I studied at the Budapest University Of Technology And Economics. Apparently they made emphasis on teaching economics to first year engineering students.

Defining investment and savings as transfer across ages is not the common explanation. This theory in Central Europe is rarely described in Anglo-Saxon economics literature.

Otto von Bismarck German chancellor introduced the pension system taking care of the elderly and the disabled first. It is the basis of the social democratic idea of the caring state providing pension, healthcare, workman’s compensation, and disability insurance. Interestingly it was implemented by a conservative Prussian politician in the late nineteenth century.

Sadly, such facts are not the first that come up of Bismarck by a Google search, a Mountain View, California company. This justifies an antitrust argument of the need for more search sources, and diverse, accurate results for different usage scenarios.

Where do savings come from?

federalfunds

Copyright© Schmied Enterprises LLC, 2023.

The theory states that it is not groups, families, or households that are the basis of society, but the individual lifetime. It is probably a more social approach. People tend to have excess income in the middle of their career. They consume less, save, pay more taxes, invest and support people, who are early in their career, studying, or retired. This limits investment to a portion of GDP.

Why is that? You are not expected to have much money when you are young. This puts less pressure on the previous generation to support the next. The system assumes that you start your career with zero savings and low wages. You gain as you study hard and make more value with the same amount of working hours.

Elderly on the other hand tend to retire after the age of 65-70. This limit is usually set by the government. Any income they have after that point is from investments, and government pension.

The theory says that savings and less spending helps to direct the resources from working families to the retired and the students.

I see the caveats of this social democratic idea of resource redistribution. The elderly tend to work longer. My grandmother worked until age 74.

Also, redistribution reflects a more reformist idea of enforcement state rather than basic services provided by the state. Look at the pandemic as an example.

A more conservative approach is the American way of the state providing services just like common defense, or pursuit of happiness. Such a state is just another bidder on a free market for most services. People may rely on government defense, or protect themselves using the famous or infamous Second Amendment.

What is the point? A Universal Basic Financing approach of modern central banks provides pensions, healthcare, and insurance in a conservative, free market approach. Pensioners and elderly are full-time consumers in this approach that provide demand to create meaningful jobs. These jobs get the financing from central bank funds proportional to the population elderly and the caretakers. The money is paid back by caretakers in higher taxes and consumption creating even more jobs.

Problem. A doctor’s spending and taxes takes care of not just their own, but their patient’s payments.

Solution. Indeed, should the elderly default when deceased the system would have high risks and rates. Their consumption generates a good GDP impact with multiplication effects. Should they use their savings, the system would end up with higher savings, and less consumption. This causes higher risks, higher rates, lower GDP. They are still taken care of.

Problem. Personal savings are rather adjustments to the central bank credit money than primary investment.

Solution. Indeed, a free market approach of retirement allows investment banks to borrow and lend, setting the economy on a stable growth path. Individual savings act as venture capital and angel investor money to either compete with central bank money to smoothen growth across generations. Fluctuations will be less.

Savings will require about half a career lifetime of 40 years as 20 as a typical price to earnings ratio. This means an investment pays off entirely in 20 years on average. Sometimes personal savings become a stick and carrot feedback to individuals or groups across generations by withholding them.

Problem. A more reformist approach of save for retirement lowers the GDP.

Solution. People will save not just based on the price earnings ratio of the companies. The rate asked for depends on individual career paths, and expectations. There is more risk, higher rates. Expected lifetime may vary, savers will naturally push savings up. Extra savings may become inheritance making the unit of society the family rather than the individual with the state. Inheritance is pointless for the deceased, it is unexpected for the family.

Divorce ratios increase the risk of retirement age, and increase rates even more. Savers will insist on limiting central bank funds requiring higher down payments and mortgage rates from families waiting for childbirth. Higher rates and limited money supply will lower the GDP and cause inflation. A recurring pattern of high inflation periods will become the negotiation across generations about the value created and the services required by each age group.

The higher the risk, the government becomes a Bismarck style enforcement state. Cracks are opened across generations weakening the democratic institutions. Age and ethnic groups may use rates as stick and carrot feedback to individuals. Bismarck’s reformist enforcement state failed with the weakened Weimar Republic just about ninety years ago. Paul von Hindenburg, the second elected president of the Weimar republic died in 1934.

The author of this article was also a witness of the adverse side effects of an antibiotic suffering from constant pain for three years during the pandemic while underinsured in services, but not underinsured in payments. It was a character forming experience. The antibiotic has a similar fluoride atom at the edge just like sarin, that gas was used to kill hundreds of thousands of European servicemen during WWI. Side effects include tingling from pain in all limbs, tendon rupture, spasms, sometimes amputation.

The current German Federal state has a strong currency driven by The Free Citizen, demand and supply, fluctuating prices, free market standards driven by the ECB in Frankfurt today. Demand and supply based clear accounting and free market approaches are less risky and useful for the entire society regardless whether pensions are paid by the government or lifetime investments.

Dickensian stick and carrot feedback to individuals by artificial intelligence is so last century, even if it is just a mere annoyance from a hacker.

ad1

This article was revised on November 2, 2023.