Aging Populations and Replacement Birthrate

Posted by PITHOCRATES - April 28th, 2014

Economics 101

(Originally published July 8th, 2013)

Trying to follow a Baby Boom with a Baby Bust creates Problems in Advanced Economies with Large Welfare States

In the late 1960s began a movement for zero population growth.  It called for women to have only enough babies to replace the current population.  Not to have too many babies that would increase the population.  Nor have too few babies that the population declines.  Something that women could easily do because of birth control.  And, later, abortion.  The drive behind this was to save the planet.  By keeping large populations becoming like a plague of locusts that devour the earth’s resources and food until the planet can no longer sustain life.

China did these zero population growth people better.  By promoting a negative population growth rate.  Limiting parents to one child.  They did this because during the days of Mao’s China the country set some world records for famine.  Their communist state simply couldn’t provide for her people.  So to help their communist system avoid future famines they tried to limit the number of mouths they had to feed.  Of course, trying to follow a baby boom with a baby bust creates other problems.  Especially in advanced economies with large welfare states.

China’s one-child policy and the preference for boys have led to a shortage of women to marry.  Some Chinese men are even looking at ‘mail-order’ brides from surrounding countries.  But China is going to have an even greater problem caring for her elderly.  Just like Japan.  Japanese couples are having less than 1.5 babies per couple.  Meaning that each successive generation will be smaller than the preceding generation.  As couples aren’t even having enough children to replace themselves when they die.  Leaving the eldest generation the largest percentage of the overall population.  Being paid and cared for by the smallest percentage of the overall population.  The younger generation.

States with Aging Populations are Suffering Debt Crises because they Spend More than their Tax Revenue can Cover

As nations develop advanced economies people develop careers.  Moving from one well-paid job to another.  As they advance in their career.  Creating a lot of income to tax.  Allowing a large welfare state.  Which is similar to a Ponzi scheme.  Or pyramid scheme.  As long as more people are entering the workforce than leaving it their income taxes can pay for the small group at the top of the pyramid that leaves the workforce and begins consuming pension and health care benefits in their retirement.  And there is but one requirement of a successful pyramid scheme.  The base of the pyramid must expand greater than the tip of the pyramid.  The wider the base is relative to the top the more successive the pyramid scheme.  As we can see here.

Babies per Generation - Constant Replacement Birthrate

Generation 1 is at the top of the pyramid.  It is the oldest generation.  Which we approximate as a period of 20 years.  In our example Generation 1 are people aged 78-98.  They’re retired and collecting pension, health care and other benefits.  Some combination of Social Security, Medicare, Medicaid, food stamps, heating assistance, etc.  All paid for by Generation 2 (58-78), Generation 3 (38-58) and Generation 4 (18-38).  Each generation is assumed to bring 6 children into the world.  So these couples are not only replacing themselves but adding an additional 4 children to further increase the size of the population.  Which really makes running a pyramid scheme easy.  For if we assume each member in Generation 1 on average consumes $35,000 annually in benefits that Generations 2 through 4 pay for that comes to $555.56 per person annually.  Or $46.30 per person monthly.  Or $10.68 per person weekly.  Or $1.53 per person daily.  Amounts so small that Generations 2 through 4 can easily pay for Generation 1′s retirement.  Now let’s look at the impact of a declining birthrate with each successive generation.

Babies per Generation - Declining Replacement Birthrate

When all couples in each generation were having on average 6 children this added 1.9 billion new taxpayers.  Which greatly reduced each taxpayer’s share of Generation 1′s retirement costs.  But thanks to birth control, abortion and the growing cost of living each successive generation has fewer babies.  Generation 2 only has 3 children.  Enough to replace themselves.  And add one new taxpayer.  Generation 3 has only 2 children.  Only enough to replace the parents.  Providing that zero population growth that was all the rage during the late 1960s and the 1970s.  While Generation 4 only has 1 child.  Not even enough to replace the parents when they die.  Causing a negative population growth rate.  Which is a big problem in an advanced economy with a large welfare state.  For instead of adding 1.9 billion new taxpayers they only add 217.5 million new taxpayers.  Greatly increasing each taxpayer’s share of Generation 1′s retirement costs.  Instead of paying $555.56 per taxpayer they each have to pay $5,384.62 annually.  Or $448.72 per taxpayer monthly.  Or $103.55 per taxpayer weekly.  Or $14.79 per taxpayer daily.  Numbers that prove to be unsustainable.  The state simply cannot tax people this much for Generation 1′s retirement.  For if they did this and added it to the rest of government’s spending they’re taxing us to fund it would take away all of our income.  This is why advanced economies with aging populations are suffering debt crises.  Because their spending has grown so far beyond their ability to pay for it with tax revenue that they borrow massive amounts of money to finance it.

If you want a Generous Welfare State you need Parents to have More Children

If you carry this out two more generations so every generation only has one child the per taxpayer amount tops out at $14,736.84 annually.  Or $1,228.07 per taxpayer monthly.  Or $283.40 per taxpayer weekly.  Or $40.49 per taxpayer daily.  Amounts far too great for most taxpayers to pay.  This is what an aging population does in a country with a large welfare state.  It makes the population top-heavy in elderly people who no longer work (i.e., pay taxes) but consume the lion’s share of state benefits.  When couples were having 6 children each across the generations there was a ratio of 84 taxpayers per retiree.  When there was a declining replacement birthrate that ratio fell to 15 taxpayers per retiree.  If we look at this graphically we can see the pyramid shape of this generational population.

