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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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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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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China has no Pension or Health Care Benefits for their Rapidly Aging Population unlike in the West

Posted by PITHOCRATES - September 22nd, 2012

Week in Review

The Chinese economy is cooling off.  Worse, they have some even more bad news in their future (see Ageing China: Changes and challenges by Damian Grammaticas posted 9/20/2012 on BBC News China).

Life expectancy in China today rivals that in the West – it is one of this country’s impressive advances. Except China has not yet built a social safety net to provide pensions, affordable healthcare or homes for all its elderly.

Yet another reason why the Chinese economy is outpacing those in the West.  While Europe and the United States have suffered from the effects of an aging population China hasn’t.  At least, not yet.  While those in the West keep raising taxes and selling sovereign debt to pay for pensions and health care for the elderly and retired China has been growing their economy and using its proceeds to buy the sovereign debt of those Western nations.

So what is it like living in a nation without a social safety net?

“We don’t get a government pension because I never paid taxes. We don’t have any savings,” he says.

Because he has children and a wife, he does not qualify for a place in a care home – only those without relatives are eligible.

Of Henan’s 8.5 million elderly, just 2% are cared for in nursing homes. So Niu Yubiao and his wife fend for themselves.

The couple have seven grown-up children. But like other young people in the area, they have left home to look for work. Niu Yubiao has no idea where they are.

The reason why they don’t have any savings is not because they are greedy and materialistic.  It’s because they live in abject poverty.  And barely earn enough to survive.  This is what it’s like in China once you leave the modern cities on the coast.  The economic miracle of China has not reached the impoverished masses in their interior.

Today, there are 180 million Chinese aged over 60, just over 13% of the population. That will double to 360 million in fewer than 20 years, when China will have more retirees than the entire population of the US.

By the middle of the century, their ranks will soar again to 480 million.

China is ageing so fast that a process that took up to a century in the West will happen in the coming 30 years here. And as the ranks of the elderly swells, the working-age population is starting to shrink…

China’s incredible economic growth has been built on its vast, cheap labour supply. But the numbers entering the workforce have started falling. China’s birthrate has collapsed – at its peak in the mid-1980s 25 million babies were born every year. Now there are about 15 million births a year. The dramatic drop is the result of a richer, developing society and of the one-child policy…

Currently, China funds only meagre pensions, and there are six workers paying taxes for each retiree – in 20 years’ time, there will be just two workers for every pensioner.

This is the current problem in the advanced economies in the West.  A declining population growth rate following the post-World War II baby boom is bankrupting their nations.  For those social safety net programs the Chinese don’t have were implemented in these Western countries before the baby boom turned into a baby bust.  Now the elderly generations in these nations grow faster than the younger generations.  More seniors are retiring and consuming government-provided pensions and health care while fewer are entering the workforce to replace them and pay the taxes to fund these programs.  So they have increasing government expenditures at a time of declining government revenue.  Thanks to a lower population growth rate.  Which has overwhelmed governments.  Causing greater budget deficits and soaring levels of debt.

As bad as things are in the Western countries what’s waiting for China is of such a massive scale that one shudders to think what will happen.  For even if China continues to enjoy high economic growth their aging population will bankrupt them.  Either by caring for the elderly.  Or by driving up labor costs and/or labor unrest as their baby bust fails to replace those leaving the workforce.  Bringing that economic juggernaut to a crashing halt.

But the scenario is even bleaker.   For they have driven much of their economy with artificial economic growth.  Fueled by Keynesian policies.  Artificially low interest rates.  And government interference into the private sector.  Much like what gave the U.S. the subprime mortgage crisis and the Great Recession.  And much like what gave the Japanese their asset bubble and their Lost Decade.  For all demand-side stimulative growth (i.e., Keynesian growth) ends in Great Recessions or Lost Decades.  Because this kind of growth is inflationary.  And when you inflate asset values you make asset bubbles.  Which ultimately burst.  And when they do they bring down those inflated values to market prices.  The longer those inflationary policies were in place the higher those asset values soared and the more painful the deflationary fall.  Just ask anyone in Japan.  Or in the U.S. with an underwater mortgage.

So China has some unpleasantness in their future.  Perhaps a deflationary spiral.  Along with an accelerated aging population.  Either one by itself is bad.  But together it could be more than the Chinese economy can handle.  And the fallout of any Chinese crash will ripple through every other nation’s economy.  Where we all will feel it.  And suffer the consequences.  Because we are all Keynesians, too.  At least, the economic policies of our governments are.  And when China can no longer buy U.S. sovereign debt there will be no more deficit spending.  Just massive spending cuts.  Or, if they choose to simply print money, massive post World War I Germany inflation.  Where it will take a wheelbarrow full of money to buy a loaf of bread.  Like in post World War I Germany.

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Women in the UK are using Abortion as Birth Control costing the Government Billions in lost Tax Revenue

Posted by PITHOCRATES - May 13th, 2012

Week in Review

There are two costs with an abortion.  A social cost.  And a financial one.  The social cost is what these abortions say about how we value human life.  And the financial cost is lost tax revenue.  For every abortion is a lost taxpayer.  Which is pretty serious considering the budget deficits countries are running to pay for the benefits we provide for those babies we didn’t abort (see NHS spends £1m a week on repeat abortions: Single women using terminations ‘as another form of contraceptive’ by Daniel Martin posted 5/13/2012 on the Daily Mail).

The Health Service is spending around £1million a week providing repeat abortions.

Critics said figures revealed yesterday show thousands of women are using the procedure as a form of contraception.

It is not unknown for some women to have seven, eight or even nine terminations in their lifetime.

According to the statistics, single or unmarried women account for five out of every six repeat terminations. Around a third of all abortions carried out in England and Wales are repeats…

In 2010, the latest year for which figures are available, some 189,000 abortions took place. Of these, more than 64,000 terminations were on women who had already aborted a foetus in the past.

In an expanding welfare state having babies is very important.  For to shower everyone with generous benefits, including pensions and health care that last long into a person’s eighties and nineties, you need a whole lot more people entering the workforce than leaving it.  And you do that with an expanding birthrate.  By having more live births than deaths.  The more the better.  For the more live births the more generous the benefits can be further down the road.  Having abortions, though, reduces how generous the government can be in the future.

In 2010 there were approximately 723,165 live births in England and Wales and approximately 493,242 deaths. And, of course, approximately 189,000 abortions.  For every person that died in 2010 there were 1.466 people born to replace them.  If those abortions did not happen and their pregnancies were carried to term that number would have been 1.849.  Which would have been more than the 1.748 during the first decade of the 20th century.  So what does this mean?  Had these numbers held steady or increased from 1901 until today the UK would probably not be having budget deficits.  Because the number of people entering the workforce would have stayed larger than the number leaving the workforce.  Meaning more revenue from income taxes and less from borrowing.  So why is the UK running a high deficit?  And carrying a large debt?

Because of abortion and birth control.  When sex turned into consequence-free fun people had more of it and fewer babies.  The ratio of live births to deaths was 1.748 in the first decade of the 20th century.  It was 1.415 during the second decade.  It was 1.485 during the Twenties.  It was 1.315 during the Thirties and Forties.  It was 1.415 during the Fifties (the post-war baby boom).  It was 1.508 during the Sixties.  And then came birth control and abortion.  And the baby bust generations.  It fell to 1.105 during the Seventies.  It was 1.156 during the Eighties.  It was 1.158 during the Nineties.  And it climbed back up to 1.228 in the first 8 years of the 21st century.

