RE: Re: RE: RE: Re: workers' saving & Marxian polit ical eco nomy

["Devine, James" <jdevine@xxxxxxx>]

Michael Perelman writes:>Jim, I don't think that the life cycle theory works
for the rich.  They save and then they continue to save in old age.<

you're right; I was wrong. It's the framework of forward-looking consumption
choices and the like that apply to the rich. The permanent income hypothesis
fits the rich well.

If you take the life-cycle hypothesis literally, a very wealthy person
doesn't save at all. He or she simply takes a billion dollars (assumed to be
the existing stock of wealth wealth) and divides it by the number of years
expected until death, with a margin of error for uncertainty, to determine
the amount to consume each years. There's no reason inherent in the theory
why anyone would leave bequests (except for silly theories like that of
Barro). Neoclassical theory typically assumes people don't care about
others, though of course they could always make an alternative assumption in
the typical ad hoc way.

The LCH also doesn't seem to apply to old people very well.

I think that rich people are taught how to behave: for example, they go to
Phillips Exeter or some other prep school to learn "never to dip into
capital" and to live off income instead.

Jim Devine