Population Bust

A hundred years ago, the main way of planning for your retirement was to have children.  Often, this was a case where the parents' farm would be handed off to one of the children and the parents would live there.  With the population moving to cities, this scheme no longer worked.  Elderly in poverty became a clear issue and Social Security was suggested as a solution.  The idea was that the government would force everyone to save for retirement, setting aside a portion of each paycheck to be returned after age 65.

Ida May Fuller had worked as a school teacher and legal secretary.  She began paying into Social Security in 1937.  In 1939, at age 65, she retired.  Though she didn't expect much from this new-fangled system, she did apply for her retirement benefit.  Her first check - which also happened to be the first one issued by the Social Security Administration - was for $22.54 ($471 in 2022 dollars).  It should be noted that her total contributions were $24.75.  Her first check paid 91% of the funds she had paid.  Ida lived to be 100 years old, dying in 1975.  During her retirement, she collected $22,888.92 in benefits ($478,000 in 2022 dollars), or 925 times the amount she had paid.  Here is one of the greatest investments ever.  Of course, as with all Ponzi schemes, early investors always get the best returns.  It should also be noted that Ida May Fuller was never married and had no children.  So who paid her benefits?

Again, one of the reasons to have children was to provide for one's dotage.  But with Social Security, the government would - like in the case of Ida Fuller - force other people's kids to pay for the retirement of those who didn't have kids.  Ida barely contributed to her retirement account and did not provide workers for the next generation.  During her life, she didn't have to spend time or money on raising those who would pay for her retirement.  It was the best of both worlds!  Enough people have figured out that their retirement will be paid by someone else's kids that we are now in a population bust.  Europe, having adopted these policies earlier, started down the path of bringing immigrants to fill in the missing generation.  That the immigrants haven't assimilated and don't seem interested in assimilating is a different problem.  The US has also gone down the immigration path to boost the population and keep those Social Security benefits flowing.  It too has found that the immigrants aren't so keen to assimilate.  Rather than the melting pot of old, it is now the tossed salad of Balkanization.  Japan, also suffering a population collapse, has not resorted to immigration but rather is investing heavily in robotics.

The government-run retirement system contributed to a drop in fertility which then led to a call for immigration which has brought Balkanization and cultural collapse.  The West is committing suicide through these good intentioned cradle-to-grave programs.  What to do?

Sadly, this is insolvable.  Social Security cannot be repealed.  The most reliable voting demographic won't allow it.  It must collapse of its own insolvency, which is unlikely to come before the tipping point of cultural collapse.  A cohort of young immigrant workers will rise up against the oppressive taxation that supports the retired elite.  If this happens to several European countries before it happens in the US, there may be the political will to reform the system.

In some distant future, a James Madison-like figure will talk about the failures of a government-run safety net and explain why it is explicitly forbidden in the founding documents of the next great republic.  Then again, Jefferson had already argued that the government that governs least, governs best.

Demographic Collapse

Here is an article that delves into Elon Musk's concern about shrinking populations in developed countries.  It is an interesting article with graphs, tables, projections, and potential consequences but it doesn't ask the important question: why have fertility rates plummeted?

 

In the comments section, one person suggests that secular regions see much lower fertility rates than religious ones.  This certainly reflects the situation in Europe - which has embraced secularism - and has very low fertility vs. the Islamic Middle East which has high fertility rates.  This is surely a factor.

 

What is more likely the reason for the collapse in fertility in the West is the social safety net.  Programs throughout the industrialized world have been implemented to guarantee an income and healthcare to the elderly.  In the United States, there is Social Security and Medicare.  Prior to these programs, people had to count on their children to take care of them in their old age.  When these programs came into being, the government guaranteed that other people's children would take care of them in their old age.  Unless someone had a real desire for offspring (an expensive and time-consuming commitment), one would be better off not having kids.  Europe was the first to embrace the cradle to grave safety net and is the first to suffer the inevitable cost-benefit analysis of rearing children.  Whereas it used to be that more kids would mean more workers on the farm and eventually more adults to support elderly parents, it is now a case of fewer children incurring lower costs to raise while satisfying the desire for parenthood for those who want them.  Therefore, the best way to reverse the fertility crisis would be to abolish the social safety net.  If you want the workers of tomorrow to support you in old age, you need to contribute to having workers of tomorrow.

 

Even if governments were to abolish the safety nets, the development of robots may provide a new safety net that will cause the demographic problem to persist.  The Japanese are far along in developing robots to take care of its aging population.  A robot labor force could thus exacerbate the demographic collapse.  It will be even worse when Skynet comes online.

Pyramids

The West has charted a course for its destruction and appears incapable of changing course as the doom becomes ever more obvious.  Having instituted programs such as Social Security and Medicare, the government unwittingly created a disincentive to have children.  Back in the old days, a kid was an extra worker on the farm.  Later still, the children that survived to adulthood became the caregivers for their parents.  Once the government promised to make other people's children pay for your retirement, the benefit of having children greatly diminished.  The fertility rates among Western countries have fallen while life expectancy has skyrocketed.  There are no longer enough workers to support the ever-expanding pool of government-funded retirees.  What to do?  There were two choices: wean the people off the unsustainable model because it is a Ponzi scheme or import more workers to take up the slack for a generation or two.  Without exception, every Western country has chosen the second option.  Now, decades into the process, the system remains unsustainable but is now made worse by vast populations that have not adopted Western values.  In Europe, these populations are strongly opposed to Western values.  These government pyramid schemes can continue for a bit longer, certainly long enough for the current batch of politicians to secure their futures while dooming the nations they 'represent.'

