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April 5, 2009
The Coming Entitlements Crunch
We in the West have created a system of old-age entitlements that we're just not going to be able to pay for much longer. Don't get me wrong; I'm not against Social Security type programs. And I do think the government has an obligation to help our citizens as they reach their golden years. It's rather that I don't think the current structure of our programs is going to hold.
Government Social Security type programs worked when the worker to retiree ratio was 16.5 - 1 (figures via ssa.gov), when Social Security was first instituted by FDR. It worked at 10 and even 5 to 1. 3.3 to 1, which is what it is today, is barely sustainable. According to the Social Security Administration website referenced earlier, in 40 years it will be 2 to 1, and they say straight up that "At this ratio there will not be enough workers to pay scheduled benefits at current tax rates."
A piece in the Financial Times (via Mark Steyn at NRO) goes on about our current financial crisis, and how some of the measures the G20 had taken to resolve it. Good so far, but then comes the zinger
As the IMF says, "in spite of the large fiscal costs of the crisis, the major threat to long-term fiscal solvency is still represented, at least in advanced countries, by unfavourable demographic trends".
What's that again?
Until only a few years ago I not read much on demographics. Oh sure, I knew that our Social Security system was in trouble, but who didn't? Beyond that though I didn't really give it much thought as a major force that could change the world. Indeed, upon seeing a book or article on the subject my inclination would have been to cast it aside as horribly boring.
Then I read Mark Steyn's America Alone: The End of the World As We Know It. I looked at the issue further, and discovered that the birthrate figures he cites are correct. Demography may in fact be destiny. But you don't have to buy into all of his conclusions to know that the West is in big trouble.
Back to the Financial Times, and how "unfavorable demographic trends" are
Unfavourable from a treasury's point of view, that is. Increased human longevity is otherwise hardly a bad thing. Fewer people are dying young, in industrial accidents or from disease. If they make it to old age, retirees live ever longer on their pensions. Birth rates are often low, however - leaving fewer children to look after parents in their dotage and a smaller workforce to pay the taxes that also support them.Officials in many countries are prone to talking about the problem in terms that hide its immediacy: the impact of ageing on the world in four decades' time is more commonly discussed than the weight of the problem in just 10 years. But demographic phenomena can have a significant impact on a society within a short time-span.
Across much of the developed world, the end of the second world war was greeted by a jump in the number of births - the "baby boom". That increase, a working lifetime ago, is suddenly being felt ever more acutely now, as workers drop out of the labour market in large numbers and start to claim pensions.
In the UK, for example, the government expects the extra annual costs imposed by ageing to reach 1.6 per cent of GDP by 2017-18. That is an increase in spending equivalent to the cost of servicing a rise in the national debt burden of about 37 per cent of GDP, according to FT calculations. That outstrips the 29 percentage point rise that the financial crisis and economic downturn are expected to inflict.
France, Germany and the US are among other countries set to see a sudden deterioration in demographic costs in the next decade after a long period of relative placidity. According to the United Nations , the number of working-age adults for each person aged over 65 in advanced economies will decrease in the next 10 years by as much as they have in the previous 30 years. The number of workers per pension claimant will fall from 4.3 to 3.4 in the next decade alone.
Some countries are already much further down this road. It will take another 20 years of greying for Europe to become as elderly as Japan's population is today. The rest of east Asia is in a race to get rich before its people get too old to work. South Korea is currently well placed, with six citizens of working age for every pensioner. Yet thanks to a collapse in its birth rate, it will be one of the greyest countries on earth by 2050.
For societies, even if not always for individuals, it is possible to offset and mitigate many of the problems of ageing. Employment law is changing in order to keep people in work for longer. Nevertheless, the latest explosion in public debt - difficult enough on its own - is exacerbating the impact of an ageing that was always going to be expensive. Together, they promise to make the next decade rather tough for taxpayers.
Yikes. As if this wasn't bad enough, President Obama and his friends in Congress want to increase our debt with their "stimulus" package. I attacked President Bush and the Republicans in Congress for their prolifigate spending (see "Conservatives Gone Bad" under "Categories" at right, or just go here) so I'll do the same to Obama and the Democrats.
The worst thing is I don't know what to do about the problem. You can call me a hypocrite for not having any children of my own, but I don't see how this means I can't bring it up as a problem (see my thoughts on the issue of hypocrisy here if you care).
We're going to have to reform our old-age programs, which in the United States means Social Security. President Bush tried and met a brick wall of political opposition. I don't see it on President Obama's agenda. And from what I see I certainly don't see anyone in Europe addressing it.
