The topic for this post is demographic shifts in the western world. It may not sound exciting, but it is a major, if not THE major economic and social threat facing developed countries over the next 30 years.
Historically, the United States has always had a growing population. We were, after all, a nation of immigrants and people came from all over but largely western Europe. Even military conflicts such as the Civil War did not slow population growth much as immigration picked up the slack of young men perishing In the conflict. To maintain a level population, the “average” woman in a society needs to have 2.1 children. That is usually referred to as zero population growth or ZPG. Today, the US stands at about 1.85. So, if we do not have immigrants coming to America, our population will decline.
The situation in western Europe is far more serious for two reasons:
1) The fertility rate is not 2.1 but hovering around 1.4. The Nordic nations and France weigh in at approximately 1.8 but Italy and eastern Europe in the 1.2 range.
2) Unlike the US which has a safety net, European nations have what is known as “the provider state” which provides universal health care, low-cost higher education, and often moderate pensions for the entire population.
So, Europe is in a bind. People are living longer (due to universal health care and perhaps less stress?), but entitlements are very large via American standards. Yet, as the population ages, those still working will have a huge burden to take care of their older citizens as there will be relatively fewer of them to pay the entitlement bills. And, relative to the US, their tax rates are significantly higher.
If you look at individual countries, it gets scary. Take Italy, for example. A few independent studies have said that in order to maintain present services and transfer payments, in less than 20 years, the retirement age will have to be at 77 years old PLUS 2.2 million immigrants will have to settle in Italy ANNUALLY and work to cover current entitlement programs. Is that going to happen? I doubt very strongly that such a course of action would be politically viable. France tried to raise the retirement age a few years ago as did Greece and both ideas died quickly as the incumbent political leaders faced a massive revolt.
Another great example is Spain. In 1970, the then largely Catholic country had a fertility rate of 3.9 with only Ireland having a higher one at that time in all of Europe. Today, it is approximately 1.1. How is Spain going to keep their welfare state intact? After 2008, when they tried austerity to cover budget shortfalls, the government fell after massive protests.
So, a declining birth or fertility rate has huge consequences for public expenditure especially when most people have had a provider state covering basic needs. By the way, Japan has a far older population than western Europe and is now facing similar problems including getting young people to become farmers.
Okay, if you have stayed with me this far, how does this relate to the United States? Plenty.
At the current rate of spend, Medicare is projected to go broke by 2028 and Social Security, as we know it, will dry up somewhere between 2034-35. Social Security would be an easy fix. Raise the retirement age for FULL benefits a couple of years and increase the tax cap above the rate of inflation (currently, only the first $160,200 is taxed) for high income earners. Right now, if someone makes $10 million per year in earned income only the first $160,200 is subject to Social Security taxes. So, taxing Social Security benefits for the affluent and wealthy would help to keep the system solvent longer along with raising the cap for contributions to the fund. Medicare is much more complicated and is in more urgent need of reform. Such actions could save both entitlements but not many members of Congress would have the political courage to do something meaningful.
Separately, we need to bring in more immigrants to cover our employment needs and continue to provide funds to keep Social Security and Medicare viable. This is a tinderbox issue as many Americans do not want to face economic and demographic reality or are simply racists.
Why, you might ask, should someone my age care about this issue? Well, I have children and grandchildren and plan to be around in 2035.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
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