 

As I say, the doom is obvious and becomes more obvious with each passing year.  In Europe, fringe parties are gaining traction because the mainstream parties have steered the Titanic into the iceberg and are responding with nothing more significant that rearranging the deck chairs.  In the United States, the situation is sufficiently dire that Donald Trump is trouncing the mainstream version of the Republican Party.  Even among the Democrats, a socialist is providing far more of a challenge to Hillary Clinton than would ever have been thought possible.  Years of frustration with the government has led to this and it is only going to get worse.  No matter who wins, much of the country is going to be furious.  Expect another massive wave election in 2018 and more rumblings of Article V Conventions by the States.  It is going to get bumpier and more contentious as more power migrates to Washington.  Supreme Court nominations are going to be near impossible now that it has assumed the role of culture police - gay marriage in all 50 states, voters be damned.  Fasten your seatbelts!

Government Ponzi Scheme

When I was 17 and taking a civics class in high school, my teacher - Mr. Lindfors - asked the class how many of us thought Social Security would still be solvent when we retired.  The majority didn't think so.  Imagine, 30 young and dumb teenagers in 1984 had concluded that Social Security wasn't going to be around in 2036.  And the current numbers show that to be a perfectly rational assumption.  If those teenagers from 1984 get Social Security, it will be nowhere near as generous as it has been for current and past beneficiaries.

The first person to get a Social Security check was Ida May Fuller.  Ida retired in 1940 after having paid $24.75 into her 'lockbox.'  Her first benefit check was for $22.54, more than 90% of her contributions!  Then she lived to the ripe old age of 100, collecting $22,888.92, more than 900 times the amount she had paid into the system.  This was perhaps the greatest investment in the history of investments.  I can think of nothing else that had that kind of return.  Of course, Ida was an early investor in a Ponzi scheme.  Early investors do quite well.

Prior to Social Security and even after it for at least a generation, couples had children in order to support them in their old age.  But as Social Security seeped into the collective consciousness, many figured out that the government would force other people's children to take care of them in their old age.  Oh, it isn't sold that way.  "You paid into the system and now that you're old you get to take out."  Like Ida?  No, the returns are no longer quite that impressive but with longer life expectancy, people are taking out all they paid and then some.  This is possible because of the Baby Boomers, a huge cohort from the post-war years but, as noted, fertility rates have since dropped.  No one expects their kids to take care of them anymore.

Social Security is currently paying out more than it collects.  This means that rather than being a pool of money that Congress can spend (while slipping an IOU in a cabinet), it is now required to allocate current revenues to pay liabilities.  It will get worse as more Baby Boomers retire.  The same thing has happened in Europe.  They stopped having children and the governments responded by allowing more immigration (sound familiar) to make up the coming shortfall.  And it is still going to pot.

I freely admit that I was pretty dumb as a teenager but somehow on this issue, my classmates and I were wiser than we had any right to be.  In fact, we weren't any wiser, we were just honest.  The coming collapse of Social Security, Medicare, Obamacare, and all the other unfunded entitlements is the most predictable crisis in American history.  If government had to follow the same rules they impose on business, all of the listed programs would be subject to criminal prosecution.

Social Security Flipping Point

When I was a senior in high school, I took a political science class. The instructor was Mr. Lindfors. One day, he called for a show of hands of those who thought there would be no Social Security when we retired. The result was a majority. Here, a bunch of 17 and 18 year-old kids knew in 1984/5 that Social Security was a Ponzi scheme which would rob us but never benefit us. And, unlike a Madoff-type Ponzi scheme, we were required to invest! Thanks to forced contributions, the system has been 'solvent' during the intervening 25 years.

During that time, the government has been able to get away with excessive spending by 'borrowing' from Social Security Revenues. Social Security has generated more tax revenue than it spent, which allowed the Feds to spend the excess while placing an IOU in the Al Gore's "Lockbox." This year, Social Security has generated less revenue than it spent. Now, instead of spending the excess, the Feds must start paying back those IOUs. The timing could hardly be worse. The government has just passed a new health care entitlement that needs funding and finds that the magic income stream from Social Security has reversed course. Hard budget decisions must be made soon. Those decisions have been exacerbated by the passage of Obamacare, a program that will make Social Security seem cheap by comparison.

Social Security has an unfunded liability of more than $14 trillion. Sadly, it is in third place among America's unfunded liabilities. George W. Bush's ill considered drug benefit is number 2 at $18.6 trillion. Medicare dwarfs them both, having an unfunded liability of $75 trillion. This is economy-crushing debt. It has been coming for decades. No one can be surprised. But as long as it seemed to be in the distant future, no one wanted to fix the problem. It has been a political third rail.

This is understandable. Those now benefiting from these programs had to pay for the previous generation to receive the benefits. "I paid for it, now it's my turn." I get that. However, I am currently paying for it and will never get it. I have viewed that money as gone the moment it left my pay check. Now that the time has come to ween the public from this unsustainable entitlement in order to save the Republic from bankruptcy, we have instead added a new entitlement.