Archive for the 'Overlapping Generations Model' Category

Loyalty and the Overlapping Generations Model

October 11, 2007

The overlapping generations model developed by Allais in 1947 and written about by Samuelson in 1958 is one of the key models in economics. Loyalty is a key assumption of the model that comes from outside the model, i.e. is assumed.  If we consider 3 generations, old, middle and young, the middle generation raises the young and supports the old.  The middle generation transmits tradition to the young as does the old in part. Loyalty binds these generations together.  Loyalty says that each generation matters and is important for its contribution.

Immigration says that  none of them matter.  Immigration and economism say that they are just interchangeable.   Loyalty is disowned by immigration policies.  It is the rich trying to get out of loyalty.

The overlapping generations model ignores this component of a rich class trying to convert the wealth and work of the others to their own use and willing to act with ruthless disloyalty to do it.  In fact, the rich have such greed that they can’t even see they are destroying the country in which their children or grandchildren will have to live.

Loyalty is fundamental to the overlapping generations model working.  When society disowns loyalty, it disowns all its promises at once.  This is the complete abandon of tradition.

This is in part a continuation of the discussion of Lawrence Auster’s traditionalism discussion and others commenting on it.   Loyalty is left out of philosophies of greed, which are the basis of immigration policy.
Tradition is what creates loyalty.   We need a new economics of loyalty.  That has been ignored from Marx onwards or is it backwards by economists.


Traditionalism Time Consistency Continued

October 11, 2007

This is in part a continuation of the discussion of Lawrence Auster’s traditionalism discussion by focusing on liberalism and its problems. See previous articles for links to others such as Vanishing American who has additional links. This picks up from the article Liberalism is Ponzi Schemes, which went on from Ponzi Schemes to time inconsistency as defined in operations research, mathematical economics, game theory, and behavioral economics.

In the context of behavioral economics, time inconsistency is related to how much each different self of a decision-maker cares about herself and all of the selves that will then follow her, relative to each other.

A traditional society is one that maintains sufficient continuity of self that promises it makes at one time, e.g. to the young who pay into social security, it will deliver at another time, e.g. to pay them social security. The overlapping generations model of Maurice Allais and Paul Samuelson is a linked list of overlapping generations that make promises to the young that are satisfied by the society when they are old.

If we consider 3 generations, old, middle, and infant, the middle generation is taking care of the infants and old generations. It is teaching the infant generation to follow the rules of its society. They expect that when they become old, the infants will follow the rules. This means supporting the older generation, but also not engaging in vandalism, mugging, indifference and brutality.

Immigration by different people interferes with the operation of the overlapping generations model. The traditions that the middle generation teach to the infants are not what the immigrants bring with them. Immigration disrupts the operation of the overlapping generations model.

Third world immigration brings in immigrants who whether old, middle or infant impose external costs. These exceed the benefit that employers gain. In addition, employers lower the wages of the middle generation when they need to support the old and infant. One result is that the middle generation can’t have children and so their fertility drops.

In a simple one time period for one generation model, this gives the middle generation no second chance. So those who miss out on having children from the disruption of immigration don’t get a second chance. Some may have children but not as many as they would have had, so they have one instead of 2 or 2 instead of 3. The result is that fertility drops like a rock. This is what happened.

The overlapping generations model was published by Samuelson in 1958. Allais published it earlier in France. Fertility peaked in 1957 in the U.S. It then fell like the rock predicted above and went from about 3.75 in 1957 to below 2 in the 1970’s, i.e. below replacement.

In addition, to the drop in fertility, the substitution of immigrants, in particular third world immigrants, meant that the traditions of the society being taught to infants was disrupted and curtailed. In addition, traditions had to be changed to deal with the influx. For example, airport security has to be much higher precisely because of the influx. Car commutes take much longer because of the influx. School security has deteriorated substantially and it also imposes costs and more time.

Schools and universities have stopped teaching the rising generation to respect their elders. They have instead taught them the opposite. So the traditions of the elder and middle generation and the society pre the new cohorts of immigration that arrived with the 1965 immigration act were being substituted for by the traditions of the new arrivals.

Traditionalism might be considered in several contexts, which might deserve separate names. First in economics or occupations. If the son follows the father’s occupation, we have a form of occupation traditionalism, although in practice, it can be more a form of stasis. Second in marriage and child rearing customs. In regulating community decision making. This includes how people think, not just a meeting of whoever happens to be there.

Technology and other reasons mean that there is disruption and change in production and markets. So its not possible for those to stay the same. However, there are other principles that can remain more stable. These include not stealing, making and honoring short and long term contracts, arbitrating disputes between merchants or customers and merchants, labor agreements and management labor relations, etc.

These were at a high state of development in the 1950’s in America, Australia, Canada, Europe, and New Zeeland. They were also rising in other places. However for the named countries, some at least of these conditions peaked and fell. The peaking of fertility in 1957 in the U.S. shows that peak.

