[lbo-talk] Democraphics and economics

[Mark S]

Doug Henwood wrote:
>
>It's something to be taken seriously. All retirement systems, taken as a 
>whole, are basically pay-as-you-go funds. That's obvious with a public 
>system, like Social Security, which pays today's benefits with today's 
>taxes. But there's nothing magic about a stock-market-centered system that 
>can escape this logic. Money going out must be matched by money going in. 
>Capital gains are nice, but they are only meaningful if they can be 
>realized with someone's cash. The economic logic to this is that money 
>represents/is valorized by current production. A society as a whole can't 
>satisfy tomorrow's needs with today's cash or today's production.
>
I'm not saying you're wrong, but this is an unconventional view on pensions. 

  For example, the Canada Pension Plan was revamped in 1998 to allow surplus 
contributions to be invested in a wide range of asset classes.  These 
investments will be sold in the future to pay future benefits.  A mainstream 
Canadian think tank commissioned a 45-page study on the new approach from a 
former economics professor.  He characterized the old approach as 
"essentially pay-as-you-go with a small investment fund" and the new 
approach as "a partially but substantially funded program with a much larger 
investment fund."  I have never seen the new approach described as 
pay-as-you-go.

Is the conventional view a byproduct of orthodox economics or is it just 
incomplete thinking?

M.

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