October 12, 2016

“BAD LUCK:” Innovation Falls, and Retirees Pay the Price.

Growth-wise, the world seems to be in a little bit of a rut.

Oh, sure, we’re OK. We just don’t seem to be going much of anywhere. Global production has recovered somewhat since the catastrophe of the financial crisis, but it didn’t bounce back entirely. Instead, we’re staggering along at a noticeably lower rate of growth, both abroad and at home.

What’s going on? One theory is that this is simply the aftermath of a financial crisis. We had a lot of malinvestment, and now we have a lot of fiscal and monetary problems to work out, and as with a bad illness, it’s going to take a little time for us to get back to 100 percent. A more worrying theory is that this may be the new normal because of the developed world’s aging populations. And that’s especially bad because when the population is aging, that’s when you need growth the most.

Most developed nations have made enormous promises to their elderly populations — promises that they could continue to live in the style to which they had become accustomed during their working years. Those promises were easy to fulfill when the ratio of workers to retirees was, say, five to one. As that ratio collapses, it gets harder and harder, because each worker has to devote a larger and larger fraction of their income to supporting another nonworking adult.

A simple numerical example may illustrate how important growth rates are to an aging economy.

The problem is, the policies that are conducive to growth offer insufficient opportunities for graft.

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