Thursday, November 17, 2016

The cost of immortality is about 20 Trillion in the USA

Bloomberg: In the James Room of the Renaissance Baltimore Harborplace Hotel, Erick Sager is demonstrating what happens when you admit that people die. Half-lit by PowerPoint, he explains that a seminal 1998 paper on the ideal level of government debt relies on an infinitely lived agent—it assumes that people are immortal.
This isn’t as crazy it sounds. A lot of macroeconomic predictions still rest on this assumption. It makes the math easier. Packed in the room with Sager are 19 Ph.D. economists from universities and government agencies, taking turns at the lectern. They’ve gathered for the annual conference of the National Tax Association. Infinitely lived agents certainly don’t sound crazy to them.
Sager, an economist for the Bureau of Labor Statistics, speaks in surprisingly plain English. He’s added to that 1998 paper, he says, “by relaxing the assumption that people are infinitely lived.” Economists call this a “life cycle” approach, and it produces a dramatically different result. Rather than hold debt, his life cycle analysis suggests governments should hold savings. For the U.S., that’s a swing on the order of $20 trillion.
Out loan/deposit ratio looks fine out to infinity because we can carry bit error out to infinite decimal points. Once we discover that we ran out of pocket change, eight years ago, then we pay the bit error suddenly.  Discover the bit error a bit sooner.

No comments: