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How to make us work longer, voluntarily!


1.      This presentation is about public choice theory

2.      I do not want to give an overview of the theory, more I will look at how to use it instead of classical economics theory (where one finds Pareto optimality etc) to solve political issues

3.      As an example I will use the pension age problem. I could have use popularising genetically modified food, or top-up fees. I will aim to show that they all can be made popular among people.

4.      To my mind public choice theory involves essentially “cheating” people and reducing democracy where it is not needed. Thus first I need to give an objective view of the present situation with pensions. Then I will go on giving a brief summary of how the situation is served to the people currently. In my conclusion I will try to draw broader political implications and put a bit theory back into the context. I am trying to minimise the time I spend on current situation, however, in order to appreciate the public choice, it is essential to understand its links to classical view. So do stop me in the first parts.

5.      Also I will use data for America

Present situation

1.      It is accepted that the pension system is facing very bad times as the moment. Just to give you some statistics:

·        20% of Americans think that the retirement system will survive by the time they reach the age. 45% of Americans believe in UFO-s.

·        PAYG- In l950 there were l6 workers for every Social Security beneficiary. Today there are 3.3. By 2030 there will be 2.

·        The coming Social Security disaster will make the savings and loan fiasco look like child's play...When today's 20-year-olds retire, they will receive pensions 50 percent less than those of today's Social Security recipients." researcher Walter Williams at George Mason University.

2.      Not that it is already at crises, there are still couple of decades to go before it bankrupts itself. However, people do have to plan for retirement, so one has to act now.

3.      Chile got a successful system. In 1981 Chile was facing the same problems we now face and changed its system.

4.      Solutions:

·        Privatise & reduce

·        Raise taxes

·        Raise retirement age

Presented currently & Current situation

1.      Politically unpopular

2.      Only radical websites

3.      People think it raises UE, unfair, no guarantees in stockmarket etc.

4.      America quietly raised age to 67

·        shorter payout periods

·        longer work careers will tend to increase the national productivity (but not per worker productivity)

·        longer work careers and shorter retirement periods will reduce the costs of funding pensions (or increase the benefits available during retirement years)

·        assuming that Medicare eligibility rises with changes in the normal retirement age, it reduces the costs of Medicare (both part A and Part B)

·        when compared to reducing benefits, this approach reduces the risks of "running out of" retirement funding by allowing greater social security benefits at a given level of expenditures during the latter years

There are no proposals that don't have some drawbacks. For this one, the disadvantages are:

·        it extends the period during which benefits are not available which can be especially burdensome on those laid off during the later years when obtaining a job becomes more difficult (age discrimination laws notwithstanding)

·        it increases the per-employee costs of employer-provided medical insurance as a result of an older employee population.

·        there are those individuals who, because of occupation and/or physical condition are unable to work to age 70. One would expect that there would be some increase in DI enrollment that would offset some of the anticipated savings in OASI.

·        It might raise youth unemployment


We have to fight all these things, because advantages are bigger than disadvantages from an objective point of view. However, no point explaining that to people. Thus presentation should be:

How should be presented

What would be popular:

1.      A recent national survey conducted by Matthew Greenwald and Associates says many Americans would accept raising the retirement age somewhat. They would also accept some tax increases to keep Social Security solvent. But they think most tax increases or other changes to keep the system solvent should be aimed at high-income people.

2.      Do not want a boring retirement

3.      Everyone wants to benefit from the system

4.      Flexibility

5.      Politically feasible

What to announce:

1.      Decent estimates (explain why now is good time)

2.      All age groups

·        Elderly more money

·        Middle ages – more money and option to retire earlier

·        Younger people guarantee on investment

3.      Make rich pay – guarantee only for lower incomes. The top 20 percent of Americans have 49 percent of the income and the top 20 percent have close to 90 percent of the financial assets. That's fundamentally wrong anyway.

4.      Promise a tax break in the form of halved national insurance pay

5.      Voluntary retirement whenever you want due to privatisation - More than half of American retirees already begin collecting Social Security before age 65. The average age used to be 68 for beginning benefits. Now it's 63.

6.      Firms cannot fire people just like that. (of course will be contracts, but don’t tell that to people)


1.      Outline goal-public choice-Political popularity-outcome

2.      Compensation

3.      Reducing democracy while doing

4.      I hope I have persuaded you

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