"You were promised $600/month. Obviously, we can't do that because that would require taxing 70% of labor income, which is way past the Laffer point. We're paying you $400/month instead. But it's okay, because we made productivity enhancements that let the same money go further. For example, the food tastes 50% better, so it's all a wash. Plus, you can move ten miles out to a cheaper apartment because construction and transportation are better now."
Strawman? A Federal Reserve banker tried basically the same thing to trivialize the inflation experienced by typical people: http://www.reuters.com/article/us-usa-fed-dudley-ipad-idUSTR...
If the government increase taxes in the economy in absence of inflation (all else unchanged), there is going to be a deflationary trend.
All the point of the argument is that if we have real available capacity in the economy you can spend, 600$ or whatever have been promised, and, if we don't have real resources available, we can't spend anything, never mind what have been promised.
It have nothing to do with how much money we have saved or how big is the deficit, but with the real resources available at the moment of paying.
My point is that the obligation is phrased as "$600 + inflation index", not "the amount of utility you could have got for $600 at the time we made the promise". Improved productivity can help you meet the latter, not the former. The latter is a more reasonable promise, but the former is what was actually promised.
>All the point of the argument is that if we have real available capacity in the economy you can spend, 600$ or whatever have been promised,
It's not true that "if the real productive capacity is there, then taxing out the money for the pensions is no problem". The evasion behavior is non-linear and there's a cap to how much you can collect with taxes before e.g. pushing economic activity underground and into other countries. (Hence the Laffer curve point.)
The question is: can do it without generating inflation?
It depends of the productivity of the economy in that future.
The conclusion is that saving money means nothing, what is really important is generate real wealth now so we can pay in the future without generating inflation.
So, investment in real capacity (creating infrastructure and knowledge) now will allow generate the real resources for "paying" in the future. Just the opposite of what they try to sell us.
Never mind how much money you save now if, in the future, there are not real resources for taking care of everybody.