The demographic crunch
Posted by aogFriday, 20 February 2004 at 18:52 TrackBack Ping URL

In thinking about China’s demographic problems, it occurred to me that much of the talk of the pension problem misses the point. Just like government funding of education benefits everyone (not just the parents of the educated children), the pension problems are simply a symptom of the fact that somehow, the working population will have to support the non-working population. Money is simply a record keeping mechanism, it’s not the actual goods and services that will be required. Even if current pension funds were fully funded, it’s not clear that it would make much of a difference. Shortages in goods and services would lead to inflation which would (in effect) wipe out the pension funds. You can’t cheat physical reality with accounting gimmicks. Just a thought to cheer you up for the weekend.

Comments — Formatting by Textile
pj Saturday, 21 February 2004 at 07:21

Yes, but you can make the problem greater by promising an amount of goods and services (or money claims on goods and services) greater than the retirees would otherwise get.

So China’s lack of a pension program leaves it better off than countries which have underfunded pension programs with extravagant promises to future retirees.

aog Saturday, 21 February 2004 at 23:31

There’s little indeed that a government can’t make worse by promising other people’s money.

End of Discussion