So following the baby boom the population growth rate screeched to a halt.  Just barely replacing each death with a live birth.  Which is why pension and health care costs are busting the treasury in the UK.  The baby boomers are retiring.  And the baby busters are stuck with the bill for their retirement.  If the UK wants a quick path to financial stability they would do well to make abortions illegal.  Because a live birth to death ratio of 1.849 would fix all of their fiscal woes in about 20 years.  They could even borrow money to maintain benefits now with some special 30-year debt.  Which should be easy to refinance in 20 years with all that new tax revenue coming on line.  And old debt would be easier to retire with an expanding population growth rate.  Which a high live birth to death ration will give you.

Let’s just look at those 189,000 abortions.  If they each grew up to earn $40,000 (£23,952) twenty years from now they would earn a total of $7.134 billion (£4.527 billion) in annual income.  If taxed at a tax rate of 20% that would bring $1.512 billion (£905 million) into the treasury.  If 1% of these went on to be millionaires double this number.  Bringing the cost of those abortions to approximately £2 billion ($3.34 billion) in lost tax revenue a year.  Not to mention the lost tax revenue at all the other levels of taxation.  Making abortions costly in more ways than one.

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FUNDAMENTAL TRUTH #51: “The longer you wait to balance your books the harder it will be to balance them.” -Old Pithy

Posted by PITHOCRATES - February 1st, 2011

Compound Interest and ‘Usury’ Rates Keep Credit Card Balances High

You ever get those checks from your credit card companies?  Write yourself a check at 0% interest for 6 months?  And then in the fine print they note that if you don’t repay the money within that 6 month period you will be charged interest from the day you cashed that check at something like 30% APR.  Compounded monthly.  So if you write yourself a $5,000 check and pay it back the day after that 6 month period ends, you’ll find that you’ll have to pay back close to $15,000 for that $5,000 loan.  That’s the miracle of compound interest.  Working against you.

So, in 6 months time, it will be much harder to balance your books than it would have been before you borrowed that money.  This is the worst thing about credit card debt.  High interest charges that are rolled into your outstanding principal.  This makes the outstanding balance grow faster than a lot of people can pay them off.  Car and house payments, on the other hand, have fixed balances and lower interest rates.  We usually can pay those off.

People will say that credit card companies are charging usury interest rates.  They think that we should have laws to force them to lower their interest rates.  If car and house loans can be under 10%, why can credit cards charge interest rates as high as 30%?  Well, in a word, collateral.  If you fail to pay your house or car payments, the bank will take your house or car.  They will then sell them to try and get their money back.  Credit card debt is unsecured.  It’s pretty hard to take back restaurant dinners and hotel stays and sell them to get your money back.  So when people default, the credit card companies get nothing.  So they have to charge higher interest rates to cover these losses.

Living beyond our Means Despite our Parents’ Wise Advice

So using credit cards to make up for a spending deficit is not a good thing.  Granted, there are emergencies where some have no choice.  But a lot of us just seem to spend more than we earn.  Or take bigger debt risks.  We may like the bigger house better than the more affordable one.  We may like a new car better than a good used one.  Of course, those things come with bigger monthly payments.  And we may have no problem paying for these things.  Unless a spouse loses their overtime.  Or their job.  Or the ARM on your mortgage resets to a higher interest rate.  All of a sudden, then, those monthly payments begin to hurt.

But not everyone gets into trouble because of a change in income or interest rates.  For some it just happens.  Gradually.  Money’s good.  You take some vacations.  Eat out a few times.  Buy some nice things for the house.  A home theater.  A nice patio with a twin BBQ and some nice furniture.  Next thing you know you’re living beyond your means.  You notice that your credit card balances are growing larger.  And your monthly payments are growing smaller.  Which in turn makers your balances grow larger.  All of a sudden, you have trouble paying your bills.  And you can’t understand this because you were making such good money.

