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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Abenomics appears to have Failed in Japan just as Keynesian Economics has Failed everywhere it has been Tried

Posted by PITHOCRATES - March 9th, 2014

Week in Review

The Keynesians were applauding Shinzō Abe’s economic plans for Japan.  To end the never-ending deflationary spiral they’ve been in since the late Nineties.  His Abenomics included all the things Keynesians love to do.  And want to do in the United States.  Expand the money supply through inflationary monetary policy.  Devalue the yen to make their exports cheaper.  Lower interest rates into negative territory.  Quantitative easing.  And lots of government spending.  The kinds of things that just makes a Keynesian’s heart go pitter pat.

They kicked off Abenomics in 2013.  And how are things about a year later?  Not good (see Japan’s deficit hits record as economic growth slows posted 3/9/2014 on BBC News Business).

Japan’s current account deficit widened to a record 1.5tn yen ($15bn; £8.7bn) in January, the largest since records began in 1985.

In further bad news, the country’s economic growth figures were also revised downwards…

The sluggish growth and growing deficit come just before a planned sales tax increase, scheduled to take effect in April.

They did weaken the yen.  Making it worth less than other currencies so those currencies could get more yen when they exchanged their currencies to buy those Japanese exports.  Of course, when Japanese exchanged their yen for those other currencies they got less of those other currencies in return.  Requiring more yen to buy those now more expensive imports.  Thus increasing their trade deficit.

Japan is an island with a lot of people.  They have to import a lot of their food, energy and natural resources as they have little on their island.  So the weaker yen just made everything more expensive in Japan.  Which, of course, lowered GDP.  As those higher prices reduced the amount of buying their consumers could do.

Japan’s greatest problem is her aging population.  And they have just about the oldest population in the world.  As the youth have slammed the brakes on having children.  So you have massive waves of people leaving the workforce the government is supporting in retirement.  And fewer people entering the workforce to pay the taxes that support those retirees.  Which, of course, forces higher tax rates on those remaining in the workforce.  Further reducing the amount of buying their consumers can do.  And no amount of Abenomics can change that.

Abenomics did not deliver what the Keynesians thought it would.  Because Keynesian economics (aka demand-side economics) just doesn’t work.  If it did Japan never would have had a Lost Decade to begin with.  For it was Keynesian economics that gave Japan that asset price bubble in the first place.  Which burst and deflated into the Lost Decade.

What Japan needs is a return to classical economic principles.  Focusing more on the supply side.  Lower tax rates and reduce regulation.  Let the market set interest rates.  Restore the policies that introduced ‘Made in Japan’ to the world.  They need to make their capitalism more laissez-faire.  If they do they can create the kind of economic activity that just might be able to support the generation who created the ‘Made in Japan’ label in their retirement.  But you must have robust economic activity.  So robust that lower tax rates can produce greater tax revenue.  The supply-side economics way.

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Obamacare will require more Tax Revenue just as it Shrinks the Tax Base

Posted by PITHOCRATES - February 9th, 2014

Week in Review

President Obama’s economic policies have given us the worst economic recovery since that following the Great Depression.  With some of the greatest economic carnage coming from the Affordable Care Act.  Obamacare.  The great hiring dissuader.  Because of the high cost of compliance for employers.  And now people will even be choosing to leave the labor force.  For it will be less costly for them not to work and collect subsidies for their costly Obamacare (see Obamacare will push 2 million workers out of labor market: CBO by Stephen Dinan posted 2/4/2014 on The Washington Times).

Obamacare will push the equivalent of about 2 million workers out of the labor market by 2017 as employees decide either to work fewer hours or drop out of the job market altogether, according to estimates released Tuesday by the Congressional Budget Office.

The analysis set off a furious debate in Washington. The White House argued that the reduction is positive because it means Americans will forgo jobs or extra work to stay home with their children or strike out on their own as entrepreneurs…

“This is one of the perverse incentives in this terrible law. It actually encourages able-bodied people to not work,” said Sen. John Barrasso, Wyoming Republican. “We should be doing all that we can to increase labor force participation. The health care law actually pushes it in the opposite direction.”

Taking the budget as a whole, the CBO said Congress has made substantial headway on cutting spending and raising taxes, which will reduce the deficit to $514 billion this year and $478 billion in 2015.

But it will rise by 2016 and steadily grow to more than $1 trillion in 2022.

If these people choose not to work and become entrepreneurs who will they hire if others like them choose to leave the labor force?