Generational Population - Constant Replacement Birthrate

With 84 taxpayers per retiree we can see a nice and wide base to the pyramid.  While the tip of the pyramid is only a small sliver of the base (Generation 4).  Making for a successful Ponzi scheme.  Far more people pay into the scheme.  While only a tiny few take money out of the scheme.  This is why Social Security and Medicare didn’t have any solvency problems until after birth control and abortion.  For these gave us a declining replacement birthrate over time.  Greatly shrinking the base of the pyramid.  Which made the tip no longer a small sliver of the base.  But much closer in size to the base.  That if it was an actual pyramid sitting on the ground it wouldn’t take much to push it over.  Unlike the above pyramid.  That we could never push over.  Which is why the above Ponzi scheme would probably never fail.  While the one below will definitely fail.

Generational Population - Declining Replacement Birthrate

If you want a generous welfare state where the state provides pensions, health care, housing and food allowances, etc., you need parents to have more children.  For the more children they have the more future taxpayers there will be.  Or you at least need a constant replacement birthrate.  But if that rate is below the rate of a prior baby boom the welfare state will be unsustainable UNLESS they slash spending.  The United States has a replacement birthrate below the rate of a prior baby boom.  While the Obama administration has exploded the size of welfare state.  Especially with the addition of Obamacare.  Making our Ponzi scheme more like the second chart.  As we currently have approximately 1.75 taxpayers supporting each social security recipient.  Meaning that it won’t take much pushing to topple our pyramid. We’re at the point where a slight breeze may do the trick.  For it will topple.  It’s just a matter of time.

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The Left wants a Health Care System like Britain’s NHS despite the NHS having Crippling Deficits

Posted by PITHOCRATES - April 19th, 2014

Week in Review

Obamacare is not going well.  The say it is.  But it isn’t.  The White House can all of a sudden give us a number like 8 million enrollees when they said earlier they couldn’t tell until the insurance companies tell them.  And the other big question is this.  Are these enrollees?  Including all people who enrolled whether they paid or not?  Or are these only the people who paid?  Or are most of these people enrolling in Medicaid?  Those who won’t ever pay?  If that 8 million aren’t paying customers Obamacare is doomed.

So the financial foundation of Obamacare is likely very perilous.  Where the sick and poor are probably signing up more than the healthy with money.  And the delay of the employer mandate to sometime after the midterm election takes a bad financial foundation and makes it worse.  For they can’t keep delaying the funding parts until after elections.  Because someone has to pay for all of the subsidies.  As well as the high cost of the old and sick.  Which alone may bankrupt Obamacare (see Labour considers raising national insurance to fix £30bn NHS ‘black hole’ by Toby Helm posted 4/19/2014 on the guardian).

Radical plans to increase national insurance contributions to plug a looming £30bn a year “black hole” in NHS funding and pay the spiralling costs of care for the elderly are being examined by Labour’s policy review.

The Observer has learnt that the idea is among options being considered to ensure NHS and care costs can be met under a future Labour government, without it having to impose crippling cuts on other services in successive budgets.

Senior party figures have confirmed that a scheme advanced by the former Labour minister Frank Field – under which funds from increased NI would be paid into a sealed-off fund for health and care costs – is being examined, though no decisions have been taken.

Recent figures based on data from NHS England and the Nuffield Trust and produced by the Commons library suggest that NHS costs alone will go from £95bn a year now to more than £130bn a year by 2020.

Some have suggested that they designed Obamacare to fail.  So they can get what they really want.  Single-payer.  Or national health care.  Like they have in Britain with their National Health Service (NHS).  Which is running an enormous deficit.  Based on the above numbers it currently is 31.6% (£30bn/£95bn).  Which is just unsustainable.  But this is what an aging population will do.  When you have more people leaving the workforce consuming health care benefits paid for by fewer people entering the workforce.  Which should be a huge warning for the United States.  Because they have an aging population, too.

At the current exchange rate that £30 billion comes to $50.37 billion.  Is this what the US can expect?  No.  Because they have five-times the population Britain has.  So their deficit will be approximately five-times as big.  Or $251.85 billion.  That’s a quarter of a trillion dollar shortfall PER YEAR.  At least.  And $2.52 trillion over a decade.  So unless the Americans can somehow make their people less sick so they won’t consume health care resources the deficit alone for Obamacare will be more than twice the original CBO projection for the total cost over 10 years.  Which means the Americans will have to do what the British must do.  Increase taxes.  Charge for some health care services in addition to these higher taxes.  Or impose crippling cuts to services.  Hello rationing.  And longer wait times.

This is the absolute worst time to impose a single-payer/national health care system.  Just as the baby boom generation fills our health care system in their retirement.  It might have worked if we had kept having babies the way we did before birth control and abortion slashed the birthrate.  But we didn’t.  And now we have a baby bust generation stuck footing the bill for a baby boom generation.  Fewer paying for more.  And the only way to make that work is with confiscatory tax rates.  Or death panels.  Because you have to raise revenue.  Or cut costs.  There is just no other option.  Or people can work longer, pay out of pocket for routine, expected expenses and buy real insurance to protect themselves from catastrophic, unexpected medical expenses.  Which is actually another option.  And probably the only one that will work.

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Abortion is Good in the United States but Bad in China

Posted by PITHOCRATES - January 26th, 2014

Week in Review

Advanced economies with expansive welfare states are incurring large budget deficits and growing national debt.  Why?  Because of birth control.  And abortion.

These massive welfare states were implemented before the Sixties.  When people were having more babies than they are now.  Following World War II there was a baby boom.  Following the baby boom, though, there was a baby bust.  Fast forward to today and a lot of those baby boomers are leaving the workforce and collecting taxpayer-financed benefits in retirement.  While the smaller baby bust generation is paying the taxes for those benefits.  Resulting in less money going into the welfare state than is going out in benefits.  Giving those deficits.  And that growing national debt.

A declining birthrate is the death knell of a welfare state.  So if you want a healthy welfare state you need people to have more babies.  So each generation is bigger than the one before it.  So there is always more money going into the welfare state than is going out.  Allowing the state to pay for those generous benefits without going bankrupt.

