Birthrates and Welfare States

Posted by PITHOCRATES - October 22nd, 2013

History 101

Birth Control and Abortion hurt the Welfare State because Babies become Taxpayers

People typically have fewer children during bad economic times.  Because you have to feed and clothe kids.  Which is very hard to do during bad economic times.  Especially if you lost your job during a period of high unemployment.  Such as the Great Depression.  Or if you’re going through a period of high inflation.  Like during the Seventies.  We can see this if we look at the birthrate over the years.

Number of Children per Woman R1

(source: Population Reference Bureau)

Bad economic times (Great Depression) fewer births.  High inflation (the Seventies) fewer births.  Of course, there was something else happening during the Seventies.  Which followed the Sexual Revolution.  Women were having more sex outside of marriage.  But they were using birth control and recently legalized abortion to avoid having children.  Women were liberated.  The feminists were moving into careers once reserved for men.  And because they were having careers they were not being stay-at-home mothers raising a family.

Also during the Seventies there was the zero population growth movement.  Among many other movements.  As the hippies turned antiestablishment.  And anti-capitalist.  Preferring a communal life.  Where there was no greed or profits.  Where everyone was equal and had an equal share.  Like the communists enjoyed.  Or, rather, suffered.  The zero population growth movement protested against having babies.  And the threat they posed to the limited resources of the earth.  So they were quite happy to see the birthrate fall below the replacement birthrate (about 2.1 children per woman in the United States).  Because below this rate future generations will be smaller than previous generations.  Which will burden the limited resources of the earth less.  But it created a big problem for those who wanted a large socialist state to provide cradle to the grave welfare.  For babies become taxpayers.

Because of the War on Poverty it takes Two Incomes to raise a Family Today

We just emerged from a government shutdown that ended with an agreement to raise the debt ceiling.  Why?  Because they can’t raise tax rates high enough to pay for all of the government’s spending.  At least not without putting most everyone below the poverty line after taxes.  Which makes that declining birthrate a big problem.  For the fall in the birthrate coincided with the expansion of the welfare state in the Sixties.  As can be seen in the explosion in welfare spending following LBJ’s launching of his War on Poverty.

Total Welfare Spending 1950 - 2010 R2

(source: The Heritage Foundation)

So just as women were having fewer babies so following generations would be smaller LBJ’s Great Society gave us a new expanding welfare state.  That is, once our tax base began to grow smaller with each subsequent generation federal expenditures were growing larger with each subsequent generation.  Resulting in higher tax rates on the smaller tax base to pay for it.  And massive new borrowings to pay what our taxes won’t.  As the government took more of our earnings away median household income stagnated.

Federal Spending and Median Income

(source: The Heritage Foundation)

If you’ve ever wondered why we can’t raise a family on one income these days this is why.  It’s the growth of federal spending.  Paid for with a growth in tax revenue.  Leaving us less money to raise our families.  Requiring that second income.  This is what the Great Society gave us.  And it’s what birth control and abortion gave us.  But it gets worse.

This Year Adult Incontinence Pants outsold Baby Diapers in Japan for the First Time

The Sexual Revolution gave us a baby bust generation.  Following a baby boom generation.  Giving us an aging population.  Where more people are leaving the workforce than are entering it.  So more people are consuming taxes (Social Security, Medicare, Medicaid, etc.) than are paying taxes.  Causing a massive wealth transfer from the young to the old.  So an aging population makes it even harder to raise a family.  Especially for the young just starting their families.  Because of the higher tax rates on a shrinking workforce required to pay for that aging population.  Which can lead to worse things than a collapse of the welfare state (see Why have young people in Japan stopped having sex? by Abigail Haworth posted 10/19/2013 on The Guardian)

Japan’s under-40s appear to be losing interest in conventional relationships. Millions aren’t even dating, and increasing numbers can’t be bothered with sex. For their government, “celibacy syndrome” is part of a looming national catastrophe. Japan already has one of the world’s lowest birth rates. Its population of 126 million, which has been shrinking for the past decade, is projected to plunge a further one-third by 2060…

Fewer babies were born here in 2012 than any year on record. (This was also the year, as the number of elderly people shoots up, that adult incontinence pants outsold baby nappies in Japan for the first time.) Kunio Kitamura, head of the JFPA, claims the demographic crisis is so serious that Japan “might eventually perish into extinction”.