People choosing not to work is a very bad thing for a big-spending government.  Because government taxes workers to pay for all of that spending.  And if people are leaving the workforce leaving fewer workers in the workforce to pay the taxes government needs that can mean only one thing.  Higher taxes on those with jobs.  To help offset the loss in tax revenue as people leave the labor force to spend time with their kids.  Or become entrepreneurs.

Of course anyone becoming an entrepreneur in this economic climate is a glutton for punishment.  For President Obama has created a very anti-business environment.  Higher taxes, more costly regulatory policies and lest we forget, the Affordable Care Act.  To quote Jed Clampett in the Beverly Hillbillies when he asked cousin Pearle if he should move to Beverly Hills after discovering oil on his property.

COUSIN PEARL BODINE

Jed, how can you even ask? Look around you. You live eight miles from your nearest neighbor. You’re overrun with skunks, possums, coyotes, and bobcats. You use kerosene lamps for light. You cook on a wood stove, summer and winter. You’re drinkin’ homemade moonshine, and washin’ with homemade lye soap. And your bathroom is fifty feet from the house. And you ask should you move!?

JED CLAMPETT

Yeah, I reckon you’re right. Man’d be a dang fool to leave all this.

This is how a lot of people feel today about the Obama economy.  “Man’d be a dang fool to” try and be an entrepreneur in this economy.  Especially with the Obamacare Sword of Damocles hanging over their heads.  So those 2 million people plus leaving the economy is not a good thing.  It is a very bad thing.  Which will require some large tax increases.  Or massive cuts in government benefits.  Because federal tax revenue will fall if people leave the tax base.  It’s just that simple.

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Abortion and Tax Revenue

Posted by PITHOCRATES - January 27th, 2014

Economics 101

(Originally published January 21st, 2013)

The Population Growth Rate fell during the Sixties and Seventies from 19% to 11% due to Birth Control and Abortion

Taxpayers are born.  Yes, immigration helped populate America.  But it was really the children of immigrants that made the country grow.  For a large population having babies will increase the population far more than immigration can.  Why?  Where do immigrants come from?  Babies.  Having babies is like compounding interest.  For babies grow up and have babies of their own.  So babies are good.  Especially for a government that wants to spend money.  Because the more babies we have the more taxpayers we will have.  So high-spending governments need a growing population growth rate.  To provide ever more taxpayers.  Who provide ever more tax revenue.  But sometimes the population growth rate doesn’t always increase.  Sometimes it even falls.  (See Population, Housing Units, Area Measurements, and Density: 1790 to 1990.  The population numbers are from the decennial census numbers.  The population growth rate is the percentage of population growth from one decade to the next.)

Although the population has always grown the population growth rate has not always grown.  In fact, the rate of growth has been falling over time.  Taking steep declines during war.  During the American Civil War the growth rate fell from 36% down to 23% by the time of the next census.  The census before and after World War I saw a decline from 21% to 15%.  The rate plummeted from 16% to 7% before and after the Great Depression.  With so many people out of work and struggling to survive the last thing families needed was another baby to feed.  The rate actually increased during World War II.  But that had more to do with people not having babies during the Great Depression for economic reasons.  After World War II the rate rose to 14%.  Which was still a point less than after World War I.

The following table shows the decrease in population due to war.  (Raw numbers are pulled from United States military casualties of war.)

Note that the most devastating of American wars was the American Civil War.  Where approximately 2% of the population died.  In terms of percentage loss of population the next costliest war was the Revolutionary War.  Then World War II.  Then World War I.  These wars saw millions of men in uniform (except for the Revolutionary War).  Away from their wives for years.  Which put a crimp in baby making.  And the large number of wounded and dead compounded that problem.  Resulting in large dips in the population growth rate during these wars.  Despite the large loss of life in numbers of America’s other wars those losses were all less than 0.10% of the population.  Making the impact on the population growth rate negligible.  One thing these numbers don’t explain, though, is the decline in the population growth rate after 1960.  During the Sixties and the Seventies the growth rate fell from 19% down to 11%.    But it wasn’t the Vietnam War that caused that decline.  So what did?  Birth control.  And abortion.

Couples having only 2 Children can’t Support an Expanding Welfare State but Couples having 3 Children Can

The U.S. approved the sale of the birth control pill in 1960.  Which corresponded with the era of free love and the sexual revolution.  People were having more sex.  While having fewer babies.  Then Roe v. Wade made abortion legal in 1973.  Since then there have been on average about 1.4 million abortions a year.  Dwarfing the 156,250 killed a year in America’s most devastating war.  The American Civil War.  Which has brought the population growth rate to its smallest numbers that weren’t due to war or depression.  Because of that compounding nature of babies (growing up to have babies of their own).  And because babies become taxpayers this has a big impact on future tax revenue.  We can see this by looking at how 100 abortions ripple through the population.