So birth control and abortion can bankrupt advanced economies with generous welfare states.  But abortion can do something else (see One-Child Policy Is One Big Problem for China by Susan Scutti posted 1/23/2014 on Newsweek).

Late last year, China’s National People’s Congress eased the one-child policy. The government didn’t exactly admit it was a mistake; according to Chinese officials, the guidelines helped avert 400 million births and in so doing, accelerated modernization…

Enforcement of the one-child policy during the early 1980s was controversial not only in China but around the globe. Early stories emerging from the rural villages focused on coercive practices, including forced late-term abortions and involuntary sterilization, as well as the “neighborly” snitching on pregnant couples who dared to conceive a second child…

…In China, there are currently 32 million more boys under the age of 20 than girls.

Medical advancements and technology have played a key role in creating this surplus of boys. “The Chinese government contracted with GE to provide cart-mounted ultrasound that could be run on generators so that the most obscure village had access to fetal sex determination,” said Hudson. Given the ability to know the sex of their unborn children, many parents aborted female fetuses…

It appears that the outraged cries from within and without have been heard. The Chinese government has spent millions of dollars in recent years to fund research into the implications of this radical skew in gender population numbers.

Having more men than women has led to a lot of single men who want to marry but can’t.  As there are not enough women to match up with men.  Which has caused a lot of these men to turn to prostitutes.  Something human traffickers are more than happy to supply them with.  Sending women there from neighboring countries to work in the sex industry.

The world is outraged over the number of aborted female fetuses in China.  Including the American left.  Yet they have no problem with abortion.  Aborting female fetuses is wrong.  But aborting male AND female fetuses is fine.  Apparently.  As abortion is sacred to those on the left.  Just mention that you want to revisit Roe v. Wade and see them go apoplectic.  For that is settled law.  And anyone who wants to take away a woman’s right to have an abortion is waging a war on women.  While in China abortion itself is the war on women.  So on the one hand abortion is the great liberator of women (outside of China).  While on the other hand it is the great exterminator of women (inside of China).  So it’s both good and bad.  When you use the imaginary logic of liberals, that is.

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Family Farms, Big City Factories, Fertility Rates and Federal Debt

Posted by PITHOCRATES - July 9th, 2013

History 101

The Mechanization of the Farm began a Migration from the Country to the Cities

Before the Industrial Revolution (1760-1830ish) if you worked you most probably farmed.  For most everyone from the dawn of civilization on the Nile, the Euphrates & Tigris, the Indus and the Yangtze farmed.  To produce food for the civilization for the good times.  And food surpluses for the bad times.  For having enough to eat was never a sure thing.  And surviving the winter was a challenge.

What early civilizations needed were a lot of people to work the land.  For large-scale farming could produce large harvests.  Enough to feed everyone during the good times.  During the winters.  And even the occasional drought.  But it could be a risky game to play.  Because a lot of people to work the land also meant a lot of mouths to feed.  Which meant everyone worked the fields.  Men.  Women.  And children.  Anyone who ate worked.  As they did on the family farm.  Which is why they had large families.  For the more children they had the more land they could work.  Allowing them to eat during the good times.  During the winters.  The occasional drought.  While having large food surpluses to sell.  Allowing them to build wealth.  Just like the landowners in the Old World.  The aristocracy.  Only instead of peasants working the land it was family.

But with the Industrial Revolution came change.  The steam engine mechanized farming.  Allowing fewer people to produce more.  Also, steam power allowed factories away from rivers.  As they no longer needed moving water to turn a waterwheel.  So factories filled our cities.  Creating a lot of jobs.  This and the mechanization of the farm requiring fewer hands to work the land began a migration.  Of people from the country.  To the cities.

The Migration from the Family Farm to the Big City got People used to Bigger Government and Taxes

The world modernized in the 1800s.  Food was never more plentiful.  Allowing more people to leave the farm.  And think about other things.  Like electrical engineering.  Nikola Tesla gave us AC electric power.  And the AC electric motor.  Changing manufacturing forever.  Those little spinning machines filled our factories.  And operated the machines in those factories.  Everything we ever made we made better and more efficiently thanks to the electric motor.  Allowing us to manufacture more than ever.  And manufacture more complex things.  Factories grew.  With many levels of manufacturing contained within.  Packing more people than ever in these factories.

The common perception of this industrial world is of sweatshops.  Child labor.  Soot and smoke casting a pall over overcrowded cities.  Where people packed into overcrowded housing.  Thanks to that migration from the family farm to the big city factories.  Which changed things.  Instead of people raising a large family on a large farm where there was plenty of room and plenty of food to eat these families were living in cramped apartments in the crowded city.  And they had to pay for the food they ate.  And the more mouths they had to feed the more money it took.  This was a big change.  Whereas on the farm a large family meant more food.  And more wealth.  In the city, though, more children meant less food for everyone else to eat.  And more poverty.

The growth of cities also caused another change.  When people lived on scattered farms they didn’t need any government services.  But in the crowded cities they did.  Homes had utilities.  And sanitation.  Cities also had streets.  Which the city needed to maintain.  Eventually there was street lighting.  And traffic signals.  Police departments.  Fire departments.  Schools.  And teachers.  All of these things cost money.  And we paid for them with taxes.  Getting people used to bigger government.  And bigger taxes.  Then the progressives entered government at the federal level.  Who wanted government to do at the federal level what it did at the local level.  Be mother to the people.  Instead of just doing those things the Constitution said it should do.

