Home > Uncategorized > Piketty and the pensions – take 1

Piketty and the pensions – take 1


Can we save enough for out future pensions? No, as there is not enough capital…
A) Superficial inspection of the graph above might suggest that Dutch pensions are safe. Aren´t the Dutch pension savings as a % of GDP the highest of the entire EU? And didn´t they increase quite a bit during the last two year, despite the fact that a considerable chunk of the baby boom generation  number of baby boom generation already has retired? But they are not save. The pension age is increasing with four months a year and will pretty soon reach 68 and in all probability 69, making a cut of 4 years or almost 20% of remaining years after 65 (men) and an almost 35% cut of reaming healthy years after 65… At the same time (in fact: coming April) premiums will be increased, again. Why is this happening when pensions savings are so high and pension funds managed a hefty 8% return on investments between 1990 and 2015? The answer is simple. Margins are increased. The Dutch (more precisely: the Dutch central bank who for some undemocratic reason can enact such laws) now want 130% covering of future liabilities, the interest rate used to estimate future return on investment (technically the present value of future liabilities) is getting increasingly lower and for some reason pension funds are not providing cheap but macroprudential mortgages with at least a positive interest rate to the people but are investing in bonds with a negative yield therewith financing the German and French paygo pensions systems. Be that as it may – even pension wealth of more than 200% of GDP is not enough to fund the Dutch no defined contribution no defined benefit pensions.

B) The answer to this might be to increase pensions savings even more which is what the Dutch are trying to do. But that´s not a good answer. Increasing savings will be in vain – at least on an European scale. As there is not enough capital. Of course, saving more will also add to the global glut of savings and depress yields. But you have to save something. And there is not enough capital. Since the work of Piketty – no, since economic statisticians started to measure the stock of capital, which enabled Piketty to write about this, look here for some recent Irish data.  And these data yield that, largely thanks to increases of house prices, or in fact largely thanks to the mistaken believe that when the implied price of land underlying houses increases for houses sold the value of houses not on the market also increases, the value of the stock of real assets is about 600 to 800% of GDP.  Pension funds can only invest in part of this capital, as most of these houses are privately owned. Of course, pension funds can and do invest in financial assets and the value of these financial assets is not simply equal to the value of real assets underlying them, as yields can be propped up because of all kinds of reasons, ranging from ´market imperfections´ to ´surplus value´ (or are these the same thing?). But there is a limit to the value of these financial assets, too, while 2008 should have told us that the market value of such assets can go down. With a lot. Even with 100%.  And do we really want pension funds to own 300% of GDP (that´s what we are talking about) in real and/or financial assets? Wouldn´t that make them too powerful? Aside – there is of course a ‘Ponzi element’ to financial assets as the government bonds owned by my pension fund were, to an extent emitted to refinance the banks whose shares are owned by the same funds. But a long story short – do we really want to own assets equal to 300% of GDP or do we find other ways to ensure that people have a decent pension, including a rise of the pension age but excluding the present strategy which will lead to massive expropriations of house owners by banks who, thanks to crises and deflation caused by these banks, are in arrears? (Look here for Greece, here for Cyprus, efforts to ease eviction in Italy seem are stepped up, too, but the IMF states that Italian banks should not evict and squeeze creditors but should write down and restructure debt and sell it, look here for Spain). Saving more clearly is not the solution. Raising the pension age is unavoidable, considering demographics. But if old people are going to cost us, they are going to cost us. Cutting pensions won’t make that problem go away. We’ll have to spend and use the un- and underemployed, and some redundant bankers too, to care for the elderly. And leave people in their homes – using solutions like ‘the right to rent’. And oh, productivity is rising at an about 1%  a year rate which, surely as this is partly caused by robotized washing of hospital beds, does solve part of the problem. There is not enough capital. But there are enough people and technological possibilities.



  1. Jamie Morgan
    November 27, 2015 at 11:33 am

    Steve Pressman’s new book Understanding Piketty’s Capital… might be useful for further context here – I’m halfway through a copy – very thorough


  2. November 27, 2015 at 1:41 pm

    Another eloquent discussion of how the present economic system does not work for lowly mortal humans.

