Spain's baby boom won't break pensions: the debt will be perpetual
The baby-boom peak is temporary and public debt will be refinanced forever: the 1% and the 3.5 points of GDP that reopen the generational war over pensions in Spain.
English · Original discussion in Spanish · Published
The baby boom won't break pensions: the debt will be made perpetual
What if the problem with pensions isn't an ageing population? The thesis that opens this discussion is uncomfortable for almost everyone: the demographic peak is temporary and the system was never designed for workers in employment to pay for their elders' retirement. The age pyramid, the argument goes, will become tubular as soon as the baby-boom generation disappears. And then, what's left?
The answer on the table is neither heroic adjustment nor painful cuts. It's creative accounting on a state scale: the debt will never be paid off. Each maturity will be refinanced with new debt, over and over, keeping rates low enough. International funds will hold it as a perpetual reserve fund. At 1%.
Why public debt is never paid off, only refinanced
The reasoning starts from a broken premise: the economy will no longer grow structurally faster than today. If that holds, the debt cannot be amortised through surpluses. But no state can say so out loud without triggering an immediate financial crisis. Hence the silent solution: perpetual refinanced debt.
A calculation doing the rounds puts figures on the alternative: reducing the debt by 1% a year sustained while growing at 2% would bring the ratio down to 85%, a level considered acceptable to keep refinancing. It's not a repayment plan. It's a plan for coexisting with the liability.
Who really pays for pensions if it isn't the workers?
This is where the most interesting divide opens up. Against the narrative that those in work support retirees, there's the thesis that there is a genuine interest in everyone having a private pension plan, and that this interest moves money: 3.5 points of GDP, according to the estimate in play, an amount that is neither unpayable nor ruinous.
The experiment has already been run in the United Kingdom, where the private system burdened companies, which in turn passed it on to wages. The risk isn't in contributing, but in drawing benefits: a private plan can face a fall in financial products when the moment of truth arrives. The same old tune has been playing for more than thirty years. The system still hasn't collapsed.
The generational war: are retirees to blame for young people's ruin?
The conversation heats up when the clash of ages enters. Some argue that the baby-boom generation hogs housing, draws the highest pensions and leaves young people with high taxes and prices driven up by inflation. Some go as far as calling them the most selfish generation in history. Others respond with a different argument: the blame lies not with retirees but with successive governments since the Transition (Spain's return to democracy in the late 1970s).
Between the two extremes lies a nuance that's rarely heard: the system was created in a world of growing population and economy, with life expectancy only a few years above retirement age. Today people draw pensions for many more years and wages haven't risen since 2007. The underlying question isn't who's to blame, but what's fair between generations.
In the end, the discussion leaves a bitter aftertaste: some believe it's all solved with perpetual debt, others that austerity is the only way out. And in between, one detail nobody disputes: those who built the roads, the dams and the homes are still waiting for someone to explain, without condescension, who picks up the bill.
What if the problem with pensions isn't an ageing population? The thesis that opens this discussion is uncomfortable for almost everyone: the demographic peak is temporary and the system was never designed for workers in employment to pay for their elders' retirement. The age pyramid, the argument goes, will become tubular as soon as the baby-boom generation disappears. And then, what's left?
The answer on the table is neither heroic adjustment nor painful cuts. It's creative accounting on a state scale: the debt will never be paid off. Each maturity will be refinanced with new debt, over and over, keeping rates low enough. International funds will hold it as a perpetual reserve fund. At 1%.
Why public debt is never paid off, only refinanced
The reasoning starts from a broken premise: the economy will no longer grow structurally faster than today. If that holds, the debt cannot be amortised through surpluses. But no state can say so out loud without triggering an immediate financial crisis. Hence the silent solution: perpetual refinanced debt.
A calculation doing the rounds puts figures on the alternative: reducing the debt by 1% a year sustained while growing at 2% would bring the ratio down to 85%, a level considered acceptable to keep refinancing. It's not a repayment plan. It's a plan for coexisting with the liability.
Who really pays for pensions if it isn't the workers?
This is where the most interesting divide opens up. Against the narrative that those in work support retirees, there's the thesis that there is a genuine interest in everyone having a private pension plan, and that this interest moves money: 3.5 points of GDP, according to the estimate in play, an amount that is neither unpayable nor ruinous.
The experiment has already been run in the United Kingdom, where the private system burdened companies, which in turn passed it on to wages. The risk isn't in contributing, but in drawing benefits: a private plan can face a fall in financial products when the moment of truth arrives. The same old tune has been playing for more than thirty years. The system still hasn't collapsed.
The generational war: are retirees to blame for young people's ruin?
The conversation heats up when the clash of ages enters. Some argue that the baby-boom generation hogs housing, draws the highest pensions and leaves young people with high taxes and prices driven up by inflation. Some go as far as calling them the most selfish generation in history. Others respond with a different argument: the blame lies not with retirees but with successive governments since the Transition (Spain's return to democracy in the late 1970s).
Between the two extremes lies a nuance that's rarely heard: the system was created in a world of growing population and economy, with life expectancy only a few years above retirement age. Today people draw pensions for many more years and wages haven't risen since 2007. The underlying question isn't who's to blame, but what's fair between generations.
In the end, the discussion leaves a bitter aftertaste: some believe it's all solved with perpetual debt, others that austerity is the only way out. And in between, one detail nobody disputes: those who built the roads, the dams and the homes are still waiting for someone to explain, without condescension, who picks up the bill.
Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (20 replies).
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