Aging population and pensions

Much has been made about the aging population; of the fact that when we get birth rate under control and stabilize or even reduce the number of people in our country and with ever increasing effective medical technology, the population-age distribution will be skewed strongly toward older people. The problem often stated which is associated with this trend is that there are fewer and fewer young people to pay the taxes which pay the pensions of those above 65. This whole argument ignores a trend which has been happening since the Luddites rebellion and which continues today. Using England and the Luddites as an example:

In early rural England all goods were produced by artisans, usually working from home. In the case of the Luddites, it was stockings and cloth woven on hand looms. Along came mechanization, the mechanical loom and produced the same goods for much less. This put the artisans out of business. This is a good representative example of what has been happening ever since. Instead of money been earned by lots of individuals who then have money to buy the work of other artisans, money is earned by capital. Whoever owned the mechanical looms hired a small fraction of the number of people who would have previously produced the cloth and he earned most of the money. Flash forward to the present when plastic goods are produced in the thousands by a machine with one or two operators and even our cars are to a large extent constructed by robots. So what have the displaced people done.

They had to find some way else to earn enough money to keep themselves alive. By and large, other niches were already filled so they had to find new niches. They had to create new jobs for which people were willing to pay money and for the most part these were service industries. Remember, production of goods was increasingly being done by capital with less and less people involved. One of the service industries of immediate return with no need for learning new skills was prostitution which has often been resorted to over the years by displaced people but there are many others. There is big government with all the people making sure people pay taxes and others working on the disbursement of these taxes. There are soldiers who in theory defend a country but all too often, since they have to have a war to keep themselves busy, go to war on other countries. There are the businesses who make war equipment and materials. On a smaller scale, there are all the folk who support the tourist industry whether motel operators, guides, taxi drives, air plane pilots and so forth. The theory was that with mechanization, we would all have more leisure time and to an extent, comparing us with the start of the industrial revolution, this has happened. Have you noticed though that in many modern 'western' countries, both the husband and the wife have to work now to keep the family in the style to which they aspire. In my parents day, just after the second world war and for a few decades after that, only the fathers worked. The explanation is clear. Service industries don't pay very well so more members of the family have to work more to keep up the life style.

Anyway, back to pensions. The solution to the problem of fewer workers and more pensioners is obvious. Over their life time, workers have to put aside some of their money which goes towards owning the means of production. In other words, they have to contribute towards a pension and the pension money must be used to buy the factories which produce the goods. Over his working life the worker becomes a capitalist. Remember, capital is making the big bucks. In one move you solve the problem of paying pensions, you make it no longer a problem that there are more pensioners than working age adults since the young are not paying the pensions. The pensions come from production which is owned by the old people and you therefore get around this mad need for our economy to be a pyramid scheme where each generation has to be larger than the one before. You also create some added benefits.

Throughout the life time of the working adult, he is putting aside some money so less cash is chasing goods. This lowers inflation with a whole raft of beneficial effects.

The old people are consumers. They will tend to use all the money they receive as a pension since they want to enjoy their last years. By keeping money circulating they support the economy. You get around this problem that as capital earns the money, there are less and less people with money to buy the goods that capital produces.

You also remove the need for higher taxes on the working population to pay pensions. Reducing taxes enervates an economy as this money either goes into consumption or investment.

Even better, with the need removed for larger and larger generations, one can allow one's population to decrease without the worry about supporting older people. This in time will allow more and more areas to be returned to Gia, allowing her once more to produce clean air and water. She might even be able to once again give us food, fuel, building materials, medicines and so forth, making it less expensive for all of us to live well (for instance, if you don't have to process your water, and if water is available in abundance, that water is less expensive). Of course, carbon emissions will decrease, doubly-so as people switch to electric cars, and may save us from an ecological melt down. Win win all around.

This is hardly rocket science. This is what happens now with all private pensions. Take the Canadian Teachers Pension. Its portfolio reads like a who's who of Canadian and overseas businesses and they pay their retired teachers a pension from the earnings of these funds. Moreover, the pension is not fixed but varies with the health of the portfolio (you can choose a fixed option but the repayment is lower).

Of course there are problems with this approach. I have a tiny pension from one year I taught in Canada. Looking at the reports I have received over the years, I see that this pension fund has crashed at least 5 times in 40 years as the stock market had its ups and downs. Because it is a very diversified fund, it came up again. Some work could be done to stop the banks crashing our economy and this would give us some increased stability but the basic premise is sound.

It would seem that we have an opportunity here rather than a problem.