This is the zero population growth movement on steroids.  The Republicans in the United States shut down the government in an attempt to curtail federal spending.  As the public debt is approaching 100% of GDP.  Very dangerous territory to be in.  But if you think that’s bad it’s far worse in Japan.  As their public debt is approximately 214% of GDP.  To support a massive welfare state.  In a country where the taxpayer is fast becoming an endangered species.

This is the ultimate end of any democracy that learned it could vote itself the treasury.  As taxes rise people cut back on their spending.  And a big cost item is children.  So we have declining birthrates in developed countries with expansive welfare states.  And immigration problems.  Immigrants who come for those generous state benefits.  And governments that want to grant them citizenship.  To make them taxpayers.  To make up for that declining birthrate.  And prevent their own extinction.

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The High Cost of Living and High Taxes are Discouraging the Japanese from Having Children

Posted by PITHOCRATES - May 12th, 2012

Week in Review

The Japanese aren’t having enough babies.  They have an aging population, a declining birthrate and a debt that will probably hit 250% of GDP.  Meaning they owe more than twice the sum total that their nation produces in economic activity.  You add that all together and it paints a very bleak future for Japan (see Lack of babies could mean the extinction of the Japanese people by David Piper posted 5/11/2012 on FOX News).

Japan has a problem, a lack of children, and it seems likely there will be even fewer in the future…

Government projections show the birth rate will hit just 1.35 children per woman within 50 years, well below the replacement rate…

The question everybody asks is why is there a lack of children..?

One reason is the cost. Japan is an extremely expensive country and getting a child through college can wipe out a family’s finances…

More than 20 percent of Japan’s people are aged 65 or over, one of the highest proportions of elderly in the world.

Japan’s graying population is a real problem for the country’s leaders as they need to ensure the dwindling numbers of workers can pay for all the care needed for the growing army of pensioners.

They give other possible explanations for the falling birthrate.  From a preference to technology over human companionship to low libidos.  But that last thing about the growing army of pensioners must be weighing heavily on the minds of the young.  Fewer people paying for a growing army of pensioners can mean only one thing.  Each individual is going to have to pay more in taxes to pay for these pensioners.  And Japan being one of the most advanced nations in the world it’s a fair assumption that they are familiar with math.  When the young today use math and crunch these numbers they can see only one result.  They will not be able to afford to raise a family if they will be parenting this army of pensioners.

Birth rates are important.  The only way you can pay for an expanding welfare state is with an increasing birthrate.  Adding more workers each generation to the workforce.  Always increasing the number of young taxpayers.  So the young can grow at a greater rate than the pensioners.  Only then will Japan NOT be an extremely expensive country to live in.  And the young may once again consider raising a family.

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The Weight of Europe’s Sovereign Debt Crises forces Rich People to flee with their Wealth to Escape ever Higher Taxes

Posted by PITHOCRATES - April 21st, 2012

Week in Review

The problem with the European sovereign debt crisis is the population growth rate.  These nanny states set up their social democracies when people were having babies.  And based their calculations on a continuing rising birthrate.  Which would have paid for their social democracies until the cows came home.  But then something happened.  They stopped having babies.  And now have a declining birthrate.  Which means they have an aging population.  There are more people becoming seniors than there are being born.  There are more people leaving the workforce than there are entering the workforce.  And worse of all is that they have better health care.  And are living longer.  Put it all together and you have a real big problem (see Europe’s old wealth seeks new home in Asia by John O’Callaghan and Charmian Kok posted 4/17/2012 on Reuters).

Wealthy people from Europe and the Americas have long looked to the East for ways to build and preserve their fortunes. But only recently have they started opening family offices – private companies that manage the trusts and investments of rich households – in the region in earnest…

Campden Wealth, which provides research and data on family offices, says up to 10 European family offices have moved to Singapore since the financial crisis in 2008, bringing $5-$10 billion worth of assets with them.

