Friday, March 19, 2010

To pension or not to pension

Some countries are very careful about saving for pensions for future generations. Other countries have a "pay-as-you-go" system where nothing is saved and persions are paid by the next generation.

Until now it was fashionable to paint the first type of countries as responsible and the last type as irresponsible. However, the recent fracas about the trade surpluses of China and Germany puts this saving in new light. It looks like the world cannot sustain it if every country would save for their pensions - it will result in too much saving and too little consumption. And with the ageing of the world population this problem is only becoming more acute.

It looks like we will soon have to tell countries that it is irresponsible when they save too much because it harms the rest of the world.

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