Pension Reform And Economic Theory: A Non-orthodox Analysis

Abstract

This book is a contribution to the present debate on pension reforms in the light of the existence of rival economic theories. In discussing pension reforms the strategy of the book is as follows. Chapters 1 and 2 focus on PAYG, discussing its controversial nature and the reforms claiming to improve its sustainability. Chapters 3 and 4 focus on the FF scheme, examining its nature and the proposals to replace PAYG with it. In these two chapters the discussion is conducted, at least in part, within a neoclassical framework. This may appear surprising in a book that aims at presenting a non-conventional approach to pensions. This procedure is adopted for the sake of the argument it reveals, in order to show up the inconsistencies and difficulties encountered in the conventional approach when proposing the substitution of PAYG with an FF scheme. In this way, the classical-Keynesian criticism to conventional economics is employed, so to speak, to strike the final blow for the dominant reform proposals of substituting PAYG with the FF schemes examined in the preceding sections. Chapter 5 examines the controversy over the ‘trust fund’ accumulated by the US Social Security. Chapters 6 and 7 show, in a more systematic way, the relevance of the non-conventional approach to the debate on pensions contributing, at the same time, to the integration of a welfare state theory in non-orthodox theory. More specifically, Chapter 6 presents the question of pensions in the perspective of Keynes’s theory of effective demand, later reinforced by Sraffa’s critique of traditional capital theory. Chapter 7 widens the perspective of the book by proposing a classical approach to the welfare state linking the non-conventional interpretations of PAYG examined in Chapters 1 and 2 to the classical theory of distribution. Finally, Chapter 8 discusses current and projected demographic developments. The ageing process is seen as a result of a process of stabilization of the world population. In the light of the classical and Kaleckian approach to the theory of distribution the main threat of the ageing process is found in the difficulty of capitalism to live with a shrinking industrial reserve army. Chapter 8 also poses the issue of the sustainability of PAYG as an economic question, and thus treatable by economic policies and appropriate changes in income distribution, and not as an ineluctable demographic quandary.

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