Singapore, a global banking and investment centre in the heart of Southeast Asia, is an attractive base for its efficient registration process, relatively benign regulations, smooth movement of money, financial infrastructure and low tax rates…

Asia’s prospects are alluring as economies in Europe and the United States look weak. After the crisis, regulatory pressures in the West and a crackdown on offshore centers have hastened the pace of family offices moving to Singapore and Hong Kong…

The Spinolas are clubbing together with two other family offices to cut costs and leverage on efficiencies. Parly officials declined to identify the partners, other than to say they are “household names” in Europe – one is an English entrepreneur who has donated much of his money to charity and the other is a Swiss-based family…

Concerns about the health of big banks and dismay at their hard-sell tactics that pushed products of dubious merit onto high net worth clients – such as mortgage-backed securities that turned toxic – are other factors.

The tax-consumers are growing at a greater rate than the taxpayers.  Which means you have to raise tax rates on taxpayers.  Find other things to tax.  Or cut back on pensions and health care for retirees.  Not a difficult decision for the politicians to make.  They’re going to raise tax rates.  And find other things to tax.  Precisely because the population is aging.  For they’re just not going to cut any benefits from the largest voting block out there.

And, of course, the fallout is that rich people will finally say enough is enough.  They’ll take their wealth and leave.  Because they’re tired of being screwed.  Whether it was the American government passing off toxic subprime mortgage backed securities as safe investments through their GSEs Fannie Mae and Freddie Mac.  Or government taking an ever larger piece of their wealth through ever higher taxes and costly regulations.  They’ve had enough.  So they’re taking their wealth (i.e., much coveted investment capital businesses so desperately need) to greener pastures.  Investing in economies in other nations.  And donating large sums of their wealth to charities in other nations.  Which, of course, will cause ever greater budget hardships.  Because contrary to popular belief rich people pay the lion’s share of a nation’s income tax.  So when a big chunk of their wealth leaves the country it will explode budget deficits.

The sad truth is this.  There isn’t enough wealth to confiscate to pay for rising pensions and health care benefits with a declining birthrate.  There just aren’t enough rich people.  No matter how you crunch the numbers.  You just can’t have a declining number of taxpayers pay for a growing number of tax consumers.  It will only lead to deficits.  And sovereign debt crises.  Kind of like what they’re having in Europe right now.  Because of their unsustainable social democracies.  And unless they start having babies like they once did there is no way to sustain the unsustainable.

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Manorialism and Serfdom

Posted by PITHOCRATES - December 29th, 2011

Politics 101

High Taxes and a Declining Birthrate marked the Beginning of the End of the Roman Empire

Serfdom dates back to European Manorialism.  But it was born in the decline of the Roman Empire.  When the Romans stopped pushing their borders out they lost a key source of revenue for their empire.  The spoils of war.  This coincided with the rise of their welfare state.  An ever larger bureaucracy to manage the breadth of empire.  And a loss of Roman identity and pride.  Taxes were rising.  And they were debasing their coin.  To monetize their debt.  People tried their best to evade taxes.  And had no desire to serve in the mighty Roman Legions securing the empire’s borders.  Which turned out to be quite the problem for the Romans.

The Romans had to hire soldiers to defend their borders.  A very costly endeavor.  Which added greatly to the cost of empire.  Hence the high taxes.  And debasing of their silver coins with lead.  But only the silver coins.  Not their gold.  Because they needed those to have value.  As they used them to pay for their hired soldiers.  And that’s one thing you don’t want to do to a hired army.  Anger them by paying them with worthless lead.  Because they could attack you as easily as protect you.

Soon being a Roman wasn’t fun anymore.  Taxes were so high people were working more for the Roman government than their families.  And inflation was making daily life difficult.  The people’s money was becoming worthless.  Which raised prices.  Soon the Romans were taking tax payments in kind.  Instead of money they took wheat, wine, clothing, etc.  Whatever a person made a large portion of what they made went to the Roman government.  It became so bad people were quitting to do something else.  A lot of them.  So many that it was cutting into what the Romans were collecting.  That and a declining birthrate marked the beginning of the end of the Roman Empire.  Large armies.  A growing bureaucracy.  And a declining tax base.  Not a formula for fiscal stability.  So they said enough.  No more quitting and moving on.  Whatever your father was you’ll be.  You have no choice.  You’ll do as he did until the day you die.