As bad as our situation is here we in the United States have it pretty good; we're at 2.1 live births per woman, which keeps our population even (growth is from immigration). Throughout Europe the figure is lower, in some cases dramatically so. The issue, as Steyn concludes, is that
...for Japan, Russia and Europe, we're no longer talking about demographic-economic catastrophe just beyond the horizon - say, mid-century - but within ten years. If you're not talking about this, you're not serious. Which is why the O-man and the G-20 aren't serious.
Indeed.
Posted by Tom at April 5, 2009 10:00 PM
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Comments
I do not really consider the attempt by GWB a sincere attempt; he did not spell out any specifics and played his cards very close to his chest.
If he was sincere, then he should have specified details. I for one am all for privatizing social security BUT I do not want it to be a fee bonanza for Wall Street....which is what I feared in the case of GWB and privatizing.
Now with the situation being what it is in regards to Wall Street we have other issues to worry about.
Privatizing IS the solution to social security but maybe via infrastructure MLP's rather than the traditional stocks and bonds as seen by Wall Street.
But then again without integrity and a sense of doing the right thing how much of a future does our society really have?
Posted by: TAO at April 6, 2009 10:31 AM
I lived in Japan for several years, where the greying of the economy is maybe a generation in advance of the USA or Europe. Scary stuff.
Being an economic migrant myself, the answer seemed obvious. Immigration.
The developing world is full of talented, industrious people very keen to move to the North and start contributing to the economy there. Some countries, like Bangladesh, are even over-populated. The North will soon be full of old people who need health and nursing care, but with a shrinking indigenous work force.
Even now it's immigration that props up population growth in most of the industrialised world.
Accelerate!
Posted by: Mylne Karimov at April 10, 2009 6:49 AM
Hi Mylne
The Europeans are trying immigration, and as they're discovering it works...in the short run. They're bringing in Muslims from various places, and for various reasons aren't assimilating and accepting Western values. The face of Europe is about to change dramatically as a result. Immigration is a tricky business.
Posted by: The Redhunter
at April 10, 2009 9:05 PM
I read your comments policy the other day. I must admit that this post more than any of yours I have read triggered some deep rage within me - made me want to start flaming your message boards. But I have bottled that rage and will confine myself to the following observations.
Demographic flows can be measured in a way that "Western-ness" can't. So it's possible to have a debate about demographics that remains in the sphere or the rational, whereas... Suffice it to say that societies which are relaxed about immigration do not need to worry about a demographic crunch.
Even though I live there, I don't recognise the Europe that you speak of with such authority. But of course there are many different Europes. Perhaps you have a broader view than me, or the objectivity that comes with distance.
I cannot imagine any test that you could devise to measure the "Western-ness" of my parents. If you could I'm not at all sure that they would pass it, even today. Still less when they first immigrated here. But they have worked here and paid their taxes and contributed to British pension schemes, and now their many children have grown up here and are doing the same.
I myself cannot observe the damage they are doing to my country's cultural fabric. Perhaps I too am part of that damage. But I get the feeling they would not be welcome in the Redhunter's USA, and that saddens me.
Posted by: Mylne Karimov at April 11, 2009 6:35 AM
Mylne
The issue in Europe is pretty straightforward; there is a determined effort by Muslim leaders there to bring aspects of sharia law to Europe. See "Creeping Sharia," "Europe," and "Jihadism and the War of Ideas" under "Categories" at right for details. Sharia law is antithetical to all we in the West hold dear and must be resisted. The issue of "Western values" is a complex one, but essentially it includes accepting Western legal systems such as English Common Law or a version of the Napoleonic Code, our concepts of liberty, democracy (the two being not quite the same thing), and individual rights (as opposed to group rights).
Note that it is an issue of religion per se. Nor is it a racial or ethnic issue.
It is entirely up to the host nation as to whether it wants immigration. The number of immigrants allowed in is also the prerogative of the host nation. No one has a right to move into someone else's country.
In general, immigration should be a process of give and take between the two sides. Immigrants need to accept the host nation's legal system, language (though time must be granted to learn the latter), holidays, and general customs. They must take allegiance to their new nation and agree to serve in its armed forces if required. In return, the host nation has an obligation welcome the immigrants into their communities, to help them learn the native language, and help them start their new lives off on the right track. The host nation also picks up words, food, holidays, and some customs (though that last one is tricky) from the immigrants. So it is a two-way street, with obligations on both sides.
If done properly, both sides benefit from immigration. But it's the immigrants who want in, so most of the obligations are on them. People have no right to move into a country and start making demands on the host nation, as we are seeing in so much of Europe.
Posted by: The Redhunter
at April 11, 2009 7:58 PM



