[Pen-l] PK on the Madoff nation

["McDonough, Terrence" <terrence.mcdonough@xxxxxxxxxxxx>]

>This statement seems based on the standard demographic delusion that
inflict discussions of OASI: to support the growing retired
population, we need more and more young people to pay into OASI (or
higher tax rates). Or maybe David is saying (without explanation) that
more and more contributors are needed even _without_ the demographic
shift? Either way, rising labor productivity (real GDP per person) can
finance OASI without a growing number of contributors (or raising the
tax rate). Rising labor productivity raises the tax base without the
need to raise the tax rate or the size of the labor force.<

This is close to part of the heart of the matter.  If you regard workers and retirees as separate groups at some point in the future it is undeniably true that increasing consumption (of a given existing output) by retirees must lower the consumption of workers.  This is true whether the workers spend the proceeds of 401(k)s or Social Security checks.  The defense of the 401(k)s is that past savings have allowed investment in capital which has increased output (or the productivity of labor). 

Terry
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