    The solution already being followed world-wide is a gradual rise in retirement age until it is greater than average life expectancy. A logical next step is to forbid making children. They also are near worthless in modern corporatism.

    The human race is old and in the way, that’s what oligarchs say
    They used to heed the words we said, but that was yesterday
    Gold will turn to gray and youth will fade away
    They’ll never care about, cause you’re old and in the way

  3. November 27, 2015 at 4:21 pm

    It is obvious that natural grace as in monetary grace the free gift integrated into the debt based economy is the answer

  4. November 27, 2015 at 5:27 pm

    “But a long story short – do we really want to own assets equal to 300% of GDP or do we find other ways to ensure that people have a decent pension …?” [Or indeed livelihood].

    Short answer (having found another way): No! Not while robotised industry is reproducing more than we need and an “honest money” credit card system is available to distribute it fairly. An adequate income can be provided simply as a credit card limit, and debts generated by expenditure paid off with employer’s IOU’s or automatically written off to an extent appropriate to circumstances, e.g. as the infirm or elderly become too infirm to contribute voluntarily.

    I must say, after British experience of the 2nd World War, my biggest doubt here was of our ability to feed ourselves. A new TV series, “Tomorrow’s Food”, 9 pm on BBC1, is giving me serious reason to rethink that. The scale of its robotised food production is breath-taking. It does leave the question of what, then, are the people going to do. There is a short answer to that, too: timeshare! Of course we already do timeshare our own time: into years of education, work and leisure. I can imagine robotic production leaving us sharing domestic duties with seasonal maintenance work – in the towns, infrastructure and especially the countryside, with the young increasingly learning by shadowing the skilled workers and the old, as suggested, increasingly taking time out to volunteer their talents in their local communities. if anyone has better ideas, I’m all ears!

  5. BC
    November 27, 2015 at 5:52 pm




    US pensions generally anticipate 6.5-7% returns when current valuations imply 0-2% indefinitely hereafter (peak-to-peak average returns) before fees and inflation/deflation.

    It’s not hard to do the differential math for anticipated returns and necessary payouts, implying that pensions will have to be cut by at least 20-25% in the next 10 years and by at least one-third in the next 20 years, and probably much more.

    Alternatively, taxes will have to be increased to increase funding for pensions, workers will have to contribute, or contribute much more, or some combination of higher taxes, higher contributions by workers, or cuts in payouts and benefits.


    This will exacerbate the cost of gov’t and so-called health care to the private sector and worsen fiscal constraints that have already resulted in no growth in real gov’t spending per capita in the US since 2008-09.



    The recent equity bubble now deflating for the broad equity market, i.e., a bear market has begun as in 2000-01 and 2007-08, the corresponding contraction in net worth YoY, and ongoing fiscal constraints will cause a secular increase in personal savings, reducing further the implied rate of potential real GDP per capita from a rate currently below 1%.

    Hereafter, any increase in gov’t spending in an attempt to “stimulate” the economy will likely fail, as the bulk of incremental borrowing and spending will go to low- or no-multiplier spending for income support (Social Security, SSI, SSDI, food stamps, unemployment payments, etc.) and prohibitively costly medical services for Boomer elders and low-income households that are now a net cost to the private sector.

  6. November 27, 2015 at 7:16 pm

    I’ll be candid. I don’t give a damn about the economics profession, economists, or those to whom they swear fealty. I care a lot more about the future of the human species. And the former doesn’t seem to provide much help for the latter. The US GDP is about $17.5 trillion. The US adult population is about 245 million. That’s about $72,000/year for each US adult. About $145,000/year for each family, Is that not a reasonable way to split our “money” before taxing to pay for schools, security, services, healthcare, retirement, etc? Plus, it’s democratic

    • November 27, 2015 at 10:06 pm

      This response aimed at me, Ken? Glad you are candid, as I’m totally with you on your next three sentences! However, I’d hardly started along your line of thinking before I felt the need for motivation to do well, splitting your GDP fund between sufficiencies and prizes for good work. Those I split again, to provide increments for upskilling and once-off awards in lieu of on-going patent and copy rights etc.