Parents are often critical of their children’s spending.  Go back some 20-30 years and they were very critical.  Those parents who grew up during the Great Depression and went without during World War II know the value of not buying anything until you saved the money for the purchase.  A lot of kids got tired of hearing this.  “You shouldn’t be spending your money on that.  You should be saving it.”  But a lot of us wouldn’t listen.  Because we wanted things and we didn’t want to wait.  So we bought them. Spent our money.  Ran up our credit cards.  Got ourselves into trouble.  And went back to Mom and Dad for help.  Why?  Because they saved their money.  Lived well within their means.  Were able to retire comfortably.  And can now afford to help bail you out of your troubles.

Rising Immigration and Birth Rates Encourages Entitlement Spending

What’s true for people is true for governments.  Earlier governments knew the value of not spending money they didn’t have.  Thomas Jefferson slashed the federal budget when he became president.  He feared that a perpetual federal debt only empowered a federal government.  If the debt became permanent, then so must the government.  Alexander Hamilton liked debt for that very reason.  Not Jefferson.  Hamilton wanted to create an American Empire to give the British Empire a run for her money.  Jefferson just wanted people to own and farm land.

So in the beginning, and through the middle, Washington operated on a shoestring budget.  Kept its spending manageable.  And it’s debt minimal.  Lincoln exploded spending to pay for the Civil War.  And subsequent presidents did likewise for the two world wars.  But things really started to change in the 20th Century.  First with Wilson’s Progressives.  Then FDR’s New Deal.  Then Johnson’s Great Society.  Federal spending grew at an alarming rate.  Because America came into her own in the later 19th/early 20th century.  We became a rich nation.  A world leader.  And there was a lot of other people’s money to spend.

Thus the era of entitlement spending had begun.  Immigration was swelling the U.S. population.  We were having lots of kids.  All of us were working hard.  And paying our taxes.  America was like that 2-income couple working lots of overtime and buying lots of things.  The good times looked like they would just go on forever.  So America was ‘buying’ Social Security for everyone.  And Medicare.  Medicaid.  And lots of other stuff.  But then a strange thing happened.  Our population stopped growing.  We closed Ellis Island.  Immigration was down.  Birthrates plummeted.  Neighborhood families didn’t have 10 and 12 kids in their houses.  A Baby Bust followed the Baby Boom.  Or, more accurately, a taxpayer bust.  For the aging population was growing at a greater rate than the taxpaying population.  Which meant fewer and fewer people were paying for more and more people collecting Social Security, Medicare and Medicaid.

Are Social Security, Medicare and Medicaid Unfixable?

And this is a problem.  And the problem grows greater with every day that goes by.  Because with every day that goes by, more seniors start collecting Social Security, Medicare and Medicaid benefits.  While fewer new people enter the work force to pay for these programs.  And despite raising taxes and cutting benefits, costs continue to exceed revenue.  So the government takes out its ‘credit card’ to finance this deficit.

Of course, we call these programs ‘third rail’ programs.  That is, if a politician threatens to cut any of these programs they can kiss reelection goodbye.  So they don’t.  They just kick the can down the road.  And the problem grows ever more costly to fix.  Both monetarily.  And politically.  Which makes them just want to keep kicking that can down the road to let someone else worry about them.

But like our credit cards, we keep running up our outstanding debt.  The debt is so high now that the interest on the debt is a major budget item.  We have to fix this problem.  We can’t keep kicking it down the road.  Greece tried.  And look what happened to them.  The European Central Bank (ECB) had to bail them out.  And Greece is still not out of the woods.  Now Greece is a great nation.  A lot of history there.  But it’s not quite as big as the United States.  Being small has its advantages, though.  It’s easier for others to bail you out.  We don’t have that luxury.  There isn’t anyone big enough to bail us out.  Except, perhaps, an old enemy.  Communist China.  Imagine that.  One of the last communist nations in the world having to come to the rescue of the most powerful (and once most capitalistic) nation in the world.  If that ain’t a fine how do you do.

We should have listened to our Founding Fathers.  Because our parents always knew best.  Pity we don’t learn that until after we make a mess of things. 

