Economic Policy in a Demographically Divided World

Abstract

Practical questions of economic policy are sometimes solved by methods of Uncle Scrooge, in other words, by defining the problem away. The economic policy consequences of ageing are a case in point when it comes to solving problems by definition. The problem of financing expenditures on social security during periods of demographic change has until now been approached in a rather pragmatic way by governments and their advisers. The lowering of benefit levels, an increase of the retirement age, an increase of the social security premiums c.q. tax rates or simply the promotion of fertility, are all policy options which have far-reaching consequences for the intergenerational distribution of resources and economic growth. Of course, such solutions do not conform to economic principles but to principles of accounting. Foresight should be the essence of government. The principle of dynamic economic policy is that one has to make a choice between scarce means to achieve given ends over a certain planning horizon. Decisions about the choice of particular ends is not an economic subject, it belongs to the field of ethics in the case of normative questions and political science in the case of positive questions.

“At this festive season of the year, Mr. Scrooge,” said the gentleman, taking up a pen, “it is more than usually desirable that we should make some slight provision for the poor and destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir.”

“Are there no prisons?” asked Scrooge.

“Plenty of prisons,” said the gentleman, laying down the pen again.

“And the Union workhouses?” demanded Scrooge

“Are they still in operation?”

“They are. Still,” returned the gentleman, “I wish I could say they were not.”

“The Treadmill and the Poor Law are in full vigour, then?” said Scrooge.

“Both very busy, sir.”

“Oh! I was afraid, from what you said at first, that something had occurred to stop them in their useful course,” said Scrooge “I am very glad to hear it.”