Let’s assume those 100 abortions happen in Year 1 (Y1).  Had these abortions not happened these babies would have grown up and entered the workforce about 20 years later (Y1+20).  And split off into pairs to have babies of their own.  (If each couple has one baby they have a total of 50 babies.  If each couple has two babies they have a total of 100 babies.  Etc.)  Who would grow up and enter the workforce about 20 years later (Y1+40).  And so on.  The above graph adds up all the people for each 20-year period produced by the Y1 babies (children, grandchildren, great grand children, etc.) divided by 100 (those original babies not aborted).

If the Y1 people only have one baby they and their descendants disappear from the world in about 2 centuries.  If they have 2 children the population never grows larger than 4 times the original Y1 people.  Two children to replace two parents.  It’s not until you get to three children that you see an increase in population.  As well as an increase in tax revenue.

Assume each of the people, or taxpayers, at 20-year intervals earn a median income of $50,000.  They pay an effective federal income tax rate of 18%.  In addition to 12.4% for Social Security taxes (both employer and employee).  And 2.9% for Medicare.  Added together they total 33.3%.  This tax rate on total income at each 20-year interval produces the tax revenue in the above graph.  Note the revenue graphs are the same shape as the population graphs.  Showing a direct correlation between tax revenue and the population growth rate.  The tax revenue provided by couples having only one child disappears within two centuries.  Revenue provided by couples having only two children peaks out at $6,660,000.  As couples only have enough children to replace themselves.  Maintaining a constant of 4 taxpayers (2 parents and 2 children) after 80 years.  Showing that couples having 2, 1 or 0 children cannot support an expanding welfare state.  But a couple having 3 children can.  As long as it’s not too big of a welfare state.

You just can’t have an Expanding Welfare State with a Falling Population Growth Rate

The more children a couple has the greater the tax revenue.  For the more children they have the more people enter the workforce and become taxpayers.  If 50 couples have 3 kids each (as do their descendants) they will add $30.4 million in federal tax revenue in one century.  If they have 4 kids they will add $99.9 million in revenue.  If they have 5 kids they will add $264 million.  And if they have 6 kids they will add $599.4 million.

In two centuries these numbers are even more profound.  Couples having 4 kids will provide $3.2 billion in federal tax revenue.  While couples having 5 kids will provide $25.8 billion.  And couples having 6 kids will provide $145.6 billion.  If, that is, 100 pregnancies weren’t aborted 2 centuries earlier.

In the long-term revenue would soar if people simply started having babies again.  For birth control and abortion have greatly reduced the number of babies we’re having.  Causing tax revenue to fall.  We can bring revenue back up by having more babies.  But after some 30 years this baby dearth has pushed us into the flat part of these graphs.  Requiring up to a century or more to make large population gains.  And large gains in tax revenue.   And without these gains in revenue we simply cannot afford an expanding welfare state.

It is rather ironic that two tenets of liberalism clash here.  Liberals believe in both a welfare state.  And free birth control and abortion on demand.  They believe in one thing that requires women to have a lot of babies.  And another that helps women to have as few babies as possible.  Which is another reason liberalism will ultimately fail.  Paradoxes like this.  For you just can’t have an expanding welfare state with a falling population growth rate.  If you try you get trillion dollar deficits.  And $16.4 trillion in accumulated debt.

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Email, Texting and Online Bill Paying is doing to Canada Post what it did to the USPS

Posted by PITHOCRATES - January 19th, 2014

Week in Review

The United States Postal Service (USPS) is going broke.  Thanks to email, texting and online bill paying.  Making the USPS more and more irrelevant these days.  And it’s not just the USPS having this problem (see Ontario mother with sick child urges Canada Post to keep door-to-door delivery by The Canadian Press posted 1/13/2014 on City News Toronto).

An online petition urging Canada Post to reconsider its decision to end door-to-door delivery in urban centres has garnered more than 120,000 signatures…

Canada Post announced some dramatic changes to its operations last month, including plans to phase out the age-old tradition of home delivery in urban areas. The company said that without postal carriers travelling by foot, it would save a significant amount of money…

The petition — posted on the website change.org — draws attention to anyone in Canada who has limited mobility, such as the elderly or disabled, and the possibly dangerous effects this change could have on their lives…

Hamilton said that Canada Post is trying to maintain service to all Canadians but that they need to find innovative ways to do it in order to remain self-sufficient.