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LESSONS LEARNED #28: “Politicians love failure because no one ever asked government to fix something that was working.” -Old Pithy

Posted by PITHOCRATES - August 26th, 2010

THE TELEVISION SHOW Gomer Pyle, U.S.M.C. aired from 1964-1969.  It was a spinoff from the Andy Griffith Show.  Gomer, a naive country bumpkin who worked at Wally’s filling station, joined the Marines Corps.  And there was much mirth and merriment.  To the chagrin of Sergeant Carter, Pyle’s drill instructor (DI).  Think of Gunny Sergeant R. Lee Ermey’s Sergeant Hartman in the movie Full Metal Jacket only with no profanity or mature subject matter.  Sergeant Carter was a tough DI like Sergeant Hartman.  But more suitable for the family hour on prime time television.

Gunny sergeants are tough as nails.  And good leaders.  They take pride in this.  But sometimes a gunny starts to feel that he’s not himself anymore.  This was the subject of an episode.  And Gomer, seeing that Sergeant Carter was feeling down, wanted to help.  So he stuffed Sergeant Carter’s backpack with hay before a long march.  While the platoon was worn and tired, Sergeant Carter was not.  He was feeling good.  Like his old self.  Until he found out he was not carrying the same load his men were.  He asked Pyle, “why hay?”  He could understand rocks, but hay?  Because if he outlasted his men while carrying a heavier load, he would feel strong.  But knowing he had carried a lighter load only made him feel weak.

This is human nature.  People take pride in their achievements.  They don’t take pride in any achievement attained by an unfair advantage.  Self-esteem matters.  And you can’t feel good about yourself if you need help to do what others can do without help. 

AN OLD CHINESE proverb goes, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”  Let’s say I am a fisherman in a small village.  I catch fish to feed my family and sell/trade for other family needs.  There’s a man in my village who asks me for a fish each day so he can eat.  I’m a caring person.  So I give him a fish each day.  So a pattern develops.  Each day he shows up when I come in from my fishing.  He takes the fish and goes away.  It works out well for him.  He doesn’t have to work.  He can live off of my kind charity.  Then I move.  Without me being there to give him a fish each day, he no longer can eat.  And dies.  If I only had taught that man to fish. 

Kindness can lead to dependency.  And once dependent, you become lazy.  Why develop marketable skills to provide for yourself when someone else will provide for you?  The problem is, of course, what happens when that charity ends?  If you’re unable to provide for yourself and there is no longer someone providing for you, what do you do?  Steal?

Dependency and a lack of self-esteem are a dangerous combination.  And they feed off of each other.  This combination can lead to depression.  Behavioral problems.  Resentment.  Bitterness.  Envy.  Or a defeatist attitude.

These are often unintended consequences of government programs.  A failed program, then, has far reaching consequences beyond the initial economic costs of a program.

LIQUIDITY CRISES CAUSE a lot of economic damage.  If capital is not available for businesses to borrow, businesses can’t grow.  Or create jobs.  And we need jobs.  People have to work.  To support themselves.  And to pay taxes to fund the government.  So everyone is in favor of businesses growing to create jobs.  We all would like to see money being easy and cheap to borrow if it creates jobs.

But there is a downside to easy money.  Inflation.  Too much borrowing can create inflation.  By increasing the money supply (via fractional reserve banking).  More money means higher prices.  Because each additional dollar is worth a little less. This can lead to overvalued assets as prices are ‘bid’ up with less valuable dollars.  And higher prices can inflate business profits.  Looks good on paper.  But too much of this creates a bubble.  Because those high asset values and business profits are not real.  They’re inflated.  Like a bubble.  And just as fragile.  When bubbles burst, asset values and business profits drop.  To real values.  People are no longer ‘bidding’ up prices.  They stop buying until they think prices have sunk to their lowest.  We call this deflation.  A little bit of inflation or deflation is normal.  Too much can be painful economically.  Like in the Panic of 1907.

