Our robot-powered retirement future is already here by mattsteinglass
August 12, 2010, 3:49 pm
Filed under: Economics

Megan McArdle argues that in mankind’s brilliant future, we’re all going to have to work until we’re…much older. Maybe 75. It’s not clear.

It was nice that a combination of rising life expectancy and broader pension coverage allowed a large segment of American workers to take what amounted to a multi-decade vacation.  (Though this was never quite as widespread as people now “remember”).  But this was never going to be sustainable.  Retirement experts typically say that retirees should shoot for 75-90% of their working income in retirement (the theory being that some expenses fall, but other expenses rise, and you don’t need to save for retirement when you’re already retired).

That’s fine when the ratio of workers to retirees is 1:12, as it was within the Social Security system in the early years.  But by the time you get to 5:1, it starts to pinch–assuming everyone has the same income, each worker has to toss at least 15% of their own income into the pot to support the retirees.  Once you get to 2:1–which is where we’re rapidly headed–33% of your income is going to support someone in retirement.  Woe betide you if you also have kids.

It’s important to note that this is true no matter how retirement is funded.  Whether you collect a dividend check, get a corporate pension, or live off your social security, your retirement is funded by real claims on the output of people in the workforce.

This is certainly true, unless of course we start manufacturing millions of robots to augment the humans in the workforce. A ratio of two humans plus, say, ten tireless mechanical workers per retiree might make that old Social Security formula viable again.

But wait a minute. We are in fact manufacturing millions of robots to augment the humans in the workforce. That’s why a steel plant that had 4,000 employees in 1948 takes just a hundred or so people to run now. And that’s why the average technology-augmented American manufacturing worker creates $300,000 in output per year, while the average Chinese manufacturing worker creates just $8000. In fact, most areas of the economy have been revolutionized by various productivity advances over the past few decades. And, unless we expect GDP to stop growing, we’re planning on more such productivity growth in the future.

Clearly it’s true, as Megan says, that estimates of stock market growth were wildly optimistic in the 1990s, and therefore pensions are going to have to be more generously funded to pay out a given level of benefits. But whether or not we can afford to let people retire at 65 isn’t simply a question of how many workers you have per retiree. It’s a question of whether the ratio of retirees per worker (and the cost per retiree, as medical expenses rise faster than the CPI) is growing faster than per capita GDP is. And with that relationship in mind, it becomes a question of how we want to allocate the gains from productivity. Do we want to take them as current income, so we can live better during our working years? Or do we want to continue to ensure that old people can retire in reasonable comfort?

One final thing that you really can’t avoid considering: to say that old people will have to keep working longer presumes that somebody out there wants to employ old people. In fact, in an economy obsessed with youth and creative destruction where old people are at a disadvantage because of their inflexibility and lesser aptitude for learning new skills, there’s not necessarily much demand for seniors’ labor. If seniors are unable to earn much, this leaves us with the options of devoting a greater share of young workers’ output to their upkeep, or letting them eat the proverbial cat food. If the seniors end up eating the cat food, that’s not some kind of natural disaster that has befallen us because of demographic trends or the failure of technological innovation to keep up with historical norms. It’s a choice we make as a society about how to allocate our resources.


3 Comments so far
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Almost. Productivity growth, not GDP growth, is probably the key to whether retirement is sustainable at a given ratio. Which is where your army of robots comes in. Welcome to Asimov’s Aurora.

Still, I hate to think of living thirty years after I stop working. Who will comment on all the blogs?

Comment by Doug

Obtaining an best suited retirement home could waste you precious money and time. So ensure you are all set to plan, because you will need a retirement home that has good quality proximity to hospitals, purchasing malls, restaurants, publish office, veterinarians or police stations, etc. The area with the retirement homes might advantage the two you along with your family members. Retirement homes are generally developed as a condominium or a compound of properties.

Comment by home care

Our economic system is just disintergrating.

It’s based on people, getting jobs, and paying taxes. Never mind, that there are fewer jobs, because machines are doing the work, so there are less people to pay those taxes.

In the meantime, we have a horribly inefficient government, based on the premise that it gives jobs to it’s crony friends. Those jobs are gone.

Humanity has forgotten, that the aim of all this work, though the generations, was to get to the point, where we don’t need to work!

It may be time to scrap this whole economic system thing, it’s holding us back.

Comment by Xiaoding

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