Canada Post had projected an annual loss of $1 billion dollars a year by 2020 if they were to continue with the door-to-door delivery.

Part of the reason why Canada can’t afford to keep urban delivery is because they have single-payer health care.  Which is pretty costly.  Especially with Canada having what all advanced economies have.  An aging population.  Which means more people are leaving the workforce and consuming taxpayer benefits than there are people entering the workforce paying taxes.  And with better health care people are living longer into retirement.  Which forces tax rates higher on the working (i.e., the young and healthy) to pay for those not working.

It is interesting that the same people, the young and healthy, are the ones destroying Canadian Post.  For they’re the ones emailing, texting and paying bills online.  Which means they will have to raise taxes further on the young and healthy to support the older generation.  Transferring more and more costs from the old to the young.  Which is what happens in a socialist country.  Generational theft.  Costs keep rising so people have smaller families.  Causing the population to age.  And requiring ever higher tax rates on those in the workforce to pay for the growing numbers who have left the workforce.

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Canada is enjoying a Booming Oil Industry because they don’t have a President Obama

Posted by PITHOCRATES - January 19th, 2014

Week in Review

The latest jobs report from the Bureau of Labor Statistics showed that for every person that entered the workforce in December seven people left the workforce (see The BLS Employment Situation Summary for December 2013 posted 1/13/2014 on PITHOCRATES).  In fact, since President Obama assumed the presidency 11,301,000 people have left the labor force.  Despite his policies to create greener and higher-paying jobs to replace the jobs in the coal and oil industries he destroyed.

For America was going green.  Whether we wanted to or not.  Pity, because we’d have a lot more high-paying jobs in the coal and oil industry had it not been for President Obama.  North Dakota is doing really well thanks to natural gas production on private land. Not much he can do to shut that down.  And just to the north things are going very well in the oil business (see Oil patch salaries rise 5 times as fast as rest of Canada posted 1/13/2014 on CBC News).

The average salary of young men working in Canada’s oil patch increased by 21 per cent between 2001 and 2008, more than five times the pace of gain seen by those workers in other parts of the country.

According to a report published by Statistics Canada Monday, men aged 17 to 24 living in the oil-producing provinces of Alberta, Saskatchewan and Newfoundland and Labrador were more likely to have a job than their counterparts in other areas, less likely to still be in school, and more likely to earn more.

Kids graduating college with worthless social science and humanity degrees have a boatload of student loan debt.  And little prospect of a job in a high-tech economy.  Had some of these kids had a chance to get a high-paying job in the oil industry instead of getting those worthless degrees they probably wouldn’t be living in their parent’s basement.  With that huge student loan debt hanging over them like the Sword of Damocles.

It’s a pity that the Americans can’t learn a lesson from the smarter Canadians when it comes to energy.  If we had pursued Canadian energy policies instead of Obama policies 11,301,000 people wouldn’t have left the labor force during his presidency.  For a good number of these people would now be in the oil business.  In the oil pipeline business.  In the oil refining business.  In the refined oil distribution system.  And all of the Mom and Pop stores catering to this influx of economic activity all along the way.  That’s what we could have had if we didn’t have President Obama.

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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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Japan’s Low Replacement Birthrate gives them an Aging Population and Soaring Debt

Posted by PITHOCRATES - July 7th, 2013

Week in Review

The United States debt as a percentage of GDP is approaching 100%.  Meaning that we owe as much as we produce in goods and services each year.  A frightening prospect.  For imagine if you earn $50,000 a year and were $50,000 in debt.  How easy do you think it would be to repay your debt?  Chances are that you will never be able to repay your debt.  But here we are.  Our government borrowing more than ever.  Without any concern of that rising debt.  They say it isn’t that bad.  Just look at Japan.  Their debt is about 200% of their GDP.  And they seem to be doing just fine (see Elderly shoplifters outstrip teenagers in Tokyo by AFP posted 7/8/2013 on France 24).

The number of elderly people caught shoplifting in Japan’s capital city has outstripped that of teenagers for the first time since records began, a report said.

A quarter of the people arrested on suspicion of the crime in Tokyo last year were at least 65 years old, figures showed, amid warnings of increasing isolation in the age group…

Around a quarter of Japan’s 128 million population is aged 65 or older, and the country has a far-below replacement birthrate of an average 1.39 children for every woman.