A Falling Fertility Rate forced the Government to go into ‘World War’ Debt just to pay for Social Security and Medicare

The fertility rate (the number of children a woman has during her child-bearing days) fell all during the 1800s.  As large families went from being wealth producers on the farm to poverty inducers in the cities.  While federal debt from the American Revolutionary War fell during the early 1800s.  The debt fell because there wasn’t a lot of federal spending.  So it wasn’t hard to retire that debt.  But that federal restraint didn’t last.  There was a spike in federal debt (as a percent of GDP) following American Civil War (1861-1865) as they had to borrow heavily to pay for that war.  But after the war the debt level did not fall back to pre-war levels.  A trend that would continue.  As we can see here.

Fertilty Rate versus Debt as Percent of GDP

There was another spike in federal debt following World War I (1917-1918).  But the debt level never fell back to pre-war levels.  Then the Great Depression and the New Deal (1930s) began another spike in Federal debt.  That World War II took to record highs.  And once again after the war the federal debt did not fall back to pre-war levels.  Then came President Reagan.  Who had the guts to call communism what it was.  A failed economic system that oppressed its people and was the greatest killer of the 20th century.  To push the Soviet Union into the ‘ash heap of history’ Reagan forced them to spend more than they could afford.  By ramping up defense spending to a level the Soviets couldn’t match.  Which ultimately won the Cold War (1947-1991, with Reagan delivering the knockout blow during his presidency (1981-1989) ).  But federal debt levels, once again, did not fall back to pre-war levels.  In fact, despite the peace dividend President Clinton inherited he still raised federal spending.  Just at a reduced rate than it was during the Cold War.  President Bush gave us Medicare Part D (drugs for seniors).  Then came 9/11.  And the War on Terror.  Then President Obama.  Who despite ending the Iraq War had the greatest budget deficits of any president.  As he spent more than any other president.  As he tried to transform the country into a European social democracy.  Sending out debt soaring to new heights.

FDR gave us Social Security in 1935.  At the tail-end of a long decline in the fertility rate.  Promising great benefits to future retirees.  Which LBJ added to during the Sixties with his Great Society.  During the post-war baby boom.  Perhaps assuming that increasing fertility rate would provide a lot of new taxpayers in the future when the weight of all these new government programs (FDR’s and LBJ’s) would be felt.  But then two things happened that they didn’t quite plan on.  The birth control pill and abortion created a baby bust following the baby boom.  Worse, thanks to modern medicine people were living longer into retirement.  Consuming more Social Security and Medicare benefits than anyone had ever imagined.  And just when the full force of those baby boomers was going to hit there were going to be fewer taxpayers around to pay for it.  Thanks to that baby bust.  More retirees paid for by fewer taxpayers.  A recipe for disaster.  Which is why debt soared towards World War II highs following the Cold War.  Even though there was no world war.  Because the cost of all those government benefits far exceeded the tax revenue.  Forcing the government to go into ‘world war’ debt just to pay for Social Security.  Medicare.  And everything else the federal government was providing so they could play mother to the American people.

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Aging Populations and Replacement Birthrate

Posted by PITHOCRATES - July 8th, 2013

Economics 101

Trying to follow a Baby Boom with a Baby Bust creates Problems in Advanced Economies with Large Welfare States

In the late 1960s began a movement for zero population growth.  It called for women to have only enough babies to replace the current population.  Not to have too many babies that would increase the population.  Nor have too few babies that the population declines.  Something that women could easily do because of birth control.  And, later, abortion.  The drive behind this was to save the planet.  By keeping large populations becoming like a plague of locusts that devour the earth’s resources and food until the planet can no longer sustain life.

China did these zero population growth people better.  By promoting a negative population growth rate.  Limiting parents to one child.  They did this because during the days of Mao’s China the country set some world records for famine.  Their communist state simply couldn’t provide for her people.  So to help their communist system avoid future famines they tried to limit the number of mouths they had to feed.  Of course, trying to follow a baby boom with a baby bust creates other problems.  Especially in advanced economies with large welfare states.

China’s one-child policy and the preference for boys have led to a shortage of women to marry.  Some Chinese men are even looking at ‘mail-order’ brides from surrounding countries.  But China is going to have an even greater problem caring for her elderly.  Just like Japan.  Japanese couples are having less than 1.5 babies per couple.  Meaning that each successive generation will be smaller than the preceding generation.  As couples aren’t even having enough children to replace themselves when they die.  Leaving the eldest generation the largest percentage of the overall population.  Being paid and cared for by the smallest percentage of the overall population.  The younger generation.

States with Aging Populations are Suffering Debt Crises because they Spend More than their Tax Revenue can Cover

As nations develop advanced economies people develop careers.  Moving from one well-paid job to another.  As they advance in their career.  Creating a lot of income to tax.  Allowing a large welfare state.  Which is similar to a Ponzi scheme.  Or pyramid scheme.  As long as more people are entering the workforce than leaving it their income taxes can pay for the small group at the top of the pyramid that leaves the workforce and begins consuming pension and health care benefits in their retirement.  And there is but one requirement of a successful pyramid scheme.  The base of the pyramid must expand greater than the tip of the pyramid.  The wider the base is relative to the top the more successive the pyramid scheme.  As we can see here.

Babies per Generation - Constant Replacement Birthrate

Generation 1 is at the top of the pyramid.  It is the oldest generation.  Which we approximate as a period of 20 years.  In our example Generation 1 are people aged 78-98.  They’re retired and collecting pension, health care and other benefits.  Some combination of Social Security, Medicare, Medicaid, food stamps, heating assistance, etc.  All paid for by Generation 2 (58-78), Generation 3 (38-58) and Generation 4 (18-38).  Each generation is assumed to bring 6 children into the world.  So these couples are not only replacing themselves but adding an additional 4 children to further increase the size of the population.  Which really makes running a pyramid scheme easy.  For if we assume each member in Generation 1 on average consumes $35,000 annually in benefits that Generations 2 through 4 pay for that comes to $555.56 per person annually.  Or $46.30 per person monthly.  Or $10.68 per person weekly.  Or $1.53 per person daily.  Amounts so small that Generations 2 through 4 can easily pay for Generation 1’s retirement.  Now let’s look at the impact of a declining birthrate with each successive generation.