The Lord of the Manor owned Great Tracts of Land that Needed Laborers, Peasants had Labor to Offer but no Land

It was the rural part of this Roman directive that shaped future history.  Especially in Europe.  When the Roman Empire collapsed civilization went backwards.  To a rural, agrarian way of life.  A rural self-sufficiency.  Where people either owned land.  Or worked on land owned by others.  And that Roman idea to prevent people from quitting and moving on?  That became serfdom.  Where people who worked the land were bound to the land.  And not allowed to leave or look for a new job.  And if the lord sold the land the people bound to the land went with the land.  Not the lord.

This is Manorialism.  As the Roman Empire disintegrated power shifted from a central government to manors.  The Lord of the Manor owned great tracts of land that needed laborers.  Peasants had labor to offer but no land.  So they made an agreement.  The Lord of the Manor would permit the peasant to live and work a small piece of his land.  In return the peasant would join other peasants and work the large landholdings of their lord.

A serf was little more than a slave.  But with a home and land to work to provide for his family.  Which was a lot in Medieval Europe and often meant the difference between life and death.  And he had something more.  Protection.  A set of laws to live by among his fellow serfs administrated by his lord and the manorial court.  And protection from outside threats.  Which was also part of the agreement.  The serfs agreed to fight alongside their fellow serfs in defense of their lord’s land.  Which was also their home.  And the source of all provision for their family.  So it was a very beneficial agreement for both lord and serf.

Serfdom was a Life of Subsistence and Prayer

The Lord of the Manor lived in a mansion.  The peasants lived in a little village.  Between the two was often a church.  Also in or near the village was the lord’s mill.  Operated by the serfs for both the lord’s harvest and their own.  Maybe even a bakery.  Surrounding these were the great tracts of land the serfs worked.  And forests where wild game was available to hunt.  And wood to burn.  But the forests were typically for the lord’s sole use.

So after the glory that was Greece and the grandeur that was Rome this was what civilization came to.  A life of subsistence.  Back-breaking work in the fields.  Eat what you grow.  Pray.  And try not to starve or freeze to death during the winter.  Not a life we would dream about today.  But one that worked for centuries.  And held Europe together during the Middle Ages.

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LESSONS LEARNED #53: “The essence of politics is taking from the many and giving to the few.” -Old Pithy

Posted by PITHOCRATES - February 17th, 2011

Good Times Turned into Chronic Deficits and Punishing Debt

Two things have historically made government good at filling its coffers.  The power to tax.  And a growing population.  It’s a simple mathematical equation.  And each year it totals more.  As long as you have a growing population to tax you can sustain government spending for a long time.  All the while putting a little of those taxes aside to take care of you and yours.

Businesses call it economies of scale.  Sell more of a thing and the cost per thing goes down.  If you have $1 million in total costs and sell only 4 things, then each thing will have to sell for $250,000 just to break even.  If you sell 5 million things, then you only have to sell each thing for a nickel to break even.  If you sell more things you can charge less for each thing.  It’s sort of like that with taxes, too.  If you have a growing population (with an expanding birthrate), each succeeding generation will have a lot more tax payers than the previous one.  So a small tax rate on a growing population will continue to increase the amount of tax dollars flowing into the government’s coffers.  And a good time will be had by all.

But right now, the federal government, some states and some cities are struggling to balance their budgets.  Something happened.  What others would have described as the perfect Ponzi scheme became like a real one.  The money paying current benefits became larger than the current contributions.  And good times turned into chronic deficits and punishing debt.  So what happened?

Government Employees Grew 280% from 1946 to 2010

Well, to begin with, some people just got greedy.  They spent a lot of money.  Grew the size of government.  Put more and more people onto the public dole.  At all levels of government.  City.  State.  And federal.  And they based all of this growth on the most hopeful of economic assumptions.  That revenue (i.e., tax receipts) then would continue to grow at the same rate forever and ever.   So they grew government.  Gave themselves very generous pay and benefits.  Pension plans that they could never sustain in the private sector.  Job security.  And other good stuff those in the private sector just don’t get (more holidays, more paid vacation, better healthcare, etc.).  And why not?  They had the power to tax.  And an increasing population.  I mean, what could go wrong?