Without going into details, there was a speculative bubble that burst in 1907.  This led to a liquidity crisis as banks failed.  Defaults on loans left banks owing more money than they had (i.e., they became illiquid).  They tried to borrow money and recall loans to restore their liquidity.  Borrowers grew concerned that their bank may fail.  So they withdrew their money.  This compounded the banks problems.  This caused deflation.  Money was unavailable.  Causing bank runs.  And bank failures.  Business failures.  And unemployment grew. So government passed the Federal Reserve Act of 1913 to prevent a crisis like this from ever happening again.  The government gave the Federal Reserve System (the Fed) great powers to tweak the monetary system.  The smartest people at the time had figured out what had gone wrong in 1907.  And they created a system that made it impossible for it to happen again.

The worst liquidity crisis of all time happened from 1929-1933.  It’s part of what we call the Great Depression.  The 1920s had a booming economy.  Real income was rising.  Until the Fed took action.  Concerned that people were borrowing money for speculative purposes (in paper investments instead of labor, plant and material), they put on the brakes.  Made it harder and more expensive to borrow money.  Then a whole series of things happened along the way that turned a recession into a depression.  When people needed money, they made it harder to get it, causing a deflationary spiral.  The Great Depression was the result of bad decisions made by too few men with too much power.  It made a crisis far worse than the one in 1907.  And the Roosevelt administration made good use of this new crisis.  FDR exploded the size of government to respond to the unprecedented crisis they found themselves in.  The New Deal changed America from a nation of limited government to a country where Big Government reigns supreme.

ONE PROGRAM OF the New Deal was Social Security.  Unemployment in the 1930s ran at or above 14%.  This is for one whole decade.  Never before nor since has this happened.  Older workers generally earn more than younger ones.  Their experience commands a higher pay rate.  Which allows them to buy more things.  Resulting in more bills.  Therefore, the Great Depression hit older workers especially hard.  A decade of unemployment would have eaten through any life savings of even the most prudent savers.  And what does this get you?  A great crisis.

The government took a very atypical moment of history and changed the life of every American.  The government forced people to save for retirement.  In a very poor savings plan.  That paid poorly by comparison to private pensions or annuities.  And gave the government control over vast amounts of money.  It was a pervasive program.  They say FDR quipped, “Let them try to undo this.” 

With government taking care of you in retirement, more people stopped providing for themselves.  When they retired, they scrimped by on their ‘fixed’ incomes.  And because Social Security became law before widespread use of birth control and abortion, the actuaries of the day were very optimistic.  They used the birth rate then throughout their projections.  But with birth control and abortion came a huge baby bust.  The bottom fell out of the birth rate.  A baby bust generation followed a baby boom generation.  Actually, all succeeding generations were of the bust kind.  The trend is growing where fewer and fewer people pay for more and more people collecting benefits.  And these people were living longer.  To stay solvent, the system has to raise taxes on those working and reduce benefits on those who are not.  Or raise the retirement age.  All these factors have made it more difficult on our aged population.  Making them working longer than they planned.  Or by making that fixed income grow smaller.

FDR used a crisis to create Social Security.  Now our elderly people are dependent on that system.  It may suck when they compare it to private pensions or annuities, but it may be all they have.  If so, they’ll quake in their shoes anytime anyone mentions reforming Social Security.  Because of this it has become the 3rd rail of politics.  A politician does not touch it lest he or she wishes to die politically.  But it’s not all bad.  For the politician.  Because government forced the elderly to rely on them for their retirement, it has made the Social Security recipient dependent on government.  In particular, the party of government who favors Big Government.  The Democrats.  And with a declining birth rate and growing aged population, this has turned into a large and loyal voting bloc indeed.  Out of fear.

