bb wrote:I guess I follow the uber simple example. But lets say we have 10 people.
person #1: age 90-100
person #2: age 80-90
Let's say a few raise food, a few do other jobs. So it is not clear to me just becuase
people start to retire at 80 in stead of 90 that the price of food has to go up.
Productivity allows fewer people to be farmers. Some people might work in travel
business. Retirees consumption of travel may go up but the consumption of food
is relatively constant. So why would there be a rise in food prices?
Both examples are ignoring the real reason investments are useful.
Take Society L, where ten people work the land. They set aside 50% of their income each year. When they reach age sixty, they buy a tractor that allows one person to produce twice as much food. They rent the tractor to a younger worker in exchange for half his yield. He earns 10x as much as they did for the same job, and they live as well as before! Capital investment here has increased the ratio of retirees to workers that can be supported, as well as the total wealth of society.
Now take Society S, where those ten people instead spend that money on holidays, ipads and other consumption goods that are over or broken by the time they want to retire. They find that they have to keep working or starve.
Society S is more like the one we're living in but the blog is using the flaws of this sort of society to attack people proposing to make it more like Society L.
The example seems so contrived to not be applicable to a real economy. But I think
Bernstein is far smarter than me so is it applicable?
As I said, the author is trying to make a political point (Social Security is good, Republican think tanks are bad) first and foremost. Politics makes only certain allowance for intelligence.