Graph of fertility in the U.S. from 1800 to 1990:

Harold Meyerson at Washington Post

Labor Day is almost upon us, and like some of my fellow graybeards, I can, if I concentrate, actually remember what it was that this holiday once celebrated. Something about America being the land of broadly shared prosperity. Something about America being the first nation in human history that had a middle-class majority, where parents had every reason to think their children would fare even better than they had.

The young may be understandably incredulous, but the Great Compression, as economists call it, was the single most important social fact in our country in the decades after World War II. From 1947 through 1973, American productivity rose by a whopping 104 percent, and median family income rose by the very same 104 percent. More Americans bought homes and new cars and sent their kids to college than ever before. In ways more difficult to quantify, the mass prosperity fostered a generosity of spirit: The civil rights revolution and the Marshall Plan both emanated from an America in which most people were imbued with a sense of economic security.

That America is as dead as the dodo.

Meyerson points out the following numbers:

“From 1947 through 1973, American productivity rose by a whopping 104 percent, and median family income rose by the very same 104 percent.”

“Since 1973 productivity gains have outpaced median family income by 3 to 1.”

The following is worth repeating here.

“In ways more difficult to quantify, the mass prosperity fostered a generosity of spirit: The civil rights revolution and the Marshall Plan both emanated from an America in which most people were imbued with a sense of economic security.”

This was an America in which its middle generation had complete control to teach its traditions to its infant generation. It taught honoring contracts, non-violence, and allowing everyone to participate in a variety of ways. However, it then extended that to a wave of immigrants that in effect ended the teaching and the teaching environment of 1950’s America.

David Warsh has a column entitled, “The Generation of 1958.”

He looks at the impact of Sputnik in 1957 on America. However, this was an America that was different than now. A self-confident in control of itself America. As time-inconsistency and Auster’s attention to traditionalism over many years shows, America lost self-control because it lost the permanency of self. America can’t commit to promises because the self that would carry them out will be so different that we can’t know what it will do. America today and especially the America of 1957 is not transmitting its traditions, more than holidays, but ways of living and thinking to the next generations. Those generations are influx generations or the children of influx generations.

The following graph at Numbers USA shows some of the substitution from immigration. Its not intended to show the substitution of post 1965 immigration, but that substitution is substantial.

The article
Ronald F. Maxwell on Immigration
has some quotes and links that point up how the change in America is a risk. They particularly link to how we are taking a risk and don’t know the results. This is another way of saying that we can’t know if America will deliver on long term promises. These are not just social security but everything that goes into a society.

Liberalism and the economism propaganda of the Wall Street Journal and neocons and other beneficiaries has tried to make the claim that its the economy alone that transmits the traditions that make America. They try to claim that simply being here makes people part of the tradition of America. They claim their being here makes them act the same. They also claim that everyone acts the same as if there had been no immigration and the rising generation was the infant generation taught by the middle generation and to some extent the old generation.

We are now at a point, where the old generation has realized that the transmission of our tradition was disrupted substantially. We are to some extent the sole bearers of the tradition of America. Our transmission of it to the middle and young generations may not happen. We may be the last generation to have the traditions of 1950’s America.

We have very little time to act. There is no time to be afraid of being called bigot or racist. We have seen immigrant cohorts substituted under us in the chain of generations. We have also seen the schools engineered to teach foreign and alien traditions and not to respect or teach the one we were taught.

The schools make it sound like traditions are just holidays and food choices from a multicultural menu. Instead, its everything not included in economic models that makes them work. Tradition deals with everything that economism ignores. It deals with everything related to man as a physical, communal, and spiritual being. Without that, the core model of economics for generational analysis, the overlapping generations model stops working.

That is because society and culture stop working. That is what happen when tradition dies because its transmission belt between generations dies. That happens by substituting immigrants for births. That happens as a mathematical theorem from immigration. This is the Wright Island Model (academic references here) or the Immigration Vanishing Survival Theorem. It shows up on the graph of fertility. It takes place, in part, through lower wages. Men’s median wages are the same as in 1973. See graph p60-233.pdf around page 16.


Brenda Walker has a good article at on how FDR would have taught our traditions if alive today and fighting the war on Islam instead of Islam’s traditions as Bush does by celebrating Ramadan.

Watching even the compromised Ken Burns’ WWII documentary was a moving reminder of the unified America that has been squandered by open borders and diversity immigration.

Franklin Roosevelt had the advantage of a national community that was already joined by culture, values and language. He could rally the American people with stirring words calling for sacrifice to win the war, and the positive response was predictable.

George Bush, America’s only MBA President, merely recommended that we continue to shop after being attacked. The opportunity to educate the people about the danger of fundamentalist Islam, let alone unassimilable immigration in general, has been largely lost.

==Vanishing American

VA reviews some material from Russell Kirk and adds some insights to the discussion on traditionalism Auster has sparked recently.

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