economic question

[firsty]

Getting back to the original article, I thought I'd make some points. I am definitely an expert in this area.

Firstly, the fundamental flaw in the article is the calculation fallacy - the idea that a larger (government) system is more stable than decentralized (individualized company) systems. As is often the case, the growth of defined benefit pensions is difficult to evaluate in a free market, because government involvement was huge in what actually happened. Government-directed corporate benefits were first developed in Bismark's Germany, than spread to Roosevelt's New Deal. The post-WWII expansion in the article arose from two main factors: 1) Goverment wage controls left over from the war pushed total compensation into benefits, and longer-term, 2) The need to retain qualified workers while the baby boom moved into the workforce. Without goverment interference, some companies still may have offered pensions as a retention tool. Of course, others may not have, offering a competitive difference for the labor market. If plans were unfunded, or the employer was shaky, employees would put less trust in the pension promise. Not mentioned in the article is the fact that most pension, while sponsored by employers, were funded into insurance companies, who set contribution rules, invested assets, and paid benefits. Thus, they secured the benefits for employees - no government program was needed.

Second, there is a back and forth in the article between today's problems and those of the 1940s. What's not mentioned is the incredible increase in goverment regulation of pensions over these 60 years. Laws like ERISA in 1974, OBRA in 1987, RPA in 1994 and PPA just recently signed, all were supposed to fix pensions once and for all. The Pension Benefit Guarantee Corporation was created by ERISA to insure corporate pensions and is what is behind the billions of taxpayer liability mentioned in the article. One interesting note is that the UK was considering similar insurance recently and commissioned a study of how to make it work better than the US system. The researchers concluded that government-based insurance could never follow sound insurance principles. The UK government, of course, set up a system anyway. The increase in US goverment regulation of pensions is strongly correlated with the failure of pensions over time. While they may say it's in reponse to failures, government regulation is actually a cause.

The dependency ratio is more interesting. It's actually most appropriate for unfunded commitments, like almost all government programs. If a corporate pension is funded each year, and liabilities for retirees are invested in matched bonds, it really doesn't matter if there are 10 or .5 active employees for every retiree. This ratio does demonstrate the growth in Ireland and the coming issues for aging western countries. I'd recommend a video of demographer David K. Foot at http://www.footwork.com/video2.html if you're interested in the global issues. Not to re-start the immigration issue, but one reason the US is so much better off that places like Japan and Italy, is that our immigration keeps the dependency ratio from dropping quickly. As the Baby Boom does retire, we'll need not only immigration, but increased trade with fast growing economies, to keep our growth going. The other course is increased protectionism and less freedom.

There are products that are best produced on a mass scale, including insurance. However, governement is always a sub-optimal solution, and can never get better, only bigger.

Let me know if there other questions you have about global demographics or pensions.

toowm, thank you for your response. that is exactly the dialogue i was hoping for. unfortunately, i was too altered the nite you wrote it to even remember i had to come back to it. sorry about that.

i may not be productive as an activist when i'm under the influence of various things, but i was very productive on my fiction, which i have been neglecting.

i'm off to check out that video. what you're saying about private funds and their effect on the dependency ratio makes perfect sense. aside from wondering if you think it's valuable for you to spend a few moments writing a letter to the new yorker about what the article missed (which i think would be a good idea, if you do - let me know), i appreciate your consideration of the global economy and immigration.

i wonder what kind of wage requirements, if any, are conducive to true free market capitalism or if there is some balance required. again, i dont believe that any nation can be viable economically as either socialist or capitalist (no extreme really works, ever), but i find myself leaning more towards socialist means of ironing out the problems that capitalism can (sometimes) cause - power corrupts, money is power. any imbalance of money towards or away any common group will (i think) result in problems. i guess i'm not convinced that a free market can entirely monitor itself. but i'm interested in how this plays out globally.

to speak directly, i'm wondering if you believe that we can achieve greater freedoms via free market by creating a completely free market state within a nation - or dont we need to simultaneously consider the larger market?

again, i appreciate your response. i'm really interested in learning this stuff. i'm glad you saw the thread.

cheers,
f