Babies per Generation - Declining Replacement Birthrate

When all couples in each generation were having on average 6 children this added 1.9 billion new taxpayers.  Which greatly reduced each taxpayer’s share of Generation 1’s retirement costs.  But thanks to birth control, abortion and the growing cost of living each successive generation has fewer babies.  Generation 2 only has 3 children.  Enough to replace themselves.  And add one new taxpayer.  Generation 3 has only 2 children.  Only enough to replace the parents.  Providing that zero population growth that was all the rage during the late 1960s and the 1970s.  While Generation 4 only has 1 child.  Not even enough to replace the parents when they die.  Causing a negative population growth rate.  Which is a big problem in an advanced economy with a large welfare state.  For instead of adding 1.9 billion new taxpayers they only add 217.5 million new taxpayers.  Greatly increasing each taxpayer’s share of Generation 1’s retirement costs.  Instead of paying $555.56 per taxpayer they each have to pay $5,384.62 annually.  Or $448.72 per taxpayer monthly.  Or $103.55 per taxpayer weekly.  Or $14.79 per taxpayer daily.  Numbers that prove to be unsustainable.  The state simply cannot tax people this much for Generation 1’s retirement.  For if they did this and added it to the rest of government’s spending they’re taxing us to fund it would take away all of our income.  This is why advanced economies with aging populations are suffering debt crises.  Because their spending has grown so far beyond their ability to pay for it with tax revenue that they borrow massive amounts of money to finance it.

If you want a Generous Welfare State you need Parents to have More Children

If you carry this out two more generations so every generation only has one child the per taxpayer amount tops out at $14,736.84 annually.  Or $1,228.07 per taxpayer monthly.  Or $283.40 per taxpayer weekly.  Or $40.49 per taxpayer daily.  Amounts far too great for most taxpayers to pay.  This is what an aging population does in a country with a large welfare state.  It makes the population top-heavy in elderly people who no longer work (i.e., pay taxes) but consume the lion’s share of state benefits.  When couples were having 6 children each across the generations there was a ratio of 84 taxpayers per retiree.  When there was a declining replacement birthrate that ratio fell to 15 taxpayers per retiree.  If we look at this graphically we can see the pyramid shape of this generational population.

Generational Population - Constant Replacement Birthrate

With 84 taxpayers per retiree we can see a nice and wide base to the pyramid.  While the tip of the pyramid is only a small sliver of the base (Generation 4).  Making for a successful Ponzi scheme.  Far more people pay into the scheme.  While only a tiny few take money out of the scheme.  This is why Social Security and Medicare didn’t have any solvency problems until after birth control and abortion.  For these gave us a declining replacement birthrate over time.  Greatly shrinking the base of the pyramid.  Which made the tip no longer a small sliver of the base.  But much closer in size to the base.  That if it was an actual pyramid sitting on the ground it wouldn’t take much to push it over.  Unlike the above pyramid.  That we could never push over.  Which is why the above Ponzi scheme would probably never fail.  While the one below will definitely fail.

Generational Population - Declining Replacement Birthrate

If you want a generous welfare state where the state provides pensions, health care, housing and food allowances, etc., you need parents to have more children.  For the more children they have the more future taxpayers there will be.  Or you at least need a constant replacement birthrate.  But if that rate is below the rate of a prior baby boom the welfare state will be unsustainable UNLESS they slash spending.  The United States has a replacement birthrate below the rate of a prior baby boom.  While the Obama administration has exploded the size of welfare state.  Especially with the addition of Obamacare.  Making our Ponzi scheme more like the second chart.  As we currently have approximately 1.75 taxpayers supporting each social security recipient.  Meaning that it won’t take much pushing to topple our pyramid. We’re at the point where a slight breeze may do the trick.  For it will topple.  It’s just a matter of time.

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Aging Populations and State-Provided Health Care will Stress State Systems to Collapse

Posted by PITHOCRATES - June 16th, 2013

Week in Review

When people provided their own health care and retirement nest eggs it didn’t matter if the population was aging or getting younger.  For each person planned to take care of him or herself.  But when the government took over health care and retirement nest eggs the age of the population began to matter.  For when the state provides these benefits they have to pay for them via taxes.  And if the population is aging that is a big problem.  Because more people are leaving the workforce and consuming health care and pension benefits than there are entering the workforce to pay for them.

Which means the government has to increase tax rates on those paying for these benefits.  And when people are living longer into retirement it really throws a wrench into the state’s plans.  For it is requiring a level of taxation that simply isn’t possible.  And this is exactly what the baby boom generation is doing to advanced welfare states throughout the world.  It’s causing greater governmental expenditures.  Resulting in larger budget deficits.  And financial crises (see Our aging population set to put a heavy toll on our systems, and we’re not ready by Simon Kent and Shawn Jeffords posted 6/14/2013 on the Toronto Sun).

The first baby boomers began turning 65 in 2012, and by 2036, one out of every four of our neighbours will be elderly…

“We don’t have a health care system in Canada, we have an acute care system,” [Sharon] Carstairs [former senator and was the first woman to lead an opposition party in Canada] after becoming Manitoba’s Liberal leader in the ’80stold QMI Agency.

The very sick are cared for well but we don’t do a good job of keeping others at home and out hospitals and high-cost facilities.

“We’re using acute care hospital beds to hold thousands of Canadians who should be in long-term care or home care,” she says…

Canada has a “little bit of breathing space” for preparations to cope with aging boomers, but not much, suggests University of Toronto professor emeritus David Foot, one of the country’s most respected demographers.

