Economics journalist David Leonhardt has posted an interesting interview with British economist Diane Coyle. He asked:
In the context of the huge long-term deficits facing rich countries, you say that recent generations have been living beyond their means. What do you think is the one kind of tax increase that would best help us live within our means? And, similarly, the one kind of spending cut?
[Ms. Coyle answered:]
The current system of taxes and government spending encourages consumption and the over-use of resources today and creates too little incentive to save and invest. The one tax to increase now is a carbon tax. You don’t even have to worry about climate change to accept it has many benefits. In particular, it will encourage innovation in noncarbon-based energy supplies from renewables to nuclear. This is a field in which the U.S. and other Western economies could build on their strong science base to build an area of technological strength for the future, and at the same time reduce dependence on oil and gas imports from overseas. There are multiple good reasons for introducing a carbon tax.
Government spending needs to be redirected away from massive corporate subsidies — including to the financial sector but also big companies in health care and agribusiness — and instead towards infrastructure investment and education (which is infrastructure of a different kind for the digital economy). But the really painful cut in expenditure needs to be in government support for older people. Across the Western economies, retirement ages and the age threshold for benefits from the government will have to increase. If not, healthy and active over-60s benefiting from the taxes of a declining proportion of working people in the population are going to bankrupt the government and undermine the arrangement of mutual benefit that keeps any society stable. And, yes, I’m fully planning on working until I’m 70.
David Leonhardt, “Making Choices ‘as if the Future Matters’“, Economix, 17 June 2011.
I like Ms. Coyle’s response, up to the point where she recommends that government reduce its support for older people. Those who work with their minds can continue to be productive to age 70, or even longer. But those whose jobs require physical effort will find it difficult to delay retirement to such an advanced age.
One of the benefits of economic growth is the possibility of increased leisure time. Just as residents of wealthy countries no longer have to work 12 hours a day, six days a week, they are no longer forced to keep working until they drop dead. Retirement is a luxury, but it is an affordable luxury for those of us fortunate enough to live in advanced economies.
Ms. Coyle would be on firmer ground if she simply stated that governments should not penalize those who continue working beyond the state retirement age. Government support for the elderly, in other words, should not be conditional on retirement, or should at least compensate pensioners fairly for delaying retirement. But this is not what she says.
British economist Diane Coyle (born 1961) is author of The Economics of Enough: How to Run the Economy as If the Future Matters (Princeton University Press, 2011). A copy is on my desk, and I hope to read it soon.