Saturday, January 6, 2018

Economics: Are The Old Really Eating The Young?

(Drivebycuriosity) - What was the stupidest headline of 2017? My candidate is a headline I found on Bloomberg: "The Old are eating the Young" (bloomberg). Holly Cow!

Satyajit Das, a regular Bloomberg commentator and the writer of the article, claims that the "old" are consuming too much and reducing so the living standard in the future - eating the "young". He´s wrong. Every machine, every factory, road, airport, university was created and financed by "the old". They saved a part of their incomes and invested it into the economy, into machines, factories, roads, airports, universities and more. By saving & investing they created the capital stock - factories, infrastructure,  technology & knowledge (human capital) - which is the source of the wealth we enjoy today. Without investments in the past, the savings of the "old",  their would be no incomes, no wealth, no economic growth. We all would be hunters and gatherers.





                                                           Useless Eaters?


Das laments that our society spends more money that it earns today and so is accumulating too much debts. These are loans on the future which have to be repaid by future generations, the "young". But these debts are mostly covered by the accumulated capital stock, including human capital, which generates economic growth. With an economic growth rate of annually 3% incomes double every 24 years (thanks to the compound interest effect). So in the average life time of the "young" they can expect to at least quadruple their income (GDP per capita) - a huge gain of wealth. Debts relative to wealth & income are shrinking and economic growth, initiated by the growing capital stock, is paying the debts. The prospective income & wealth gains are anticipated in the all-time highs on the stock markets, which reflect expected company earnings (discounted with an interest rate).



The graph above shows that we live in an accelerating world (accelerating). Almost everything is moving faster over the time. The acceleration process is caused by accumulation of capital (human capital plus physical capital) ergo savings & investments of the "old". Today we are experiencing a new industrial revolution. Rapid advances in software & Internet (including cloud computing), robotics, 3D printing, nanotechnology, genetic engineering and other technologies are all reducing costs, raising efficiency, lifting the productivity of the economy significantly and are creating new markets. The young will very much benefit from the acceleration process and the global wealth gains. They will have a higher standard of living as people today, the "old". It is just fair to participate the "old" on the coming wealth gains by taking some loans on the future.

The author also complains that the number of retirees is rising, a "growing burden on future generations" (sic)! His complaints and the headline "The Old are eating the Young" remind me of the Nazis who wanted to get rid of unwanted people: Homosexuals, communists, gypsies, Jews, artists, bohemians, nonconformists. The fascists called disabled people "useless eaters" ("unnütze Esser") and they eliminated them. The elimination program was called "euthanasia".

It seems that Bloomberg turned into a platform for economic illiteracy or worse.

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