“We need to get this right to prepare for that boomer onslaught,” Foot says. “We can have an excellent system if we choose to.”

Zero hour is 2027.

“The first boomer born in 1947 reaches 80 in 2027,” Foot says.

That’s when the critical mass, the largest bulge of the baby boom, approaches 80 and will require the most care of their lives…

Canada needs to train gerontologists, therapists, psychiatrists, palliative care nurses and specialists, replace the workforce of aging nurses and the army of some 3 million volunteers who currently provide the bulk of in-home care to seniors, say experts…

“The sheer number of baby boomers that will be drawing on the system will magnify and put pressures on the systems that has not been felt before,” he says.

Both the United States and Canada have aging populations.  And a baby boomer bulge coming down the pike.  It will make it very difficult in Canada.  And far worse in the United States.  For they have about 9-times the population of Canada.  And will have 9-times the baby boomer bulge.  Making it a very poor time for the state to take over more pension and health care spending obligations.  Which is exactly what the Americans did by passing Obamacare into law.

The United States is already suffering record trillion dollar deficits.  By the time Obamacare pays to train gerontologists, therapists, psychiatrists, palliative care nurses, specialists, etc., and builds nursing homes to handle the baby boomer bulge the deficit will soar even higher.  Unless there really are death panels in Obamacare.  Which may be the only way not to break the fiscal back of the nation.  Well, there’s that.  Or they could let people provide their own health care and retirement nest eggs like they once did.  And then the age of the population would be irrelevant.  For it basically comes down to these two options.  Either we pay for our own health care and retirement.  Or the government will have to figure out how to cut costs.  And how do you do that when the largest cost is caring for the very old and the very sick?  In a word, death panels.  Well, two words, actually.

Welcome to the brave new world of Obamacare.

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Woodrow Wilson, FDR, Progressivism, Great Depression, Creeping Socialism, Social Security, Baby Boom and Baby Bust

Posted by PITHOCRATES - January 15th, 2013

History 101

The Policies of Herbert Hoover and FDR caused and prolonged the Great Depression

Franklin Delano Roosevelt (FDR) took Rahm Emanuel’s advice.  Long before Rahm Emanuel gave it.  FDR did NOT let a good crisis go to waste.  And as far as crises go, none were better than the Great Depression.  After the government’s bad policies (wage and price controls, higher taxes, Smoot-Hawley Tariff Act, etc.) caused the Great Depression and then their monetary contraction caused the massive bank failures the poverty rate soared for senior citizens.  FDR saw that suffering and thought here was a way to forever lock in the senior vote.  Give seniors a government pension.  And put the fear of God in them that the opposition wants to take it away.

At the turn of the Twentieth century the new thing in politics was progressivism.  Smart government people intervening into our private lives to make things better.  The size of the federal government exploded during the presidency of Woodrow Wilson.  He gave us the Federal Reserve System.  America’s central bank.  That would prevent anything like the Great Depression from ever happening.  Which it failed to do.  As the Great Depression happened on their watch.  He gave us a permanent federal income tax.  He attacked the U.S. Constitution.  Making the case for expansive presidential powers.  And used the courts to get around Congressional opposition.  As well as the U.S. Constitution.

The political opposition fought back against Wilson’s power grab.  Defeating the progressive successor in the next election.  And returning the country to normalcy.  Warren G. Harding and Calvin Coolidge undid much of the anti-business policies of the Wilson administration.  Returning the nation to prosperity.  And giving us the Roaring Twenties.  Where the nation modernized with electric power, the automobile, radio, etc.  Unlike the speculative dot-com bubble of the Nineties.  Where investors poured money into dot-com companies that never made anything to sell.  The Federal Reserve was a little loose with their monetary policy causing some inflation in the Twenties.  But the economic activity was so robust that it absorbed that inflation.  Then the progressives got back in power.  First the Republican Herbert Hoover.  Then the Democrat FDR.  Whose policies caused and prolonged the Great Depression.

When FDR gave us Social Security it only cost Employer and Employee each 1 Cent of every Dollar up to $3,000

FDR was picking up where Wilson left off.  Expanding the federal government.  And the power of the presidency.  Using the federal courts like Wilson to bypass Congress.  And the U.S. Constitution.  Marking yet another departure from the free market capitalism that founded the country.  And made it the world’s number one economy.  It was a creeping socialism.  At least, that’s how the political opposition saw.  Especially with Social Security.  Which helped tip the power from the states to the federal government.  Just as Thomas Jefferson feared a strong executive would do.

Of course, the progressives played on our emotions.  These were, after all, destitute seniors.  We had to take care of these people.  Our fathers.  Our mothers.  Our grandparents.  Who sacrificed for us.  Now it was time to sacrifice a little for them.  And they promised it would be a little.  Both employer and employee would only pay 1 cent on every dollar earned up to $3,000 a year.  That’s all.  Only $30 a year (about $483.58 today).  And how could such a small amount be socialism?  The problem was that it didn’t stay only 1 cent on every dollar earned up to $3,000 a year.  The tax rate went up.  As well as the maximum taxable earnings.  The government has increased them both.  Often.

(source: Historical Social Security Tax Rates)

That low tax rate lasted barely a decade.  Then they started raising the maximum taxable earnings.  Not much for the first 30 years or so.  But once the Seventies arrived that maximum amount grew at an accelerated rate.  Despite the increasing tax rate.  Thanks to President Nixon decoupling the dollar from gold.  And ushering in the era of out of control Keynesian economics.  Where the government inflated the money supply like there was no tomorrow.  Devaluing the dollar at an alarming rate.  Which is why they increased the maximum amount of earnings at an accelerated rate.  Because constantly devaluing the dollar reduced what those Social Security checks could buy.  So they had to keep making those checks bigger.  And that required more tax revenue.

