A recent post (Why Social Security Can’t Work) cited an article from First Quadrant which argued that as a society ‘ages’ savings ‘become irrelevant’, only the ratio of workers to retirees counts.
I have met the same fallacy being expressed elsewhere.
A correspondent of mine cited the hypothetical example of an almost completely aged society, left with only one worker upon whom to rely – a man who, he argued, could not possibly want, or would be able to, purchase all their assets, or provide enough means of subsistence so the Oldies could live.
But disregarding even the simple solution which lies in an international division of labour characterized by the fact that there is no shortage of capital-poor, but very willing, new hands to call upon in the developing world, we should assume that Acting Man would - if left unhampered by the State - inevitably come to modify his behaviour as such fundamentally important data moved against his present pattern of spending and saving.
To say that if he and his contemporaries were to act wisely, they would be unable to forestall the supposed crisis, is surely to fall victim to an argument tied up in money illusion.
For, if the ageing populace were to save more and if those savings were to be productively invested in long-term, highly-productive, capital intensive processes correctly aligned with the savers’ drastically decreased degree of time preference, there would be no theoretical reason why that one, solitary worker could not get up in the morning and press the button which controlled the vast, humming robotic factory built and maintained with these savings, one fully able to satisfy all needs with the involvement of only his labour.
True, his labour would command a huge premium by dint of his scarcity (uniqueness even, in this hypothetical case) and that mountain of accumulated capital might show greatly lowered monetary returns (per unit, at least), but there is no a priori reason to suggest that sufficient real income could not, in fact, be generated this way to feed and clothe the grumbling hordes of Wrinklies still alive.
