Age here, is, at most, a second order effect. Productivity is primarily shaped by economic factors (incentives, technology, infrastructure, advanced training etc.).

Attitudes to change is a complex issue. Many of the “Green” antitechnology activists (nuclear, genetic engineeering, Transrapid train etc.) are quite young. Again, the basic economic outlook may be more important than age as such.

“increasing participation rates of younger women is of course very ‘doable’ with fewer children”
But the main problem is jobless older people (over 50) and very young people (often male) with poor schooling, and regional jobless concentrations.

Young parents (male or female) are quite likely to start working soon if good, affordable child care is provided.

And a population meltdown is a rather exaggerated risk. Even under pessimistic assumptions, Germany would remain a quite densely settled country for the foreseeable future.

“There are not many goods that a 25-year old can buy that he can reasonably expect to enjoy at old age

The obvious one is housing.”

Indeed

“This is why there is the boom. ”

What about the more conventional explanations for the housing boom (and its pending demise in Britain) ? What about interest rates, cheap credit, rising incomes, speculation etc. ?

As to policies, Bofinger thinks that the poor growth that Germany has suffered since the early 1990’s can be explained by conventional economic reasons, rather than demographics. Notably: poor domestic demand due too-high interest rates, a tax regime that penalizes wages, stagnating wages, what economic growth there is mainly benefits high-income groups unlikely to spend it, overrestrictive government spending etc.

Conversely, he claims that the better performance of the US and Britain is largely due to better policies on these issues, rather than to better flexibility, lower overall taxes and the other arguments commonly heard.

Greetings
Karl Heinz

—

All this will be useful at some point as I will do a post. I just haven’t the mental energy right now. Probably you can imagine why.

OK thanks for this. My own view I guess you already know, but:

“But there will also be 4.1 Million fewer Children. Net difference: 2.6 Million more dependents.”

This point is clear, but I don’t think reducing children and adding elderly is neutral. Even in cost terms the elderly may be more expensive, but leaving this aside the median age (or the average one) will rise and this must have implications for productivity and attitudes to change, as well as the average levels of eductaion, if you take into account stocks and flows, and the fact that young people need more and more years of preparation as a continuing trend in the knowledge society. So I think he is missing this.

“Getting them back to work would compensate increased number of old people.”

Well obviously, this is the Lisbon agenda, and the argument for labour market reforms, but better put: “Getting them back to work would *help* compensate increased number of old people”. Since I think understating the extent of the problem he then overstates the effect of getting people back to work. Still, it would be important if it were achieveable. I have my doubts since I think you may already be in a “double bind”. BTW increasing participation rates of younger women is of course very ‘doable’ with fewer children, but you need to watch the negative feedback effects of having everytime less children in the next generation, this would be ‘population meltdown’.

“Much of the discussion about pension systems is misguided. B. is a macroeconomist, and he argues that from a macro perspective, all pension systems are pay-as-you-go.”

If I understand what he is saying, I think he may be right. He is saying in effect that even private and fully funded pensions depend on the rate of return, and the stock market etc. This I agree, but I don’t think it helps his case. If we look at the very low yields which many (including me) think may be partly demographically induced (the global savings glut) then this itself means lower pensions. If this pushes eg hedge funds into riskier assets and this causes problems in the financial system, then this would be even worse. B?rsch Supan is interested in what is known as the ‘asset price meltdown issue’. The jury is out on this.

“There are not many goods that a 25-year old can buy that he can reasonably expect to enjoy at old age”

The obvious one is housing. This is why there is the boom. But with so many people buying, and prices being forced up so far (not, of course in ageing Germany and Japan), and less people coming behind to eventually buy them, one day or another this has to crash.

“Given the above, the only sure way to cope with demographic shifts is higher productivity in the working population, by technological innovation and getting the jobless to work.”

Well we would all agree with that, if it were possible. But what he doesn’t seem to get hold of, and you raised this on an earlier occassion, is the ‘boom generation’ issue (in Germany this might put maximum pressure what 2010 - 2015). Fiscal policy can be important in getting through *some* difficult years, but this recourse will only realistically be available as a weapon if you reduce the debt stock now. This is the Maastricht argument, and this is the one I haven’t seen him address.

If you want more on all these issues I have loads of references here:

http://www.edwardhugh.net/demography.html

I just think in the end that he is way behind the curve on where macro-economics is moving. Of course, being immodest, I think I’m in front of it :).

