their house...) What am I missing?

rogerkirkness 7y ago
You are missing who will be buying those homes (?)
- searine 7y ago
  The population is still increasing and there is a housing shortage. Old people sell homes and combine households with family. Young people (larger total population) buy up those homes. Thats how its supposed to work, but instead we have real-estate as investment and old people sitting alone in their massive houses until they croak.
  - onion2k 7y ago
    The population is still increasing and there is a housing shortage. I'm not sure that really matters. If young people can't afford to keep a huge house that costs a fortune to maintain then any shortage isn't going to get people to buy that house. They can't afford it even if the old people who own it lower the price.
    - simonh 7y ago
      Say an increased supply of 4 bedroom houses appears. More people with 3 bedroom houses will be able to upgrade than previously to replace them, which means more people in 2 bedroom houses will be able to upgrade, driving down the prices of 2 bedroom houses as well, which means more people will be able to buy a house at all.

ptah 7y ago

is this what greta thunberg means by "fantasy of eternal economic growth"?

kome 7y ago
exactly. but it's not the only mistake made: pensions are easily affordable as a society, but not for individuals. the idea to link pensions to financial markets was the first and huge mistake.

jv0010 7y ago

I would really like to see a system where people pay on their ultimate currency of time - it’s something I have occasionally pondered where young fit and healthy people donate their time to help the elderly in order to gain ‘credits’ for when they are older to receive benefits or benefit in some way for when they are sick or require elderly assistance.

Erlich_Bachman 7y ago
So like the pension system which is already in place in many major western countries?
- jv0010 7y ago
  Yeah just tying it with time and not the financial system
IanDrake 7y ago
Swap the word "credits" for money and you have our current system. No need to create a tyrannical government to force people to do deeds of arbitrary value for elderly people.
- jv0010 7y ago
  I just don’t understand why people see this as the same thing - the value of money is always vulnerable to a myriad of factors however our moral interest towards each other seems (maybe I’m optimistic ) to be more consistent
  - IanDrake 7y ago
    How does one measure value and then store it? That's kind of the definition of money. A money market account is insured and the real return is 0%, so it's not as vulnerable as you seem to think. You can call money a credit. Then you can assign credits to actions and create a moral police to assign credits to people who do these actions and enter those credits into a leger. And now you've recreated communist China. Congrats.

bko 7y ago

> The WEF (World Economic Forum) defines a shortfall as anything less than what’s required to provide 70% of a person’s pre-retirement income via public pensions and private savings. So people aren't saving enough to retire with 70% of their pre-retirement income. From the paper: > We have assumed that current global conventions of retiring between 60 and 70 are maintained, and that individuals do not simply remain in the workplace longer. I don't see how this is a financial bomb. 70% of pre-retirement income is pretty arbitrary. The paper discusses this in the context of increasing life expectancy, but doesn't take into account people working longer which seems the natural thing to happen. > Still, an overwhelming majority of the short-fall comes from government programs. In order to address this problem, governments must adequately and proactively fund their entitlements too, either by increasing taxes or by cutting benefits. Individuals alone cannot save enough to compensate for the unrealistic promises their governments have made. A better solution would be to stop providing public defined benefit pensions. Instead switch over to defined contribution. Defined benefit encourages government agencies to make promises in the future that they won't be around to carry out. As a worker, I wouldn't want to trust my retirement to the political process over 50 years. Defined contribution prevents you from kicking the can down the road and not properly fund the person's retirement

bryanlarsen 7y ago
There's a floor, though. Social Security and Medicare ensure that pensioners don't starve and have health care. That's defined benefit.

ebg13 7y ago

Now I'm not an economist, but percentage of my current income seems like a braindead metric to work with that doesn't factor in that I spend less than half of my income and the rest is invested for later and that when I retire I will stop doing that. Shouldn't they be looking for "sufficient assets to meet expenses"?

sokoloff 7y ago
People who are living on less than 50% of their income (particularly less than half of after-tax income) are a pretty much vanishingly small subset of the population. It's a smart policy, but it's quite uncommon. When economists think of simplifying assumptions that also help to communicate the essence of a situation, this one doesn't seem that bad to me. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...
- IHLayman 7y ago
  I'm sorry but this comment comes from a very privileged position. Let's talk reality here: a large portion of the US can't afford a 400$ expense without going into debt (https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-cant-handle-a-400-unexpected-expense.html https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-...). The vast number of people live paycheck to paycheck; to be so surprised that the number of people living on less than 50% of their income is vanishingly small betrays a lack of knowledge of a vast majority of people.
  - ebg13 7y ago
    I agree that being able to save so much is a very privileged position. It also, though, represents a proportion of total dollars that is greater than the proportion of its constituent people. The headline number given isn't X people; it's X dollars.
    - jtbayly 7y ago
      That just makes it worse. Since your share of retirement savings is proportionally higher on the other side of the equation.

