Kartik B Athreya

Thanks to all of you for coming today, and on behalf of our Bank and the Richmond Fed Research Department, welcome.

My name is Kartik Athreya, and I serve as the Research Director here at the Richmond Fed. However, the most salient description of my role today is that of “beneficiary of John Jones”: my colleague, and the organizer of this high-quality event.

I’ve been given 15 minutes, but I’ll use fewer than 5, so don’t worry. 

I’ll make three points.

First, I want to belabor the obvious: This event puts together a splendid program that covers the waterfront from a variety of angles, through the work of people who have contributed a great deal of the very best work economists have produced on the topic. From Karen’s and Svetlana’s work in insurance; to Cristina’s work on social security reform early in her career; to her, Eric, and John’s more recent papers on savings in old age; to Matthias and Daniel’s work on intergenerational altruism; and Andrew’s sustained efforts to better grasp the implications of frailties in decision making — to name just some of the efforts of the people here — I’m really looking forward to two days of papers and discussion.

My second point is only slightly less obvious: Getting the economics related to older ages really matters, for welfare.

In one clear sense, in superrich economies like those of the U.S., we observe a great deal of the promise of old age — the joy of ever-extending professional careers that many in this room seek, the rewards of sustained intergenerational connection that can only happen with longevity, and the sheer pleasures of more good meals, more cool trips, and on and on. Moreover, it is the expectation of such a path that fosters investments in durables of all kinds, including, critically for our species, human capital and knowledge. It changes labor supply in the face of on-the-job learning, it matters for the timing of children, and the quality of childcare, all in nearly uniformly virtuous ways. And while the limit of finite horizon planning doesn’t always give the infinite horizon outcome, I can see how more connection with a distant future can help us get away from the endless pathologies we use overlapping generations models to scare kids with.

It is really also in superrich countries that we see, however, a whole lot of the other side: the ravages of old age. The obvious physical decline — exacerbated by a preceding lifetime of injury or chronic ill-health, the intellectual decline, the cultural dislocation that comes from just being too damn old to “get it,” what it reveals about the intensity of altruism from our children to us, just how badly private contracting can fail — or put differently, just how many IC constraints it takes to keep you from being a frequent flyer to the IC-U.

So, the world of older ages is probably well described as the world of uninsured risks, ambiguous but real threats to well-being, where disproportionately many decision makers are also cognitively impaired and hence unable to choose rationally for themselves, but forced nonetheless to navigate trickery, misaligned incentives, poorly calibrated contracting for personal care, and all kinds of other principal-agent problems. (See also long-term care scandals and late night TV’s exhortations to “cash out annuities now!” or ”reverse that mortgage!”)

To me, this means that both departures from rationality and pretty much all of the market imperfections that loom largest, at least the ones I can think of, matter most when you’re old, frail, sick, poor, and uninsured…and if you’re not alone, a burden to the ones you hope love you. So, paying attention to the economics of this part of life, as we will do for the next two days, is essential for any relevant welfare economics one might consider — even, I suspect, if welfare is measured from behind-the-pre-birth-veil.

My third and final point is related to the second. Because getting the economics related to older ages really matters for the welfare of a powerful group, it really matters for public finance.

That is, even aside from the self-evident reason to care about how allocations (in the full Arrow-Debreu-McKenzie sense) for the old are determined, there’s a more banal reason to care. The path of U.S. fiscal spending is likely unidirectional. And it is driven by the (apparently) irresistible forces of rising health care costs and the (equally, apparently) immovable objects of Social Security and Medicare retirement age, and (perhaps?) the inability to commit not to use frontier technologies and therapies.

So, if we don’t understand enough as economists to help society get the arrangements right, we know that the old will do something about it anyway. They have already. On one hand, this is a relief to me — one day soon I will be old, and I want representation. And a society acting as if it had lexicographic “safety-first-for-old” preferences is in one sense the escape valve if all other arrangements drop the ball too far.

On the other hand, my future-cohort’s agitations may not be pretty. After all, for older ages, anything Rawlsian starts getting expensive. And the solutions will almost certainly involve transfers away from younger, less engaged, populations: They might well be too busy playing video games, starting a career, or raising children while holding down a job. So, Larry Kotlikoff, I hear you.

Let me conclude. Thanks to all of you who made it today, to the speakers and discussants in advance, and to the John for assembling a program that will help us all learn some really critical economics over the next 36 or so hours.

And with that, let’s work!