A recent post on the excellent Flipchart Fairytales’ blog highlights the incoming bulge of would-like-to-be retirees currently aged from 45 to 55. Not only are they numerous but they have under-funded pensions.They are not heading for a comfortable dotage.
We can also foresee an increasing problem with joblessness among the low- and semi-skilled. The continuing decline of the traditional mass employment industries, an increase in automation and continuation of off-shoring of semi-skilled work will all contribute.
A happy coincidence?
These two problems look to be made for each other: the woe of the badly retired could be relieved by the existence of a supply of low-cost labour; the scarcity of jobs could be relieved by demand for provision of goods and services for the old. So the market will take care of things then? It’ll match up demand and supply and solve both problems?
No, it won’t, because demand in this case is very strictly constrained by the ability to pay: it’s highly inelastic because the consumer, the old people, don’t have any money.
To be clear, the issue is not one of the mechanics of provided services. It’s an issue with a marginal change (albeit a relatively large change) in the nature of the requirement for services. The solution needs only to be a balanced marginal change in the cost of supplying them. Moreover, this applies not only to direct caring services but to the surrounding supporting economy.
Without money
There are a handful of obvious ways to address this, aside from just doing nothing. You could give money to the poor retired folk which they can use the pay the hitherto under-employed via a private sector market. Or you could give money to local councils who then provide services to the poor retired, free at the point of supply.
Both of these options require money up-front. It seems unlikely that a government in this timeframe would be willing and able to do this. A great deal of sop-called electability seems bound up with the nation of constraining and reducing the deficit; a government that willfully increased it wouldn’t be a government for very long.
There’s also the option of made-up money; money that the government just prints and hands out. This is closely related to quantitive easing but rather than giving the money to financial institutions in the hope that they’ll lend to to businesses thus lubricating the economy, it’s given to individuals or small companies in the hope that will do a social good and also lubricate the economy.
The problem with QE in any form is that either it doesn’t work (because, for example, the banks just hoard the money) or it causes inflation. Neither case is desirable and neither is the long-term solution to a long-term problem. Providing social care to the elderly poor is not something that just needs bump-starting, they are permanently under-self-funded.
Another options might be to subsidise provision of goods and services for the old by non-monetary means. Or, rather, by deferred monetary means.
The fiduciary issue
Of the various places that working people should be putting money, a pension is potentially one of the larger ones. However, to almost everybody the size of their pension fund is just a number. It’s a pot of cash locked ways and inaccessible until decades in the future. As such, the promise of a certain amount of money in that pot is very nearly as good as actual money. Depending on the promiser and the fund performance, it might even be better.
An employer could make that promise but it wouldn’t be worth much; corporate pension chasms stand testament to that. A government could make that promise. In short, a government could subsidise the provision of goods and services for the elderly poor with the promise of money in the future. This is a monetisation of the social contract.
It needn’t even be a pension fund. It could be an childrens’ education fund. It needs only to be time-locked.
Doesn’t go bang
The upshot would be that one part of the government would owe another an undetermined amount of money, due at an undetermined point in the future. Sounds dangerous. However, it represents one big timebomb being defused at the cost of creating others. The advantage here is that the first one doesn’t go off, or goes off more gently. The disadvantage is, as with so many things, mortgaging the present against the assumption of a better more prosperous future.
Inopportune thoughts 