The Social Security Tax Rate held Steady during the Nineties thanks to the Dot-Com Bubble and Japan’s Lost Decade

But it’s worse than that.  For it’s just not bad monetary policy forcing the increases in the tax rate as well as in the maximum taxable earnings.  Something else happened during the Seventies.  Birth rates fell.  The baby boom ended in the Sixties.  But not the baby making activities.  They just continued along without producing new taxpayers.  Thanks to birth control and abortion.  Also, over the years they expanded the Social Security program to provide for more than just those destitute seniors.  So the benefits of the program greatly increases just as the falling birth rate reduce the growth rate of tax revenue.  As the number of people leaving the workforce grew at a greater rate than those entering the workforce.  Which is why when you convert the dollars into constant dollars the graph doesn’t change much.

We finance most wars with inflation.  By printing money to expand the money supply.  To give the government all the cash they need to buy the instruments of war.  And to pay, feed and clothe their military personnel.  We can see this rapid inflation during World War II as the real dollar amount of the maximum taxable earnings fell.  That changed in 1951.  When they started to increase that maximum amount.  That and the higher tax rate stabilized things for awhile.  Then the Seventies came along.  Where both the tax rate and the maximum taxable earnings amount continued to rise.  Even in real dollars.  Reflecting the growth in benefits.  And the fall in tax revenue.  Thanks to the baby bust following the baby boom.

The tax rate held steady during the Nineties thanks to the surpluses of the Clinton administration.  Due to that dot-com bubble.  And Japan’s Lost Decade.  Whose bad economic times helped boost the American economy.  Still they had to keep raising the maximum earnings amount.  As the baby boomers started retiring.  Then Clinton’s dot-com bubble burst.  Giving George W. Bush a recession to start his presidency.  His tax cuts pulled us out of that recession.  Then Bill Clinton’s revamping of the Community Reinvestment Act caught up with us.  Giving us the subprime mortgage crisis in 2008.  And the Great Recession.  Which President Obama tried to ameliorate by reducing the employee’s Social Security tax rate from 6.2% to 4.2% in 2011.  For his near trillion dollar stimulus bill failed to end the Great Recession in 2009.  As his Social Security tax cut failed to do in 2011.  Which was not enough to overcome his anti-business policies (such as Obamacare).  All he did was starve Social Security of hundreds of billions in revenue.  Making the Social Security funding problem worse in the long run.  Requiring even higher tax rates than that once promised 1% (for both employer and employee).  On earnings more than that promised $3,000 (about $48,000 today).

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Thanks to Advances in Medical Care People are Living long enough to Bankrupt Social Security and Medicare

Posted by PITHOCRATES - December 16th, 2012

Week in Review

People talk a lot about an aging population.  The cost impact on Social Security.  Medicare.  And pensions.  Something the actuaries are experts at doing.  Calculating costs.  The only problem for Social Security, Medicare and pensions is that when the experts calculated these costs medical care wasn’t as good as it is today.  And people were dying a lot earlier than they are today.  And this is the cost impact of an aging population.  People that are NOT dying as early as the actuaries originally calculated (see A sick world: We live longer, with more pain and illness by Kate Kelland posted 12/13/2012 on Reuters).

The world has made huge progress fighting killer infectious diseases, but as a result we now lead longer and sicker lives, with health problems that cause us years of pain, disability and mental distress…

The Global Burden of Disease study, led by the Institute for Health Metrics and Evaluation (IHME) at Washington University, finds that countries face a wave of financial and social costs from rising numbers of people living with disease and injury.

Social Security, Medicare and pensions are going broke because people stopped having babies during the Sixties and Seventies like they used to have before then.  As birth control and abortion came into vogue.  This became a big problem because it followed the baby boom.  The rate of older sicker people leaving the workforce who no longer paid income taxes grew at a greater rate than younger healthier people entering the workforce who paid income taxes.  And the older people are living longer.  So long that they can get sicker and become more costly to care for.  All because they’re living 10-20 years longer than the actuaries originally calculated.  Thanks to advances in medical care.

Things will get worse before they get better until the last of the baby boomers die.  And these two growth rates approach each other.  And pass.  Going from an aging population to one that grows younger.  So the number of taxpayers once again grows at a greater rate than tax consumers.  Which Obamacare will help speed along with their quasi death panels.

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Baby Boom causes new Short-Term Cost Pressures for NHS but offers Long-Term Hope

Posted by PITHOCRATES - November 17th, 2012

Week in Review

Now that President Obama won reelection and the Democrats retained the Senate Obamacare is here to stay.  Unless something happens in the 2014 midterm elections that turns Congress over to the Republicans with supermajorities that will allow them other ways to defund or otherwise shutdown Obamacare.  Or the states stand together on their end and refuse to implement Obamacare.  But unless these things happen Obamacare is here to stay.  Perhaps one day evolving into a full blown national health care system.  Which they designed it to do.  By putting in requirements that encourage employers to drop health care.  Opening the door for the government to step in to save the day from the health care crisis they created.

So what will life be like under Obamacare?  Start following what’s happening in the British National Health Service (NHS).  And you’ll get an idea of what national health care is like (see New baby boom to put ‘enormous’ strain on NHS by Stephen Adams posted 11/12/2012 on The Telegraph).

In the first three months of this year alone, 4,600 more babies were born than during the same period last year, according to official figures

Midwives are warning that the trend is continuing and will swell births to more than 700,000 in England this year – the first time that level has been reached since 1971.

Birth rates have been on the rise for a decade, due principally to immigration, with the number growing by about 12,000 a year…

Professor Cathy Warwick, chief executive of the Royal College of Midwives, said the increase was putting “enormous” strain on the NHS…

Before David Cameron came to power, he promised another 3,000 midwives across the NHS, but to date only an extra 900 have been employed.