1) The problem is exaggerated if you look only at old-age pensioners as dependents. Children and teenagers are equally dependent on support. In 2030 there will be 6.7 Million more people over 65 than in 2000. But there will also be 4.1 Million fewer Children. Net difference: 2.6 Million more dependents. Still a substantial number, but rather less than the present number of registered jobless in Germany, who also are supported by society. Getting them back to work would compensate increased number of old people.

2) Moderate shifts in the pension system, e.g. in the entry age would eliminate the problem, if you take account of the total number of dependents. The ratio of 20-65/those over 65 old is 3.6 in 2001 and will be 2.1 in 2030. But the ratio 20-65/(below 20 + over 65) will only shift from 1.6 to 1.3, and if you put the pension age at 67 it becomes 1.5, essentially identical to present numbers.

As child care is mostly privately financed, but old-age pensions are paid by the public, these two topics get entirely different political attention.

3) Much of the discussion about pension systems is misguided. B. is a macroeconomist, and he argues that from a macro perspective, all pension systems are pay-as-you-go. This is obvious in terms of real goods and services. There are not many goods that a 25-year old can buy that he can reasonably expect to enjoy at old age. But it is also true in monetary terms. Say, the 25-year buys 40-year treasury bonds. When he cashes them in at 65, the state has to finance that through taxes, culled from the then-working generation. Similar arguments can be brought forward for any kind of financing support for old age. This means that all pension schemes are susceptible to demographic shifts. The question then is about seccond order effects: what scheme is likely to prove safe, effective, equitable and to best promote growth over the long term ? Many saving schemes do not pass that test.

3) Immigration of young, productive people would be useful, but is fairly unpredictable.

4) Given the above, the only sure way to cope with demographic shifts is higher productivity in the working population, by technological innovation and getting the jobless to work.

Greetings
Karl Heinz

It has been said that Germany needs to cut benefits and pensions. Actually numerically cutting pensions is political suicide and cutting unemployment benefits is also very risky and not increasing consumer confidence either. So raising the VAT is the next best thing you can do.

The regressiveness of that is overestimated because rents are not taxed and the reduced rate is planed to remain stable.

Thirdly, if it does reduce unemployment everybody profits eventually. Even a serious hope that it will reduce unemployment would help.

Yeah, kv is right here, consumption taxes are also regressive, since you pay them regardless of income. Sorry, I’m just not on this at the moment.

The intention is use the extra VAT revenue to reduce Jobless Insurance Payments.

But wage earners who pay jobless insurancce are not the only people who pay VAT. The jobless, pensioners, state officials (in Germany), non-working wives and children don’t benefit from the shift.

ps. About Iraqi deaths. Just count the number of deaths caused by anti American forces (including or excluding police etc.) If what the media reports is most than the answer is clear. Only in recent months are the anti American forces getting close

“for every % point you raise eg VAT a determinate number of jobs will relocate.” “Why, don’t see why..”

Ok, I own up, you’ve caught me, this is badly put. This is a point which applies to non-labour costs. The expression should have been written:

“for every % point you raise eg VAT a determinate number of jobs simply disappear.”

Why, because you raise the price, and following normal economic logic this reduces demand, a simple elasticity point. I could spice it up and say something like - indirectly firms will move out to lower production cost areas to maintain price competitivity, and avoid passing on the VAT - but it wouldn’t be honest. I just wrote the phrase too quickly without thinking sufficiently. Shoot first, ask questions later. Mind you my mind was rather elsewhere at the time.

While we’re here I also want to concede another point of yours which I never had time to get back to, the deaths in Iraq. At least I don’t concede, or not concede, I just accept that there are reasonable doubts, and we may never know, but if we ever do it will be certainly after the war, and the propaganda on both sides, has ended.

@ khr

“Bofinger thinks that Germany’s demographic problems have been exaggerated”

I think this is the point. I think it is he who doesn’t understand the significance.

“he discusses both the Maastricht criteria and demographics, tzhough I don’t remember him drawing a link between the two”.

I have only read the WPs and not the book. I was very surprised on first reading them since I thought I must have got it wrong so clear is the absence of any ageing connection in his material. So I went back to the sources, and of course, the link is quite clear. In the end I think he is dishonest. It is one thing to argue against something, and another to pretend it isn’t there.

I think this also puts his observations on Sinn in some sort of context. Sinn may be boring, and he may dramatise, but he is basically on the right track.

Why, don’t see why that would be the case? It is not like export have VAT on them.

khr, income is mostly earned and the non-wage part of income is the easiest to evade paying tax on.