About 10 years ago, I was speaking to a very erudite man whose firm had dealings with Saudi Arabia. I asked him about their welfare state which covered tuitions, healthcare, and other forms of governmental support. He said that if a barrel of oil exceeded $80, they could continue to fund all of their societal needs easily (I have seen estimates of $75-88 per barrel from several sources). Long term, he said as we move to a world using far fewer fossil fuels, the Saudi “nanny” state was not sustainable.
Since then, I have seen the term “unsustainable” used to describe the provider state that most of Western Europe covers for their citizens. The problem in Europe is that birthrates are at an all-time low. Simply to maintain population, you need a birthrate of 2.1, often referred to as zero population growth (ZPG). Right now, in Europe, only the Faroe Islands have a birthrate above ZPG at 2.71. Among larger countries, Germany is at 1.53, Italy 1.3, and Spain 1.29. Without a significant increase in immigration, there is no way they can provide healthcare, free university education (in many countries) and excellent retirement benefits. Among major European nations, France has the highest birthrate at 1.79. Keep in mind that in recent years, France has offered bounties to couples having multiple children.
Something must give but cutting benefits does not seem viable as governments trying any kind of austerity program usually lose power at the next election.
What of the United States? Each year, I bristle when I see that our national debt has jumped and now sits at around $34 trillion. With the higher interest rates set by the Federal Reserve to bring us back to 2% inflation, we now have interest on the national debt playing tag with the size of the Pentagon’s budget (approximately $800 billion per year). To her credit, former governor and UN Ambassador Nikki Haley said, in her stump speech for the GOP nomination earlier this year, that, as an accountant, she saw real dangers in our escalating national debt. The comments were not well covered by the media and did not get much traction with the public.
Beyond the annual budget deficits there are our liabilities in Social Security and Medicare/Medicaid. Some estimates from Laurence Kitlikoff of Boston University are that our unfunded liabilities for those entitlements are over $200 trillion! To right the ship, you would need to cut spending sharply and raise taxes by over 60 percent. Try running for president on that platform.
The ignoring of the Medicare/Medicaid issue is something so outrageous to me that it would make former Enron accountants blush. Social Security can be fixed or extended in its present state by raising the age of first-time beneficiaries and perhaps taxing away some benefits of the very well to do.
By the way, the United States birth rate hit an all-time low in 2023 of 1.6. So, to function as we now do, we are going to need an influx of millions of immigrants over the next 10-15 years. This will be a hot button issue for sure but it has to happen.
If you look at the facts, we are an unsustainable path. Not as bad as almost all of Western Europe but still serious. Will political leaders stand up and call for real fiscal responsibility and will the public support them? When I try to discuss this, people’s eyes glaze or tell me that I am a pessimist. No, just a tough-minded realist.
It may not affect me in my life but my children and especially grandchildren will pay dearly for this lack of fiscal discipline. Our present track is truly unsustainable.
Why do people not seem to care? In high school, we had to read George Orwell’s ANIMAL FARM over the summer. We then read some Orwell essays in class. One line stuck with me—“to see what is in front of one’s nose needs a constant struggle.” These fiscal and entitlement issues are staring us in the face. We cannot ignore them forever.
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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