From: Robin Hanson (hanson@econ.berkeley.edu)
Date: Thu Apr 22 1999 - 10:54:20 MDT
Billy Brown wrote:
>I think the question is, given:
>
>1) A future in which lifespans become very long (>200 years).
>2) At least reasonably good (by current standards) economic conditions.
>3) A population in which a majority of people over age 50 wish to retire.
>
>Is there anything we can say about the likelihood of their being able to do
>so? We can readily see that compound interest will allow individuals to
>amass substantial sums of money over the course of several decades, so with
>decent interest rates the answer would seem to be yes. However, it was
>suggested that such a large pool of savings might cause interest rates to
>collapse, due to a relative shortage of profitable investment
>opportunities.
To an economist, this is still awkwardly asked. If they wished to retire
badly enough, they would, and just live poorly. But retirement is not
directly what people want. They want to consume stuff, and to avoid boring
work, just as they always have. If we took today's life cycle and expanded
it by a factor of five, from 60 years to 300 years, and personal discount
rates and interest rates fell by a factor of five, then you would expect
the same life cycle behavior, spread out over a longer time. People would
work till ~300 then retire.
The question is what, if anything, would break this scaling hypothesis.
Wealth probably doesn't much. We still work most of our lives, even though
we are vastly richer than our ancestors. Personal discount rates might
well not scale though. Evolution seems to have hard coded in us a discount
rate of a factor of two per historic generation time of ~25 years. This
suggests interest rates won't fall below ~3%, unless our subjective sense
of time is changed somehow. This is what suggest earlier retirement.
Over 200 years, the economy could change a lot. But assuming we don't run
out of technological progress, then there should continue to be lots of
profitable investment projects.
With rapid population growth as now, the 100+ year old folks would be a
small fraction of the population, so folks could retire at 100, and live
off savings for the next 200 years, without distorting the economy much. If
most of the population were retired, however, we get the problem of what
exactly did their savings buy to let them consume so much. Most income
(~70%) is now from labor, so unless we get AI, or the economy changes
drastically to more favor other forms of capital, then the old folks need
to "own" lots of labor income of younger folks to make this work. Absent
slavery, you'd need young folks paying off debt from loans used to develop
their human capital, or some such.
As usual, the right thing to do here it make one's assumptions explicit,
put them in a simple economic model, and see what happens that way.
Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar FAX: 510-643-8614
140 Warren Hall, UC Berkeley, CA 94720-7360 510-643-1884
after 8/99: Assist. Prof. Economics, George Mason Univ.
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