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August 20, 2009

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An Xer

One thing for Boomers to consider: A lot of the unfunded liability issue goes away by yanking governmental retirement & medical commitments. It's a forgone conclusion. I would say I'm sorry, but you lay out the case of how the Boomers did this to themselves. I'm thinking of starting a company that will convert some of the midwest beef holding pens into Boomer retirement communities. Lowest cost of service wins.

passing through

The charts and stuff make a more quantitative case but even at a qualitative level you can step back a second and ask: "in order for this to work out there's a particular social arrangement that'd have to be made to happen; is it something that is going to happen?"

In the case of the mass boomer retirement the answer is basically "no": for the boomers en masse to retire healthily and comfortably is equivalent to:

- for a period of 30-40 years (as the rat moves through the python) the average adult between ages 25 and 65 (or so) is going (1) be doing work that throws off enough value to support that person, their 1.25 kids (approximately) and their 1.5ish surviving parents and (2) voluntarily sharing it with the 1.5ish surviving parents (and not just the 1.25 kids)

...which is a nonstarter; the only time we've seen anything similar was in the agricultural era, but that era is unrecognizably different (kids were a net asset for labor and so on, and people had scads of them; extended families often lived together to get greater economies of scale taking care of the young'uns and the invalids).

It doesn't matter if your plan to make that arrangement happen is called "social security" or "save and invest for retirement"; it's trying to make the impossible happen, but the impossible won't happen.

Consider the "invest and save" option and you start to see the futility:

- the elderly will have accumulated assets; they will need to be able to sell these assets for large amounts of money in order to buy elder-care services in order to stay alive. It is in the elderly's interest for (1) their assets to fetch high monetary prices and (2) their money going far.

For (1) you generally will want there to be lots of money out there chasing assets; the price of an asset is a function of what people are willing to pay for it, which in turn is largely dominated by what they *can* pay for it, which in turn is dominated by how much money is out there. EG: if you want your house to sell for $8 million the first problem is "is there anyone out there who could possibly pay $8 million for the house"; only if the answer is "yes" do you move on to "and of the people who could pay that much, would any of them pay that much for it?"

For (2) you generally want there to be not that much money out there; the purchasing ability of a fixed sum of money is inversely proportional to the amount of money out there.

Which is the conundrum: if you want your assets to sell for high prices you want there to be deep pockets out there (eg younger generations earning high wages); but, sadly, if you want your money to go far you want other peoples' pockets to be mostly empty, as in that case your money would go far further.

So this is the basic problem you'll see en masse as the boomers retire: the plan such as it was was to accumulate lots of "chips" (like at a casino) during the working years and once you retired slowly being selling them back then using the proceeds to keep yourself alive.

The problem is that the younger set en masse can't really buy the assets at the prices the boomers want to sell at, and this isn't a soluble solution:

- if the income of the younger set doesn't increase, hte prices will have to fall to whatever the younger set can afford, which is inadequate (a 3rd party like foreign investors could step in, but they're not stupid and can read the same tea leaves)

- if the income of the younger set were to become high enough to be able to buy assets at the prices the boomers want for them, then the boomers couldn't afford elder care from the younger set (eg: anyone who can buy your house at top-of-the-bubble prices is noone you could afford to hire as a giver of in-home sponge baths)

...which is just another way of stating the obvious: the desired social arrangement -- the thinly-spread post-boomer set voluntarily doing enough work to support 2-3 dependents on average -- is impossible, it's just that some schemes hide this impossibility if you don't think them through (like private retirement savings; social security is such an obvious impossibility I don't count it in the same light).

Eastern europe has lots of previews of what happens:

- the elderly need to buy elder care and exceed the younger set in #s by a substantial amount

- elder-care demand is inelastic and there's a very small supply of people willing to do it; this makes it easy to raise prices for elder-care faster than inflation (better to pay more than you can afford to stay alive another year -- even if you'll run out of money in another 3 years -- than to die early, eh?)

- since elderly are on fixed incomes and are faced with prices rising faster than inflation they are transparently insolvent and usually aware of it

- the easiest governmental solution is transfer payments (any fancier solution costs at least as much and is more visible; there is no solution besides muddling through bit by bit so you should go for the simple and invisible solution), so transfer payments are what happens

- the cycle continues as now the elderly have more money available and thus prices can be increased yet further

So the impossible happens, but only by shifting the goalposts: the young are still supporting many dependents, but mainly through sleight of hand (transfers + increased government indebtedness) and not necessarily voluntarily (those that remain in the country do so voluntarily, but given their druthers -- and the majority of the vote -- they'd probably stop the transfer payments, especially once their own parents have passed away). Many of the best and brightest leave; they may not explicitly consider themselves to be leaving for this reason -- referring instead just to some abstract notion of better opportunities elsewhere -- but the trickle continues.

To counterbalance this you can open up immigration wider than before; this works at the economic level but then you get cultural responses like you see already in most of europe (justified or not, it doesn't matter) and are dependent upon the predictable nativist responses not becoming sufficiently powerful to turn back that tide.

It's easy to throw the blame around but in some ways it's counterproductive. What you have is a basic coordination problem: any particualr individual can save for retirement and have it work out (barring catatrophic accidents, etc.); it's not possible for a large plurality of your population to do the same thing in a synchronized fashion.

Craig Calhoun

Think about how much worse this would look if the US were not attractive to immigrants and reasonably good at incorporating them into the economy.

mythbuster1

Methinks economists make this stuff too complicated.
1. Boomers will not retire en masse. Many will work to provide necessities, just like they always have.
2. Boomers will continue to invest just like they always have as greed trumps low/no interest in banks.
3.Healthcare reform(?) will eliminate the surplus of costly patients, young, old, and chronically ill, which will magically cut medical costs.
4. Americans have always been innovative and will always triumph over all odds. Yes we can.

Lynn

Here is what will happen. The working class boomers will go to there kids and ask for help or to stay at there house. Most of the people I know are in poor health from working jobs that make you sick. Since they will not want to worry anyone they will not go to the doctor. They will pass away on the sofa and be found by someone stepping over the other couch surfing family members on the way to the toilet.
This will not be at 80 years old. Working class boomers rarely see 70. Add to this the few vices the could afford like smoking , fast food and beer. 35 is our 40 rather then 40 being the new 20. I am all for people from Mexico, Russia and Laos coming here to build the new America. If yuppie boomers do not like it then they can go to hell.
Also, women under 35 will have many more babies once they see it's the only hope they have in there old age to live full lives. I use to have people get mad at me for having 4 kids but now all but one will be working by the time the first boomers retire. They will pay the bills and buy your house for me. Who's laughing now?
As for Monty Python skits I think "bring out your dead!" is more like it. The suburbs are going to need full time help for that. Read some Dickens and start brushing up on your Spanish Boomers! You need to know the phrase "But I'm not dead".

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Most of the people I know are in poor health from working jobs that make you sick. Since they will not want to worry anyone they will not go to the doctor. They will pass away on the sofa and be found by someone stepping over the other couch surfing family members on the way to the toilet.

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I use to have people get mad at me for having 4 kids but now all but one will be working by the time the first boomers retire. They will pay the bills and buy your house for me. Who's laughing now?

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