A PROGRAM THAT straddled the New Deal and LBJ’s Great Society was Aid to Families with Dependent Children (AFDC).  Its original New Deal purpose was to help widows take care of their children.  When program outlays peaked in the 1970s, the majority of recipients were unmarried women and divorced women.  Because this was a program based on need, the more need you had the more you got.  Hence more children meant more money.  It also reduced the importance of marriage as the government could replace the support typically provided by a husband/father.  Noted economist Dr. Thomas Sowell blames AFDC as greatly contributing to the breakdown of the black family (which has the highest incidence of single-parent households).

With the women’s liberation movement, women have come to depend less on men.  Some affluent women conceive and raise children without a husband.  Or they adopt.  And the affluent no doubt can provide all the material needs their children will ever need.  Without a husband.  Or a father for their children.  But is that enough?

The existence of ‘big brother’ programs would appear to prove otherwise.  Troubled children are often the products of broken families.  Mothers search for big brothers to mentor these fatherless sons.  To be role models.  To show an interest in these children’s lives.  To care.  When no such role models are available, some of these troubled children turn to other sources of acceptance and guidance.  Like gangs.

AFDC has compounded this problem by providing the environment that fosters fatherless children.  And another government program compounds that problem.  Public housing.

POOR HOUSING CONDITIONS hurt families.  They especially hurt broken families.  Without a working husband, these families are destined to live in the cheapest housing available.  These are often in the worst of neighborhoods.  This is an unfair advantage to the children raised in those families.  For it wasn’t their fault they were born into those conditions.  So, to solve that problem, government would build good public housing for these poorest of the poor to move into.  Problem solved.

Well, not exactly.  Public housing concentrates these broken families together.  Usually in large apartment buildings.  This, then, concentrates large numbers of troubled children together.  So, instead of having these children dispersed in a community, public housing gathers them together.  Where bad behavior reinforces bad behavior.  It becomes the rule, not the exception.  Making a mother’s job that much more difficult.  And because these children live together, they also go to school together.  And this extends the bad behavior problem to the school.  Is it any wonder that public housing (i.e., the projects) have the worst living conditions?  And some of the highest gang activity? 

Government didn’t plan it this way.  It’s just the unintended consequences of their actions.  And those consequences are devastating.  To the poor in general.  To the black family in particular.  AFDC and public housing enabled irresponsible/bad behavior.  That behavior destroyed families.  As well as a generation or two.  But it wasn’t all bad.  For the politicians.  It made a very large constituency dependent on government.

THERE ARE SO many more examples.  But the story is almost always the same.  Dependency and a lack of self-esteem will beat down a person’s will.  Like an addict, it will make the dependent accept poorer and poorer living standards in exchange for their fix of dependency.  Eventually, the dependency will reach the point where they will not know how to provide for themselves.  The dependency will become permanent.  As will the lack of self-esteem.  Conscious or not of their actions, Big Government benefits from the wretched state they give these constituencies.  With no choice but continued dependence, they vote for the party that promises to give the most.  Which is typically the Democrat Party.

But how can you fault these politicians?  They acted with the best of intentions.  And they can fix these new problems.  They’ll gather the brightest minds.  They’ll study these problems.  And they will produce the best programs to solve these problems.  All it will take is more government spending.  And how can you refuse?  When people are hungry.  Or homeless.  Or have children that they can’t care for.  How can anyone not want to help the children?  How can anyone not have compassion?

Well, compassion is one thing.  When the innocent suffer.  But when government manufactures that suffering, it’s a different story.  Planned or not the result is the same whenever government tries to fix things.  The cost is high.  The solution is typically worse than the original problem.  And the poorest of the poor are pawns.  To be used by Big Government in the name of compassion. 

Of course, if Big Government were successful in fixing these problems, they would fix themselves right out of existence.  So as long as they want to run Big Government programs, they’ll need a stock of wretched, suffering masses that need their help.  And, of course, lots of crises.

www.PITHOCRATES.com

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