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December 09, 2006
Intergenerational Accounting and Long-Term Policy Problems
Ok, this one is a bit misclassified in the article as a "remedy" or "solution" or fix for a long-term policy problem. Intergenerational accounting as a practice simply computes the total cost to a government of addressing a problem over time. In the case of public pensions, like Social Security, this would involve computing the total amount the government would have to pay out under current law and reasonable projections about how long people will live, and computing how much income it will have in Social Security taxes (involving assumptions about how many people will be working and how fast the economy will grow, etc.). Then you compare the two numbers. To be a long-term policy problem, almost by definition the costs have to be greater than the expected income. (If we were expecting enough money to pay for it, then it wouldn't really be a problem, would it?) In some cases, it's a really big gap - some countries have pensions obligations that are more than 2 times their annual GDP, which is an enormous number of times more than their annual pensions tax income.
For a case like pollution abatement or stopping global warming, the "intergenerational accountants" would compute the expected amount of pollution they'll have to clean up over time (and how much it would cost to do the clean up and fix anything else that goes wrong as a result), and the expected income of any pollution taxes or government funding. Again, it shows about how much the projected value of current efforts falls short of what will be needed to fix the problem.
Posted by lpowner at December 9, 2006 08:03 PM