Sustainable Aging

Japan is the oldest country in the world, and 32000 people are going to turn 100 this year. I see long lives as a good thing. People can share their experience and knowledge with younger generations and help in material ways as well.

The issue with this starts with how we have managed how people get wealth in their latter years.  Historically of course this had meant that seniors get a pension from their company which pays them out of future profits until they die. This is the classic putting your all of your eggs in one basket. Fortunately the future of this is knocking to last forever the old pensions of your our dying as people have pensions die. In the future my of the generation born in the 1950s and 1960s is going to see billions of seniors across the world owning capital in corporations across the world this a going to be at least 1 billion people within a few decades as they are retiring. The difference of this is going to make is first of all the more distribution of wealth because many pensions are not inheritable upon someone's death and you can't really say I have Y amount of money in the pension the way you didn't say I have X amount amount of stock in Google or some other company. The reality is that the richest families of in the world have become rich because they own capital. And the middle class until the 1980s did not have inheritable assets beyond maybe their house, and even in the 2000s the cost of Housing did not go up as much as the stock market, and has not recovered at the same rate since the great recession. All of this means that in 30 years we won't have the same pensions coming up for seniors at the rate we are having today. This is caused because in the 1930s when these programs were made they didn't expect such a huge revolution in healthcare, which is due to things like antibiotics chemotherapy and countless other medical discoveries and inventions over the last 50 years. This has made it so that life expectancy has increased from 59 to 79. Programs were designed with the idea that less than half the population would retire, however today most people will retire yet our Public Safety nets have not evolved to face this massive change.

In the long run assuming that we continue to have technological growth this problem will go away because of this change in retirement plans. The question today is how do we survived with this existing system over the next 30 years as people born between 1920 and 1950 are in retirement. I do not know how we are going to survive as pensions stop being paid out to people. It is going to be a very difficult time for developed countries with such systems. If we chose to front load the pension plans in capital which will grow in value until they die we will be pulling money out of current Investments into the younger generation. This will have gigantic long term costs as we have less money for education or be pulling money out of the economy today for people who are not currently working for creating any real value. That is the problem as I see it. It is not that's we cannot afford to pay pension retirees but more that we are pulling money out of current economic growth to support people who have never consulted a financial advisor or Economist in their lives. This reduction in investment is why pensions reduce our GDP growth. At least with modern retirement plans that's money is being used by the private sector to invest in the future which is why it is fundamentally different from pensions and why 401k plans are sustainable while pensions are not.

In most of my posts I and with an uplifting note of a solution to the problem. The solution has been found and it is that retirement is now based on capital, but in this case I do not know how we can take care of the promises made by my great great great grandparents generation without massive costs to my generation and my children and grandchildren's generations. The private sector already solve the problem as best as is possible today (as I see it) without breaking the promise and leaving seniors out on the street without what they were promised by their grandparents.

http://www.independent.co.uk/news/world/asia/32000-people-in-japan-turned-100-this-year-and-the-economy-cant-keep-up-a7315001.html?cmpid=facebook-post

Balance between investment and expenditures

One economic principle I recently discovered is the theory that there is a balance between investment and expenditures in a society and somewhere on the range where each is 100% going towards investment or expenditures, and in the middle there is a balance where there is both investment in new companies and expenditures in older companies.

First, some background.

Both investment and spending are critical for an economy to run. When a company begins it needs money to put together its capital to start a business, storefronts, materials, etc. This money comes from angel investors and banks. For the angel investors, they usually get stock in the company, and banks receive the money back plus interest. This is the easiest and most effective way to create an environment where businesses can start.

Once the business has hit the ground, it needs customers. At this point in the business' development while they might occasionally take out a loan, most growth will come by selling its services to customers. Most businesses will be marketing to individuals for a whole range of services. There are fewer cases at this point for taking out loans, though issuing stock is often a good way to get cash for future growth. Sometimes corporations will buy up their stock when the price is low (or that of another corporation) and then sell the stock when it is higher which is an extremely efficient way to make money to grow the company. The number one goal of a corporation is to generate income for its owners, and this is historically done most effectively by building a trusted brand with long-term employees because turnover is costly. When an employee has a literal stake in the company, he/she has an incentive to create returns for the company because he/she will receive a personal benefit for increasing the company's value, and has a smaller incentive to move to another job, which is mutually beneficial for both manager and employee (who are both owners in this scenario). This is one reason Microsoft and other technology companies are so successful, people have few incentives to move between those corporations because beyond making a large salary as a programmer, people working for these companies often receive stock as part of their compensation. They make the owner's interests tied in with the employee's interests and levels the playing field, which benefits everyone involved.

In order to make certain that an established company can keep growing in the long-term, it needs to ensure that it has a great product that people will keep buying, and have a competitive edge over their competitors. If a company makes poor products, people will stop buying it. That is a major reason why the American car industry collapsed in 2008 because they were not competing with Toyota et al from Japan and Korea. The customer must come first, it is in the interest of everyone involved because customers can always shop somewhere else.

On the macroeconomic level, the policy maker needs to look at it with an incentive to grow the economy, and whether he/she looks at it from the business owner's perspective or the customer/employee's perspective, the answer is the same. People need to have enough money to buy products. If this is forgotten than there won't be money flowing through the economy so businesses can grow, and this means that people who work need to be paid a decent amount of money. Not only will it reduce turnover (read costs) for businesses which increases the medium-term bottom line, but it will create an economic system where social mobility is more prevalent and that people will the ability to create new products and businesses which is how innovation works best. people will have better products at lower costs because of competition. Companies will be easy to form, and if a company is doing really poorly than bankruptcy will be an option whether it is a restructuring or dissolving the whole company. Everyone benefits financially in the long-run from an economy where innovation is high and people can purchase new products.

In conclusion, it is important to realize that both investment and consumer spending are critical to maintaining a high quality economy, and economists, politicians, and businessmen must realize the balance that is economics.