The RCM is arguing another 5,000 are needed across England, to keep pace with the rising number of births…

A recent RCM poll of more than 2,000 midwives found nine in 10 did not feel they could give women all the care and support they needed.

A lack of midwives has been cited as one reason for the high proportion of caesareans in Britain, with mothers sometimes opting for surgery to avoid repeating a traumatic first birth.

The NHS is struggling to slash its budget.  For before this current baby boom birthrates had been falling after the establishment of the NHS.  Shrinking the tax base.  And the funding for the NHS.  At a time when people were living longer thanks to advances in health care.  So the NHS finds itself chronically underfunded thanks to that shrinking tax base.  And overburdened by more elderly people living longer after retirement consuming a lot of health care resources.  Which is why the NHS relies on midwives to deliver babies.  Often in the mother’s home.  To relieve the hospital of an enormous expense of handling something so mundane and routine as delivering a baby.  Midwives are a way to cut costs.  Without sacrificing quality health care.  As most births proceed without any complications.  When there are complications they take the mother to a hospital.

Midwives help the NHS spread their limited resources over as many people as possible.  Much like the quasi death panel Liverpool Care Pathway.  By encouraging people to let their loved dies instead of trying to prolong their lives with costly health care resources.  Of course, the NHS is currently revising their constitution to make sure those decisions are based on the patient’s best interests and not the hospital’s bottom line.

And speaking of bottom lines there is nothing like a baby boom to solve a government-funded organization’s chronic underfunding.  Because babies become taxpayers.  When they join the workforce.  And if they sustain this baby boom long enough it may bring the age of the British population down.  By having more people entering the workforce than leaving it.  Provided there are jobs for them when they are ready to enter the workforce.  So a rising population growth rate can’t fix all of their problems alone.  They also need a business-friendly environment that will create jobs to employ these new taxpayers.

Of course you know what will happen then.  After the baby boom creates a tax revenue boom the government will make more spending obligations it won’t be able to meet once their population ages again.  And they will be right back where they started from.  Only the spending obligations will be greater the next time around.  And here lies the problem.  It’s the spending that is the problem.  Always has been.  And always will be.  If governments stopped spending themselves into these kinds of messes they wouldn’t have these problems to begin with.  And the Americans have just given themselves a spending obligation that will create the mother of all messes.  Obamacare.  And whatever it will evolve into.  For the US has about 5 times the population of the UK.  So its cost pressures will probably be 5 times what the NHS is feeling.  Or more.  So the Americans can expect midwives to replace the maternity wards their mothers gave birth in.  And a Liverpool Care Pathway quasi death panel.  Why?  Because if the British couldn’t avoid these things than it isn’t likely the Americans will with 5 times the cost pressures.

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President Obama to Raise Taxes but it won’t Help our Budget Woes

Posted by PITHOCRATES - November 11th, 2012

Week in Review

It takes two things to make tax revenue.  Tax rates.  And economic activity.  For if you don’t have the economic activity it doesn’t matter what the tax rates are.  Because any given percentage of smaller amount of national income will be less than the same percentage of a larger amount of national income.  That is, higher incomes produce more tax revenue.  Not higher tax rates.  It’s simple arithmetic.  Something the Democrats talked a lot about in the recent campaign.  As if they understand this simple arithmetic.  Yet they don’t seem to understand that taxing a bigger pile of money produces more tax revenue that taxing a smaller pile of money (see Obama Wins 2012 Election: Why Your Taxes Are Going Up by Morgan Korn posted 11/7/2012 on Yahoo! Finance).

Obama has vowed to raise the top income tax rate for individuals to 39.6% and let the Bush-era tax breaks end for the highest income earners. The majority of Americans — those who are lower to middle class — could also see a 2% tax increase if Congress allows the temporary payroll tax holiday to expire at the end of the year…

Len Burman, a professor of public affairs at Syracuse University and a co-founder of the bipartisan Tax Policy Center, believes higher tax rates play just a small role in resolving the nation’s budget woes.

“In the long term [Obama] is going to need to raise taxes on more than just the rich,” Burman says in an interview with The Daily Ticker. “The budget problem isn’t going to be solved without broader-based tax increases, preferably done in the context of tax reform and also serious entitlement reform. We’re not going to be able to solve this on the tax side alone.”

After World War II our veterans came back home and started making babies.  Giving us the baby boom.  And the baby boomers.  Who entered the workforce about 20 years later.  Causing a boom in the tax base.  Resulting in a higher national income.  And higher tax revenues.  Which LBJ put to good use with his Great Society.  Giving us Medicare that cost a small fraction of our incomes in payroll taxes.  It was nothing in the grand scheme of things.  While the benefits were huge for our seniors.

So the welfare state exploded.  Thanks to that increasing tax base.  And those veterans making so many babies.  But then something happened in the Sixties.  Those baby boomers did not return the favor and continue the baby boom.  Instead opting to have fun instead.  Enter birth control.  And abortion.  Birthrates fell.  In time fewer people entered the workforce than left it.  Causing the population to age.  And the tax base to shrink.  All while those new entitlement programs continued to grow.  So fewer and fewer people paid for more and more entitlements.  A recipe for disaster.  A recipe for what we have today.  Entitlement spending obligations greater than the current tax base can afford.  And you can’t fix that with higher tax rates or new taxes.  You need a larger tax base (i.e., another baby boom).  Or entitlement reform.

It would take another 20 years for a new baby boom to produce new taxpayers.  So that leaves entitlement reform as our only choice.  And the only serious attempt to reform entitlements was roundly dismissed by the Democrats when Paul Ryan put his plan on the table.  Which was the only plan.  The only problem with the Ryan plan was that politicizing it would benefit the Democrats in the upcoming election.  So that’s what they did.  For winning elections trumps everything for Democrats.  Even saving Medicare.

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