onemanstartup 7y ago

Bitcoin fixes this

drdec 7y ago

What's missing from this article is the current amount of the shortfall and what the historical value has been. Without knowing where we are coming from, there's no way to know how concerning this is.

atq2119 7y ago

The risk with this kind of story is that we end up focusing on the financial at the expense of the real. Ultimately, the goods and services consumed by retirees are provided by the real economy, not by financial instruments (which is just a fancy way of saying that you can't eat savings). The way to ensure their availability is to make real investments, not financial ones: build infrastructure, factories, accessible retirement homes; train nurses, doctors, etc... Unfortunately, focus on the financial can trigger (and arguably has already triggered) some extremely counterproductive reflexes. For example, we've been told for decades now that private savings are essential for retirement. This may be true at an individual level, but in the aggregate it causes a savings glut - those low interest rates aren't just the making of central banks - and it withdraws effective demand from the real economy, which disincentives many of the investments in the real economy we need to provide for an aging society. So yeah, good to see some focus on the aging society, but please try to look beyond the financial smokescreen.

asciident 7y ago
Fair point. In that case, the real issue then is that more people are retiring and living longer, needing more healthcare and labor, and the workforce is dwindling in comparison? Maybe the amount of resources that can be used as medical supplies is decreasing (and if you think single-use plastic like plastic bags and straws are a problem, wait until you see how much single-use plastic and other materials are used everyday day in healthcare). What's the solution in non-financial terms? Make more young people care for the elderly? Automate as much of the healthcare as possible? Let some elderly people go without healthcare?
- atq2119 7y ago
  I suppose as other people have pointed out in the thread, the first step is figuring out how much of the shortfall is actually real. But yeah, ultimately the solution would have to be something along the lines of the things you mention. Of course, you don't necessarily have to automate healthcare: if you automate something else, it could also free people to then move to healthcare.
candybar 7y ago

tomp 7y ago

> The WEF defines a shortfall as anything less than what’s required to provide 70% of a person’s pre-retirement income via public pensions and private savings. Oh come on... why 70%? Presumably retirees don't have childcare costs, can downsize on housing, no more daily commute so savings on transport and lunch costs, ... Also, does "private savings" account for accumulated housing equity? Also, I think that "retirement savings" are a fundamentally misguided economic policy... There's a fixed amount of wealth created at any moment (and a lot of it isn't transferable over time - in particular, labor, energy and food), so by "saving for retirement" we're actually causing a deflation (less money spent to buy same amount of wealth) and will cause an inflation when we start "spending retirement savings" (more money spent to buy same amount of wealth, so prices go up). This is a rat race, you only get ahead as long as you save more than others (similar to the housing bubble). The only sustainable solution is the working population to subsidize the non-working population (kids, students, retirees) in real time, year by year. If that math doesn't work out, we need to change it (make more kids who become new workers or make less retirees by having people work longer). Or post-scarcity economy of course.

Retric 7y ago
In a steady state economy and accounting for compound interest, more value goes into retirement savings than get's pulled out. The delta is people dying with retirement savings. In effect retirement increases economic activity by forcing huge numbers of people to save for benefits they don't receive.
- jakear 7y ago
  Doesn’t saving money decrease economic activity? Seeing as the money is just sitting there, rather than being used to buy goods and services.
  - jtbayly 7y ago
    It’s not all just sitting there. Other people borrow it to spend it on things. The more people save, the more money is available to borrow and the lower the interest rates. Even if saving decreases economic activity, I doubt it decreases it that much.

graeme 7y ago

World savings is a misnomer. You redeem savings by drawing on the resources of the rest of society. The world can't be a net saver. Imagine a desert island of two people. They have a system of savings. You can bank away a voucher that makes the other person gather coconuts for you, and do other necessary work. One of the two people could conceivably work harder in their youth and then work less later using the vouchers. But: 1. They can't both do it 2. If the other person loses capacity to work hard in their later years, your savings voucher loses value. How can they both save? To a limited extent, they can store resources like extra coconuts, build infrastructure and tools while young, etc. But this only goes so far: food rots, infrastructure depreciates. On a global scale the world is no different. A savings shortfall means that global youth productivity won't be high enough to support global elderly retirement. We will need to either: 1. Get youth more productive 2. Make more youth 3. Take a greater percent of youth's income 4. Have old people live on less or not retire so early Notice that none of these are about saving now? That's because moving 1's and 0's in a ledger isn't a provisioning of future goods. You need actual future goods production.

