Chapter 6: The Classical-Keynesian Macroeconomics of Pension Reform in Closed and Open Economies
I had thought that vulgar Keynesianism – the idea that monetary policy and interest rates had no bearing on aggregate demand – was blessedly extinct … I was wrong. (Aaron,1990–91, p. 170) 6.1 INTRODUCTION In this and in the next chapter we sketch out an alternative approach to pensions in the light of Keynes’s and Sraffa’s criticism of conventional economic theory introduced in the last chapter. We start with the macroeconomic issues that, in a more direct way, challenge the dominant view of pension reforms. In the next chapter we shall compare the neoclassical and classical views of PAYG pensions in distribution and welfare state theories. Chapter 8 will finally draw some conclusions about the future sustainability of PAYG schemes in view of the ageing process. In the preceding chapters we examined various objections to the dominant proposals of pensions reform. We saw that the key features of the prevailing views are that: (a) previous establishment of PAYG programmes has been harmful to capital accumulation; (b) the sustainability of these schemes is threatened by pending demographic developments for which those plans are ill prepared; and (c) symmetrically, that the FF schemes would favour economic growth and prepare the economy, by the constitution of real reserves, for the expected population imbalances. In Chapter 3 we argued that, on the one hand, the existence of PAYG does not necessarily depress the propensity to save and that, on the other, the constitution of an FF programme does not automatically invigorate it. Moreover, Chapter 4...
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