VIRTUALLY ALL industrial countries have instituted public-sector programs to
provide public education, health care (at least for the elderly), and pay-asyou-go
pensions on a nearly universal basis. Many developing countries are
following their example. It is widely acknowledged that population aging will
exert intense fiscal pressure on these programs. For the most part, countries
have left in place programs that are fiscally unbalanced and in the long run
demonstrably unsustainable. Although the clamor for reform grows louder
each year, the public strongly resists any reduction in benefits.
While the need to reform public pensions and health care is undisputed,
there is strong disagreement about how that reform should be designed.
Some argue for a rapid reform, so that future generations are not unfairly
burdened by large public debt. Others suggest that rapid reform would be
unfair to current generations, especially those near retirement. The notion
of fairness is therefore central to the discussion. Fairness is generally difficult
to define, and the intergenerational nature of the dilemma makes it even
more so. Various approaches have been suggested: utilitarianist, Rawlsian,
generational accounting, among others. These approaches can substantially
differ, but they share a longitudinal (that is, intertemporal) view. For most
people, it would make little sense to discuss the fairness of pension benefits
without considering personal contributions.