The savings of future pensioners cannot find sufficient efficient (productive) assets for investment Author: Patrick Artus The prospect of population ageing is causing an increase in private savings, globally and in many countries.
In the conventional theoretical models, this increase in private savings paves the way for an increase in corporate investment and productive capital, and therefore increases potential GDP, which is stabilising given the prospect of population ageing.
But the level of corporate productive investment is low at present, which may be due to financial constraints, insufficient infrastructure in emerging countries, and the declining return on capital.
There is therefore not sufficient efficient investment and productive capital to absorb the abundant private savings accumulated in anticipation of population ageing. This means that private savings must be invested in:
• “Bubble” assets (equities, which are not used to finance companies, and real estate), as is clearly perceptible in China, for example; • Government bonds, as is clearly perceptible in many OECD countries, for example. The problem is that, unlike corporate productive capital, these assets in which the savings of future pensioners are invested:
• Will either pay future pensioners a very small income (government bonds given the very low level of long-term interest rates);
• Or will have prices which will fall sharply when population ageing effectively appears and pensioners sell these assets. Moreover, pension funding will not benefit from the extra potential GDP that would have been provided if the savings had been invested in productive capital.
