Many economists forget that the first-order problem of an aging society, one with high life expectancy and low fertility, is how to redistribute income from workers to retirees. How fast output grows is, surprisingly enough, the lesser question. If you have roughly as many retirees as workers, what each worker produces must be split in two, one part for the worker, one part for the retiree. At a basic level, it does not matter whether we do it through taxes, as in a pay-as-you-go social security system, or through capital income, as in a fully funded one. Workers will not be happy to see half of their income taken away, whatever the absolute level of that income. This redistribution will poison the political system and lead, with high probability, to dysfunctional policies. We are already seeing it across Europe in the fights over retirement benefits. And much of the American unhappiness about the profits of large corporations, largely owned by the old, is the same conflict, only in the fetishized form of equity ownership. Claims of the form “technological progress (e.g., advances in AI) will fix the problems brought by aging” miss the political economy of the situation. Aging is about politics, not TFP.

I rarely post on Europe because @lugaricano always has better takes than mine. It is hard to be the second act! His post this morning: on the two Europes is particularly striking. Figure 1, which I reproduce here, is something European policymakers should keep in mind every day. Beyond the raw, somewhat abstract figures for GDP per capita, there is a reality I see every time I travel to Western Europe. I moved to the U.S. in 1996, six weeks after graduating from college. Every time I visit, I can tell that Spain (especially outside Madrid) is further behind the U.S. today than it was the day I left. The malaise in countries such as France, Germany, Italy, and Spain is not just economic. The public conversation is also more insular and focused on distributional fights over a pie that grows much less than in the past, with many more claimants. While I can listen to dozens of incredibly exciting podcasts in the U.S. about deep learning and technology, most of what one hears in Europe (Luis excepted!) is second-rate. Of course, this is not to say that everything is perfect in the U.S. Far from it. One only needs to ride the subway in Seoul a couple of times to realize that New York City is, on many dimensions, a major underperformer. When I visit New York City, I am not amazed by its prosperity but wonder how much richer it could be with a half-decent government. And California’s policies are a textbook example of how to waste the immense resources of one of the luckiest places on Earth. And Europe still has centuries of beautiful architecture and culinary traditions going for it But, Western Europe, thou art weighed in the balances, and art found wanting.