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Thursday, July 10, 2003

On Saving Tomorrow's Spending Now

Well I promised it was going to be Robert Shiller day at Bonobo, so I guess it's time I tried to prove I'm up to my word. But actually the protagonist here is Joerg, not me:

Here is a book to think about.

Paradoxically, I feel that the basic concept is very, very wrong-headed but one of the implementations proposed by Shiller is identical to what I would prescribe (the topic in question is "Intergenerational Social Security: Sharing risks between Young and Old"). I just cannot understand why it is so hard to grasp that the paradox of thrift also applies to the different states of the economy along the timeline. You cannot efficiently save tomorrow´s spending now other than effectively reducing investment. If all "present futures" (I am trying to translate Luhmanns "gegenwartige Zukünfte") try to ever more efficiently save, any future present ("zukünftige Gegenwart") will effectively have less to spend.

The implication of an increasing lifespan therefore is not - as Malmberg claims - inflationary: because people do anticipate the future, it is short-term deflationary. After deflation has run its course, however, investment does pick up and ensures that technical change cancels out - make that: overcompensates - the inflationary effect. Could we become richer by not investing in old people´s well-being? No. Deciding to go that route would imply to deplete those motivational resources that drive individuals to invest ever greater amounts of time in study, scientific research and business development. There will surely be at least one civilization on earth whose members are smart enough never to forget this truism.

Also look at Henry Farrell's post about L. Sprague de Camp. Maybe you should read de Camp´s novel. After all, Einstein started out trying to figure out what it would be like to ride atop a ray of light.

The difficult problem does seem to be: just how long will deflation need to run its course. Simple answer: I've no idea. I think Joerg is right here that Malmberg has got it wrong, but with good intentions. Also he doesn't consider the role of credit, and that I think is a big omission. On technical change cancelling the problem out, I'm going to duck the point till I get back from playing ethnographer (late next week) since I also have a query from Eddie along very similar lines.

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