      The GDP measure is a nonsense, as it doesn’t take account of rate of turnover of everyday essentials, which accounts for their low price [see Lonergan’s “Microeconomic Dynamics”], and therefore seeming insignificance as a proportion of GDP, despite their being essentials. [As I’ve commented recently, Jevons left essentials out of his account of marginal value].

      Since all the people providing schools, security, services etc are getting paid anyway, why do you think it necessary to tax people to pay them? If part of the cost of these services is for equipment makers and resources, the tool-makers and harvesters of resources are also getting paid. Since land ownership originated historically in conquest, theft and later denial of Christian precepts of responsibility for feudal and native communal tenancies, what moral right have today’s land-holders to charge for resources, as against compensation (along with others affected) for loss of their own way of living? With prices paid in IOU’s, regulation of depletion by price simply puts on record the indebtedness of the resource purchaser to the wider economy.

      At your second comment, below the cartoon’s dark humour: we are indeed “a society in darkness, physical and moral”. What sickens me is that, given what money now is (i.e. how it is created), all today’s senseless and cruel imposition of austerity is totally unnecessary: perhaps government misguided by incompetent professional economists, but more likely the Machiavellian war-game of a few cowardly would-be kings, who (after Charles I) now raise only puppets like Thatcher and Regan above the parapets.

      • November 28, 2015 at 6:15 am

        Dave, not aimed at you. I’m just generally fed up with economists and the profession. Perhaps you can help by giving some examples of how either benefit humans or the planet. Or maybe Geoff Davies is correct. “Sack” the economists and close their departments. I certainly am not opposed to Geoff’s notion. The Bible presents an interesting economics in Matthew 6:26, “Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they?” And long before capitalism, marginal economics, or so called “competitive, free” markets human strove to invent and create, and to work with one another. People like Jonas Salk demonstrate everyday that monetary rewards or structures are not necessary or even the best way to improve our lives and our societies. In the words of Salk, “I feel that the greatest reward for doing is the opportunity to do more.” This sounds nonsensical for many as they have been conditioned to believe that the more you do, the smarter you are, or the more you produce the more physical (monetary) reward you deserve. And I blame economists and their profession for much of this “brainwashing.” Even scarier, it may too late to reverse the process. A few days ago at a talk I gave one of the audience asked me the question Rush Limbaugh asked himself and answered. Are we expected to give up our wealth, everything we own to other people? The Christian answer, and as “Cat” Stevens notes also the Muslim answer is yes. Now that’s a very different economics than the dominant brand today.

      • November 28, 2015 at 8:22 pm

        “Capitalism is the “best” system to date devised by mankind. As it is administrated, perhaps, is where the “flaw” is manifested. If capitalism used its Central Bank properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be the best ways and means to help “form a more perfect union….”, Pontifical Council.

        There is a solution.
        Reverse what the Central Banks are doing; rather than making the rich richer have them…fuel the increase in wealth Equality and …” promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…””

        “Capitalism is an economic system based on private ownership of the means of production and
        the creation of goods and services for profit.[1] Central characteristics of capitalism include
        private property, capital accumulation, wage labour and competitive markets.[2][3] In a capitalist
        market economy, investments are determined by private decision and the parties to a transaction
        typically determine the prices at which they exchange assets, goods, and services.[4]”(Wikipedia).
        The greatest challenge to over come will be slung at you in a million ways,
        with millions of cries, “It can’t be done.”,
        “You will put us in unbearable debt.”
        “We will no longer be able to sustain our sovereignty.”
        So how will you create enough government revenue to create 3-5 million new jobs,
        reduce Federal Personal Income Taxes, increase Social Security, have Medicare for all
        and decrease the National Debt?
        THERE IS A WAY .
        While adhering to the basic principle-“The way and means for a ‘capitalistic sovereignty’ is to RAISE TAXES
        should they wish to increase spending.”
        Yet no one explains that there are “other ways” of taxation. There is a method available to us that is no only fair
        but also of such a magnitude that it could fund this great union
        to become…“…a more perfect Union, establish Justice…
        Simply a better, fairer taxation.
        No inflation or deflation for there is zero change in the capital value of the sovereignty.
        There is zero change on the balance sheet of the Central Bank; a true zero net change.
        If the Central Bank were guardian of the sovereignty value; made loans, then returned the exact value
        to the lawful owners (the entire sovereign group) there would be no debt – no net change.
        $100 trillion QE asset purchase with $100 trillion returned to its rightful owners while
        having $100 trillion as a revenue stream for Congressional appropriations.

