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Criminal defense in Austin Texas.

Nations Can’t Save

Posted By on January 5, 2009

Not long ago I read another one of those articles about how Americans don’t save enough.

Which got me thinking about something I read a long time ago – that nations can’t save.

Consider:

Suppose there’s a country where everyone is the same age.  All their lives, the people work hard, and save.  They accumulate stocks, and bonds, and real estate, and cash and bank accounts.  And then they retire.

What will they buy with their money?  To whom will they sell their stocks?

Or, suppose there are young people, just not as many as those who are about to retire.  The old ones have piled up savings, and expect to retire based on their wealth.

But when they retire, who will produce the goods and services they expect to consume?  Who will do the cleaning, and build the cars, and put groceries on the shelf?

The remaining young people will have to do it.  But if there are few of them, they will not be able to make the same quantity of goods and services as before.  The demand for those goods and services, however, will go up, as the elderly liquidate their savings in order to consume the goods and services they’ve put off consuming until now.

There are are two ways this can play out.  Either the price of goods goes up, or the value of assets declines.

Either way, savings are wiped out, in proportion to the number of young people relative to the elderly they’re expected to support.

All of the goods and services people hope to enjoy in the future must be (for the most part) produced in the future.

Saving up pieces of paper does nothing to change that.


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