akerro 7y ago
>1. Get youth more productive Youth is always more productive because they use tools and strategies worked out by the older. >2. Make more youth In some wealthier, western countries many people in their 20s and 30s can't afford to have a dog. >3. Take a greater percent of youth's income That's how you divide a nation, young will hate the old, riots will start. Check out "2030: The Real Story of What Happens to America" >4. Have old people live on less or not retire so early That's how politicians lose support, Brexit happened because more old people voted than young people, now opinions of old people are being listened to, young are ignored, because they have less voting power.
- foogazi 7y ago
  > In some wealthier, western countries many people in their 20s and 30s can't afford to have a dog. How can anyone not afford a dog? They are free and don’t eat that much

tboyd47 7y ago

> The WEF assumes many people born recently will live beyond 100, which may be a bit much (the Social Security Administration expects most Americans born today to live into their mid-80s). The title of the WEF paper is "We’ll Live to 100 – How Can We Afford It?" The entire paper is an extrapolation of that one assumption. There is no country in the world with life expectancy over 84. There is also no US congressional district with LE over 84. The idea that any collection of humans can exceed even 90 years in average life expectancy is unproven, much moreso for the entire human population. In fact, the LE for the USA has been decreasing for the last 5 years.

buboard 7y ago

Retirement and pensions did not exist until 1-2 centuries ago. It seems the idea itself is about to be retired

gtirloni 7y ago

Imagine you're an alien visiting Earth on 2050 and it's the worst-case scenario as predicted. You see all the suffering, people starving, not a lot going on and then you look at all the arable land, the mineral resources, the factories, etc and nothing is happening. People refuse to help each other at a large scale. It's like the hungry ghosts story in planetary scale. You'd be very puzzled, wouldn't you? Food for thought...

dfilppi 7y ago
Yeah you'd wonder why they bought iPhones , pricey cars, vacations, private school and eating out instead of saving
gibbonsrcool 7y ago
Well it all happens for a reason. And I don't mean as part of some master plan, but cause and effect. Since we're talking about an alien civilization capable of traveling to earth, vastly technologically and intellectually superior to us, they'd probably be able to assess the problem pretty quickly based on human nature. It confuses us because we can't understand collective human behavior. This made me think of the line from MIB: "A person is smart. People are dumb, panicky dangerous animals and you know it."

akerro 7y ago

There's a book that describes it "2030: The Real Story of What Happens to America"

ckdarby 7y ago

A book I would highly recommend looking at the future of financial systems related to this retirement bomb is: "Sleeping on a Volcano: The Worldwide Demographic Decline and the Economic and Geopolitical Implications" Non-affiliated, just though it was a very good read: https://www.amazon.com/Sleeping-Volcano-Demographic-Geopolitical-Implications/dp/1793927758 https://www.amazon.com/Sleeping-Volcano-Demographic-Geopolit...

HashThis 7y ago

Your US Social security retirement "invests" their money in US Tresury bonds. The US will default by 2030. Those treasury bonds turn into "IOUs" that can't be paid back, ever (aka default). By 2030, people won't buy new treasuries as the last generation mature, so they will have to be paid back by money printing. 2030 is when US Social security retirement hits a big wall.

bryanlarsen 7y ago

An even bigger financial time bomb IMO is that society and our financial system was built on risk-free investment returns, and those have disappeared. Some have said that financial reserve banking enabled the industrial revolution. The party is over, we now have negative nominal interest rates, and very negative real interest rates. Society has adjusting by chasing risk. Comments like "as long as you hold for at least 10 years, investing in the stock market is risk free" become common. They make these statements by cherry picking American returns. Meanwhile an investment in 1914 German stocks would not return your investment until 2014. I don't believe that we're comparable to 1914 Germany, but potential isn't comparable to the last century of American growth either... A society does not become rich by moving pieces of paper around. A society becomes rich by increasing its capacity to provide goods and services.

raincom 7y ago

USA can sell debt to finance social security and medicare. This is possible as long as (a) US Dollar is global reserve currency (b) every other country want to export to USA (c) every non-American wants to immigrate to the states.