----- Forwarded Message -----
From: Gunnar Tomasson <[email protected]>
To: [email protected]
Sent: Wednesday, 10 October 2012, 13:53
Subject: [gang8] Pension economics 101
Dear Gang.
“Iceland’s pension fund swims in the ocean around the country.”
Or so I put it in a conversation with two leading Icelanders thirty years ago.
One, Guðmundur (Gvendur) jaki (the strong) was the leader of Dagsbrún (Dawn),
the union of Reykjavík’s day laborers.
The other, Ögmundur Jónasson, was the head of the Union of State and Municipal
Government Workers.
Currently Iceland’s Minister of Justice and the Interior.
My point was this:
The Icelandic people live on what they produce – directly and indirectly
through trade with the rest of the world.
And how does “money” and “savings” etc. come into the picture?
In any number of ways, BUT it does not change the central fact of the matter:
A “pension” is a claim on current output without matching contribution to its
production.
In the old days, family took care of its elders and community took care (or
not) of unfortunates.
Now, monetary arrangements have been put in place to supplement such old-style
“pensions”.
And, not surprisingly, mainstream monetary thinking has screwed up in this
respect as in most others!
Ignorant of an essential fact:
In entrepreneurial market economies, profit and interest on production credit
has one – and only one – ultimate source:
FINAL DEMAND INFLATION – New money created to inflate Final Output “Value”
above its Factor Supply Cost.
A means of placing nominal purchasing power in hands other than those of
current Factor Income Recipients.
If Factor Income Recipients put some Factor Income aside for future use, NEW
money creation in an equal amount must take place.
Or else Nominal Demand for Final Output will fall short of the Factor Cost of
Final Output by the amount of such “savings”.
If at some future time, such “savings” are activated to purchase Final Output,
the effects are identical to those of NEW money creation.
There are myriad aspects to all this, but one thing is crystal clear:
A pension is a means of reaping where one has not sown.
It puts a chicken in one’s pot by shorting current chicken producers.
Gunnar
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