Well, things change.  Even in government.  In 1946 (about when FDR gave us Social Security), there was approximately 6 million government employees (federal, state and city).  Fast forward to 2010 and that number grew to 23 million.  That’s an increase of 280%.  That’s a huge transfer from the private sector to the public sector.  Which required an enormous amount of additional tax revenue.

Of course, if the population grew at a corresponding rate, then perhaps that growth can be justified.  Maybe they just hired more people to administer a growing population.  It’s either that.  Or they were just expanding the role of government into our lives.  Perhaps a look at some population data will answer that question.

Population Grew 118% and the Birthrate fell 31% from 1946 to 2010

The population in 1946 exceeded 141 million.  In 2010 it exceeded 308 million.  That’s an increase of approximately 118%.  Less than half of the growth rate in government jobs.  So, no, government hasn’t grown larger to keep pace with a growing population.  It has grown larger to expand its role into our lives.

The birthrate in 1946 was 20.4 births per thousand of population.  In 2010 the birthrate fell to 14 births per thousand of population.  That’s a decrease of 31%.  So while the population grew at 118% between 1946 and 2010, the number of births only increased approximately 50% (from 2.8 million to 4.3 million).  In other words, our current birth rate accounts for less than half of our population growth. 

So we have a public sector growing more than twice our population growth.  And we have a birthrate that is less than half of our population growth.  You put these two facts together and what does it tell you?  The growth of taxpayers to fund the public sector is decreasing while the public sector is increasing.  And this can mean only one thing.  Tax rates on the individual have to increase so fewer taxpayers can support more tax consumers (i.e., the public sector).

Payroll Taxes (Social Security and Medicare) Grew 665% from 1946 to 2010

To simplify the discussion, let’s look only at Social Security and Medicare.  In 1946 there was only Social Security.  And the payroll tax was 1%.  In 2010 we have both Social Security and Medicare.  The total payroll tax for these two is 7.65%.  That’s an increase of 665%.  If you earn $30,000 that comes to $2,295 today.  If the tax rate was at the 1946 level it would only be $300.  Giving you an additional $1,995 to spend.  (If you make $65,000, the numbers are $4,972.50, $650 and $4,322.50, respectively.)  Could you use another $1,995?  If you don’t think that’s a lot consider this.  We pay a lot more taxes than just Social Security and Medicare.  You add all of them up and it totals the price of a decent car.  A care that you pay for but never get to drive.

These numbers increased because costs went up at a greater rate than the number of new taxpayers.  Therefore, each individual taxpayer had to pay more.  This is a problem repeated at every level of government.  Government grew and expanded its role.  And its payrolls.  Based on population models used before birth control and abortion.  But then birthrates declined.  In the second half of the 20th century, new babies made up less than half of our new population.  Which explains the government’s earnest desire for blanket amnesty for all illegals in the country.  To make up for that declining birthrate.  And restore the population growth rate to the numbers the actuaries used in all their calculations to fund all that Big Government spending.

As noted, we pay more taxes than just Social Security and Medicare.  And they’re all going up.  For the same reasons.  Government overstepped its bounds.  Spent money under the most ideal assumptions.  And the moment a little reality entered into the economy their house of cards came tumbling down.  The big states and the big cities are all drowning under their public sector obligations.  They have pension obligations that are pushing them towards bankruptcy.  And the federal government has its own problems with Social Security and Medicare.

It’s Spending Cuts or Bust

It was a simple plan.  Tax a little from everyone.  Give generous benefits to the few you need to vote for you.  Live happily ever after.  But they overreached.  Grew government too big.  Just as the population growth rate took a nosedive.  They have raised taxes on the remaining taxpayers in the private sector about as high as they can go.  If they raise them anymore the greatest recession since the Great Depression may very well turn into another Great Depression.  So what to do?

Well, based on that simple mathematical equation, we have but two choices.  Increase the growth rate of the taxpaying population.  Or cut spending.  If we started today raising families of 10 plus kids, it would still take about 20 years (or more) before these new taxpayers start paying taxes.  But we may not have 20 years.  So that leaves the spending cuts.  Even blanket amnesty for illegals won’t help.  Because government spending is a function of the birthrate.  And sustained spending requires a sustained birthrate.  Amnesty won’t give you that.  So it’s spending cuts or bust.  Literally.

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