There are regular reports of bodies lying unfound for weeks or even months after a single, elderly person has died alone. Commentators say the phenomenon is a result of the fraying of familial ties as Japan has modernised.

When you have a replacement birth rate of 1.39 you have an aging population.  One that is growing so old that the rate of people leaving the workforce will soar while the rate of those entering the workforce will plummet.  So just as these elderly people start consuming their pensions and health care benefits the tax base that pays for them will be disappearing.  Perhaps explaining why these people are shoplifting.  As the burden to care for an aging population eventually becomes too great for a government to sustain.  So they cut back.  And leave the elderly to fend for themselves.

When people are having only 1.39 kids on average that means couples are not just having one child.  But a lot of them are having no children.  This is what birth control and abortion have given advanced nations.  The ability to wipe themselves off the map.  Either by a negative population growth rate.  Or by throwing open your borders to try and offset the population decline with new immigration.  Transforming the nation from the native population to the immigrant population.  Replacing the native culture and traditions with the immigrant culture and traditions.  Just like when the Americans moved west and replaced the culture and traditions of the Native Americans.

Two things that just don’t go together are an expanding welfare state and a declining replacement birthrate.  As you have a shrinking tax base paying for that expanding welfare state.  If you want an expansive welfare state you have to have more babies.  Plain and simple.  You have to stop using birth control.  And stop having abortions.  So you can grow the population.  To always have more people in the base of the pyramid than you do at the top.  Like any good Ponzi scheme should.  It’s either that or you have to reduce the size of the welfare state.  So you can live within your means.  That is, what your tax base can afford to pay.

Or you can keep borrowing and printing money like Japan.  And wonder when the deflation and recession of the Lost Decade of the Nineties will ever end.

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Women are Choosing to get Paid Less so they can have More Time to be Mothers

Posted by PITHOCRATES - June 16th, 2013

Week in Review

If you listen to some politicians there is a war on women.  Especially in the workplace.  Where evil business owners pay women less than they pay men.  At least that’s what the data aggregate tells us.  That business owners are not only greedy but sexist.  But there appears to be more to the unequal pay between men and women than the data aggregate shows (see Let’s Not Forget, Many Working Moms Want To Work Less by Erika Christakis posted 6/12/2013 on Time Ideas).

It’s almost become a cliché to note that women are still under-earning compared to men in the workforce. But maybe this reality shouldn’t keep surprising us. The recent headlines miss an important part of the work-life balance story: plenty of working mothers are earning less than men because they want the sort of jobs and working arrangements which indeed pay less…

The benefits of part-time work are substantial. Parents can be wage earners and role models without, literally, losing sleep. They can preserve most of their professional identity and work skills but still provide support to a wider group of dependents than would be possible with a full-time schedule, and without going insane in the process…

It’s true that the trend toward part-time, benefit-free employment can be financially ruinous to individual workers. One fifth of the country’s jobs are part-time, and many are low-skilled, dead end positions. But it’s easy to overlook how unrewarding full-time employment can be for many people, too – especially when the researchers and reporters and pundits who write about workforce trends tend to have fascinating, flexible jobs with decent pay.

We should stop limiting what women and men value by insisting that everyone has the same work aspirations. Some of us don’t want to spend the most productive and precious years of our lives trapped at the water cooler with our ‘work spouses,’ and we’re willing to pay the price.

All work and no play makes Jack a dull boy.  Makes Jane a dull girl, too, as it turns out.  Apparently mothers want to spend time being a mother.  Oh, how the left must hate this.  What with their birth control, abortion and morning after pills.  They want to see every woman childless and working fulltime.  Preferably taking a job away from a man.  Earning a big fat paycheck.  And paying a lot of income taxes.  Perhaps the true reason the left wants women in careers.  Stay-at-home mothers pay no income taxes.  That’s the whole drive behind state-funded childcare.  To get women back into the workforce as quickly as possible.  So they can resume paying income taxes.  Which is why the left demonizes conservatives.  And the 1950s family.  The Donna Reeds and June Cleavers.  Who were happy to spend time raising their children.  The very thought of which makes the left want to collectively vomit.

Motherhood is not something to shun.  To disparage.  Or to attack.  Women aren’t less of a woman for wanting to spend more time with their family.  Instead of shipping their kids off to childcare so they can work fulltime.  Because one day they’ll stop and notice that their kids are no longer kids.  But going off to college.  And they’ll wonder where did the time go.  As well as their childhoods.  Wondering where they were when their kids grew up so fast.  Then they’ll look at the big house.  The two new cars.  The nice things in their home.  And the empty rooms where their children once played.  Then ask themselves, was it worth it?

