An answer must be found to the problems of aging populations in more perfluent countries.
It has been suggested that efforts should be made to achieve and sustain a higher birthrate in the more perfluent countries, to lower the median age and create more taxable workers and more throughput to support ever rising pension demands.
Once the larger generations began to mature, it could be expected that more per person, and better, throughput would follow for a given state of resource availability. But the higher rate of population growth and higher throughput per person would accelerate the decrease of resource availability and thus drag throughput down anyway. The larger, younger population increasing at a higher rate could end up with lower material living standards at the same point in time, than would be available to the smaller, older population living with a less efficient economic system and a heavier proportionate pension burden.
The expectations of the younger bigger population would presumably be rising all the time, because if it were not possible to control the expectations of the growing pensioner lobby, it would not be possible to curb those of the rest of the people.
The vital point here is the limitations on wealth and its (mathematical) derivatives previously discussed. On a flat earth of unlimited resources, there would need be no limit to population growth but it also wouldn’t matter if all the population were geriatric and, as previously pointed out, there would be no need for any economic system or any doling out of set amounts of buying power.
Besides, the lower birthrate is a result of deliberate choice. People in more perfluent nations are not making love any less than formerly, but given the increasing availability and efficacy of birth control technology in recent times, people are choosing smaller families, partly as a result of the drive for ever higher material living standards. As well as being tiring and restrictive, large families act against couples’ living standards. It would probably be more difficult to coerce people in more perfluent countries to increase the birthrate than it is to persuade people in less perfluent or more crowded places to reduce their family size. This topic is discussed further in the next post.
A better idea would be to let the “bulge” of aging people work its way through and gradually disappear, with a population smaller than it would have been, and with a better age distribution and balance coming up behind. This will take decades during which time social stresses will need to be endured.
Expectations will need to be reduced. People will have to be told forcefully and repeatedly, using the same manipulative advertising techniques that have told them the opposite for so long, that material living standards and population cannot forever rise and, in more perfluent nations, the former must fall and the latter level off to give the world economy any hope of becoming fair and sustainable. This point was discussed earlier.
Government payments to the old in some countries have been rising faster per person than wages because of a policy of indexing pensions to the full CPI (Consumer Price Index) – a policy not so often applied to wages. Thus purchasing power for pensioners has been rising faster or falling more slowly than for the working population. This might be justified for a while in a situation where pensioners are too badly off compared with wage earners, but it clearly cannot continue indefinitely.
If old age pensions were indexed to gross wages instead of to prices, this would keep the relative spending power of pensioners and workers in step as long as the median age of the population, the life expectancy, and the retiring age remained constant. However, if, as in recent years, the first tow of those variables were rising and the last falling, pensioners would still increase their buying power faster or lose it more slowly than workers because ever more taxes or other contributions would need to be raised to pay pensions to the steadily rising proportion of the population eligible for these.
Should pensions instead be indexed to net wages, i.e., after tax? This is complicated on the face of it because net wages are a function of tax levels, which in turn are a function of pension requirements. So pensions would be indexed to a rate of change whose size their setting affects. However it need not be difficult in practice.
Starting at a particular date when pensions were deemed by both recipients and contributors to be at least tolerable, it need only be necessary to declare that thenceforth pensions will rise quarterly by the actual percentage rise in average take-home wages for that quarter.
If there are ever more pensioners then ever more taxes will need to be raised to support them. So take-home pay will rise ever more slowly and may even fall, taking pensions with it.
If money wages were already indexed as described in an earlier posting in such a way as to maintain full employment regardless of the effect on living standards, then the whole economy would be ready for adjustment to the quantity and renewal rate limits of the world’s resources.
The living standard achievable under this full employment regime will of course become lower as the human population becomes higher. As pointed out repeatedly, no economic plan for the world can work unless human population growth stops. This task, while vital, is more difficult than the objective indexation measures described here and in the section on wage fixing. However it must be achieved and need not be impossible, if certain assumptions and attitudes are challenged.
Posts in this Series
- Review of 1988 edition of Economics for a Round Earth
- Ends and Means
- Evolution Not Revolution
- Notes on Evolution Not Revolution
- Concepts and Terms – What is ‘wealth’?
- The Throughput Chain
- The Derivatives of Wealth
- Global Inequalities in Wealth
- Economic Growth Redefined
- Misconceptions in Practice
- Borrowing to Invest to Get Rich
- Environment versus Economic Progress
- Digression: Pollution Red Herrings
- Digression: Depletion and Inflation
- Value Inflation – the Trigger, not the Bullet
- Living Standard and Quality of Life
- Digression: Resource Consumption, Jobs, and Hands Off
- When the Boom comes
- The Effect of People’s Expectations
- Hard Work – Virtue or Vice?
- Who needs the Snail Darter?
- More Dollars for Conservation?
- Non-renewable Resources – Leave Them in the Ground?
- Digression: Fast Breeder Nuclear Fission Reactors
- Minerals in National Parks – Leave Them in the Ground?
- Population and Wealth
- Left, Right and The Environment
- Digression: “So Long As We Profit, Costs Elsewhere Aren’t Our Problem”?
- Limits to Growth?
- Solar Energy – a Special Case
- The Solar-Powered Car
- Money Supply, Throughput and Inflation
- Real and Money Wages: Living Standards
- Digression: Caution about “Increases” and “Decreases”
- The Idea of Proportionate Flows Applied to Wages: the Great Depression
- Deficit Financing
- The Optimum Proportionate Flow Condition
- Digression: Thrift versus Spendthrift
- Digression: the Private Motor Car – a Basic Necessity?
- The Idea of Proportionate Flows Applied to Wages – the Stagflation of the 1970’s and 80’s
- Excessive Wages Can Cost Jobs
- Fight Unemployment or Inflation First?
- Digression: Work and Jobs
- Other “Job Creation” Schemes
- Visual and Noise Pollution
- Digression: Renewal and Recycling of Resources; Wages and Jobs
- Ratio Distortion and Consumption
- Aggregate Demand – Components and Internal Ratio
- The Slave Economy
- Employment and the Steady State
- Consumer-Led Recovery
- Interest Rates and Ratio Distortion
- Demographic Trends and Living Standards
- Digression: Bad Economics Good for Conservation?
- Coping with Aging Populations
- Stabilising the Human Population
- Costs – What Really Costs Us and What Doesn’t?
- Digression: Other Comments on Statements in UN Report
- Discussion of Costs Resumed
- Budget Balancing Methods – Cost or Gain?
- Digression: Government Expenditure – Government Employees
- Expenditure on Weapons