I was struck by an article in yesterday’s New York Times on a plan by General Motors to offer a choice to its retirees of a lump sum payment of monthly payments. Not by the fact that GM is doing this – although I guess I was struck by the fact they still have money to pay retirees. It was by the fact that every single GM retiree the article profiled was age 65 or younger. One person retired in 2009 at the age of 55 (younger unfortunately than I am) and bizarrely is a member of GM’s Retiree Advisory Committee. Another person retired at age 59 now receives GM pension, Social Security, and his 401K payments. Still another person retired at age 60 for the good life in Atlanta. Can anyone say “welcome to Greece.”
In fact, the share of people aged 55 to 59 employed is the same in Greece as it is in the United States (around 2/3). Perhaps this is why one-third of AARP’s members (the group whose sole mission is to transfer societal output to people who don’t work) are under the age 60.
Well you may ask, why am I begrudging these folks the good life of early retirement? You might think it’s because I likely won’t be able to retire until I am 70ish and I am jealous of all those folks my age playing golf and bridge. But actually it’s because early retirement is a drag on American innovation. How so? Because in an era of massive budget deficits, most of which is driven by transfer payments to the elderly (Medicare and Social Security), we are becoming a nation in which we mostly consume (working age people consume less so non-working “retirees” can consume more without producing anything), and no longer invest. As we point out in our forthcoming book Innovation Economics: The Race for Global Advantage:
To maximize innovation, nations must also find the right balance between the interests of present and future generations. A nation focused only on the present generation would not invest in the future. Why pay higher taxes to support government investments in research, education, and infrastructure when the benefits accrue to future generations? But in even the most present-oriented society, people agree as part of the social contract to sacrifice at least some benefit now for greater gains in the future…. America’s challenge is that because it has become overly focused on individual consumption today, it significantly under-invests for the future.
Individuals who retire early not only often consume more in government and private benefits – for example, early retirement from GM raises the price of GM cars for all consumers – but they produce less for society, meaning that government benefits are higher and tax revenues are higher. We face a choice as a country: we can either keep focusing on maximizing present consumption, especially by older people, or we can focus on maximizing production so we can afford the critical investments in America. If fewer American’s retired early and if we raised the retirement age to 70, we’d have more money to invest in science needs in research, infrastructure and skills, and maybe discover solar power that’s cheaper than coal power.
Image credit: Flickr user ThisParticularGreg