        For any nation to be a Monetary Sovereignty….
        .. it must be the sole creator of its sovereign currency.
        …it must have the ways and means to control its sovereign currency for quality and quantity.
        …it must under modern money systems be fiat since its money is transferable “thru thin air”.
        …it must understand that it is the guardian of the value of the currency , if it wishes to be capitalistic; otherwise that nation will be totalitarian. As a guardian (recording and exchanging) it does not own the value of the currency it creates.
        …it must use that currency knowing that it must also return it back to the community (the rightful owners).
        …all transactions using sovereign currency must be “REAL”, meaning backed by 100% of issued sovereign currency. All that has been issued backed by “reserves” must over time be converted to loans from the Central Bank, the sole issuer of the currency.In order to prevent “systemic failure” it must make available the currency as loans at a fixed rate and duration in amounts deemed necessary to allow the private banking system to be solvent.

        “There never was an idea stated
        that woke men out of their stupid indifference
        but its originator was spoken of as a crank.”
        — Oliver Wendell Holmes, Sr.
        (1809-1894) American Poet
        Source: Over the Teacups, 1891


        In four books written from 1921 to 1934, Soddy carried on a “campaign for a radical restructuring of global monetary relationships”,[15] offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”.[15] While most of his proposals – “to abandon thegold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”.[15] Soddy wrote that financial debts grew exponentially at compound interest..
        When a honest Central Bank uses “QE” for the betterment of the community in a capitalistic economy, it will be the greatest system ever devised by mankind.
        Challenge: The difference between a HONEST BANK and what we administer now?
        “The Role Of Money” Frederick Soddy. FREE Download …https://archive.org/details/roleofmoney032861mbp

  7. November 27, 2015 at 7:29 pm

    With all this talk of later and later retirement with any reasonable income, this New Yorker cartoon seems appropriate.

    A society in darkness, physical and moral.

  8. BC
    November 28, 2015 at 6:33 pm




    Hyper-commoditization of existence.


    Winner-take-all distribution.

    Rentier parasitism as a high ideal type.

    Business as war and economics as the intellectual rationalization for the winner-take-all, exploitative global system.

    Increasing abstraction of (un)economic activities from the thermodynamic/exergetic/ecological limit constraints.

    Disease, debt, state bureaucracy, and war as growth industries, requiring more than 50% equivalent of GDP to sustain the uneconomic activities.

    The current ideal type global model for financial, economic, social, and political organization being the increasingly militarist, rentier-socialist corporate-state, i.e., fascism (with or without the friendly face).

    The hyper-competitive, hyper-financialized, war-like, winner-take-all values model, encourage, rationalize, and reward violence against nations, peoples, cultures, and ecosystems for plunder, profit, and hegemony.

    Now the world is facing the cumulative structural effects of Peak Oil; population overshoot; resource depletion per capita; deindustrialization and financialization; excessive debt to wages and GDP; peak Boomer demographic drag effects; fiscal constraints; loss of arable land, water, forests, and fisheries; climate change; and failed states and mass population migration.

    But there exists no emergent viable system to challenge the global Anglo-American and European, militarist-imperialist, rentier-socialist corporate-state and its competing versions in Russia and China.

    “Lookin’ good. Everything is f&$ked up as usual.”

    — Jim Morrison

    Same as it ever was . . .

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