[Satyajit Das] The old are eating the young Published : 2017-06-15 17:35 Edmund Burke saw society as a partnership between those who are living, those who are dead, and those who are yet to be born. A failure to understand this relationship underlies a disturbing global tendency in recent decades, in which the appropriation of future wealth and resources for current consumption is increasingly disadvantaging future generations. Without a commitment to addressing this inequity, social tensions in many societies will rise sharply. Central to the issue is that the rapid rise in living standards and prosperity of the past 50 years has been largely based on rising debt levels, ignoring the costs of environmental damage and misallocation of scarce resources. A significant proportion of recent economic growth has relied on borrowed money -- today standing at a dizzying 325 percent of global gross domestic product. Debt allows society to accelerate consumption, as borrowings are used to purchase something today against the promise of future repayment. Unfunded entitlements to social services, health care and pensions increase those liabilities. The bill for these commitments will soon become unsustainable, as demographic changes make it more difficult to meet. Degradation of the environment results in future costs, too: either rehabilitation expenses or irreversible changes that affect living standards or quality of life. Profligate use of mispriced non-renewable natural resources denies these commodities to future generations or increases their cost. The prevailing approach to dealing with these problems exacerbates generational tensions. The central strategy is “kicking the can down the road” or “extend and pretend,” avoiding crucial decisions that would reduce current living standards, eschewing necessary sacrifices, and deferring problems with associated costs into the future. Rather than reducing high borrowing levels, policymakers use financial engineering, such as quantitative easing and ultra-low or negative interest rates, to maintain them, hoping that a return to growth and just the right amount of inflation will lead to a recovery and allow the debt to be reduced. Rather than acknowledging that the planet simply can’t support more than 10 billion people all aspiring to American or European lifestyles, they have made only limited efforts to reduce resource intensity. Even modest attempts to deal with environmental damage are resisted, as evidenced by the recent fracas over the Paris climate agreement. Short-term gains are pursued at the expense of costs which aren’t evident immediately but will emerge later. This growing burden on future generations can be measured. Rising dependency ratios -- or the number of retirees per employed worker -- provide one useful metric. In 1970, in the US, there were 5.3 workers for every retired person. By 2010 this had fallen to 4.5, and it’s expected to decline to 2.6 by 2050. In Germany, the number of workers per retiree will decrease to 1.6 in 2050, down from 4.1 in 1970. In Japan, the oldest society to have ever existed, the ratio will decrease to 1.2 in 2050, from 8.5 in 1970. Even as spending commitments grow, in other words, there will be fewer and fewer productive adults around to fund them. Budgetary analysis presents a similarly dire outlook. In a 2010 research paper, entitled “Ask Not Whether Governments Will Default, But How,” Arnaud Mares of Morgan Stanley analyzed national solvency, or the difference between actual and potential government revenue, on one hand, and existing debt levels and future commitments on the other. The study found that by this measure the net worth of the US was negative 800 percent of its GDP; that is, its future tax revenue was less than committed obligations by an amount equivalent to eight times the value of all goods and services America produces in a year. The net worth of European countries ranged from about negative 250 percent (Italy) to negative 1,800 percent (Greece). For Germany, France and the UK, the approximate figures were negative 500 percent, negative 600 percent and negative 1,000 percent of GDP. In effect, these states have mortgaged themselves beyond their capacity to easily repay. A final revealing measure is the concept of lifetime net tax benefit, which measures the benefits received over a person’s life by calculating the difference between all taxes paid and all the government transfers that he or she has received and will receive. A 2010 study from the International Monetary Fund found that in the US the lifetime tax burden was positive (tax paid was less than benefits received) for all age cohorts above 18 years, with the largest benefit accruing to those over age 50. But the figure for future generations is negative (benefits received will be less than taxes paid), meaning they’ll have to meet the obligations of their elders. Such measurements probably understate the shortfall, as they fail to account for the cost of environmental damage or higher commodity prices resulting from resource shortages. Future generations will bear the ultimate cost of present decisions or inaction. As in Francisco Goya’s famous painting, “Saturn Devouring His Son,” today, the old are eating their children. By Satyajit Das
While I agree *entirely* with the premise, I also disagree entirely, with the conclusion. https://en.wikipedia.org/wiki/The_Ultimate_Resource
The problem is the least productive and lowest educated in society are having boatloads of kids while the smart and productive are having few or none.
What if.....The USA just defaults on its debt and starts over? (Bernacke..just numbers on a spreadsheet)
No need for default when we can simply decide what a dollar is worth. When you loaned it to me I was making $10/hr, but I'm paying it back with my $100/hr paycheck, same job same hours.
ehh... no handwringing here. Historically all governments default. It's good to work in the public sector while they are borrowing and taxing enough to pay you a fat salary and retirement for doing little to nothing. [other than the death of your brain from watching the clock] Arguably it's actually far better to get on the dole and have all your time for your own pursuits. It's good to have cash when the government's inevitable collapse comes and you can scoop up real properties. History repeats itself with precision actually, the only good adaptation is to be on the winning side of the deal, even while it is changing if you can do that.
You don't have to wait to buy the real properties. You can buy the property now, and pay them off with money worth less and less every day. Granted that you'll be paying interest on the money, but if you have tenants, they pay it off for you, and it becomes easier and easier to pay the mortgage as their rent climbs. Then in a financial collapse, pay off the property for the value of a loaf of bread.