A lot of women are saying “no.”  It’s not worth it.  So they’re taking part-time jobs so they can spend more time with their kids.  Which is why in the aggregate businesses are paying women less than men.  Because women chose jobs that pay less.  So they can spend time doing something more important.  And more fulfilling.  Being a mother.  And God bless them for it.

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How a 12-Year Old Canadian and U.S. Unions see Business Differently

Posted by PITHOCRATES - May 12th, 2013

Week in Review

Advancing technology has greatly increased productivity.  Allowing fewer workers to do what workers a generation earlier did.  Causing our workforce to age.  Fewer workers are entering the workforce than are leaving it.  And costly union contracts paying pensions and health care to those who have left the workforce has decimated union membership.  For the costs they place on business have made these businesses uncompetitive in the market place.  Chasing manufacturing jobs out of the country.  Leaving union membership in the private sector at its lowest rates since the heyday of the labor movement.  To understand why let’s take a business lesson from the Canadians.  Who are trying to encourage their kids to become entrepreneurs.  Unlike in America.  Where business and profits have become a 4-letter word (see Canadian entrepreneurs: Born or made? by BARRIE McKENNA posted 5/10/2013 on The Globe and Mail).

[Entrepreneurial Adventure] pairs students with local business people to create a business, design a product, sell it and then give the profits to charity.

Why?

Evidence suggests Canada suffers from a weak entrepreneurial culture. While it’s relatively easy to start a company, the record of turning start-ups into fast-growing and successful enterprises is less convincing.

A 2010 study by Industry Canada…

… found that Canada generates a lower proportion of fast-growing companies than other developed countries, that relatively few small companies export and that the age profile of business owners is getting older…

Many business schools, including McGill University and the University of Toronto, now offer special entrepreneurship programs.

This is a problem.  For the number one job creator in any free market economy are small business owners.  People who go into business for themselves.  Taking great risk.  And hiring people as they grow.  This is the entrepreneurial spirit.  People who start out small.  And become someone like Steve Jobs.  Most people don’t understand the entrepreneurial process.  And the importance of having a business-friendly environment to encourage entrepreneurialism.  To create jobs.  To grow a healthy economy.  Creating new products that make our lives better.  And to do that one of the first things an entrepreneur must learn is what this 12-year-old learned.

“Some things work and some don’t,” acknowledged Alim Dhanani, 12, who worked on project management and Web design for the company. “To sell something, you have to have the right price. Not too small, so you have a profit, but not too big, so people will buy it.”

A 12-year-old can understand this.  The role of prices in the economy.  They have to be high enough to pay the bills.  But low enough to encourage people to buy from you.  Often times it’s not a matter of a business owner determining the price he or she wishes to charge.  They have to figure out how to pay their bills (and earn a profit) at the prevailing market price.  Something labor unions don’t understand.  Or they simply don’t care (see Fast-food workers in Detroit walk off job, disrupt business by Steve Neavling and Lisa Baertlein posted 5/10/2013 on Reuters).

Hundreds of fast-food employees in Detroit walked off the job on Friday, temporarily shuttering a handful of outlets as part of a growing U.S. worker movement that is demanding higher wages for flipping burgers and operating fryers.

The protests in the Motor City – which is struggling to recover from the hollowing out of its auto manufacturing sector – marked an expansion in organized actions by fast-food workers from ubiquitous chains owned by McDonald’s Corp, Burger King Worldwide and KFC, Taco Bell and Pizza Hut parent Yum Brands Inc.

Fast-food workers, who already have taken to the streets in New York, Chicago and St. Louis, are seeking to roughly double their hourly pay to $15 per hour from around minimum wage, which in Michigan is $7.40 per hour…

“People can’t make a living at $7.40 a hour,” said Rev. Charles Williams II, a protest organizer. “Many of them have babies and children to raise, and they can’t get by with these kind of wages.”

Those workers face high hurdles in their fight for better pay. Low-wage, low-skill workers lack political clout and face significantly higher unemployment than college graduates…

The Detroit action was put together by the Michigan Workers Organizing Committee, an independent union of fast-food workers, that is supported by community, labor and faith-based groups such as the Interfaith Coalition of Pastors, UFCW Local 876, SEIU Healthcare Michigan and Good Jobs Now.

The unions want to do to fast-food what they did to the automotive industry.  In this case the union basically gave unskilled workers the wages and benefits of skilled workers.  Sounds great if you’re an unskilled worker.  But the UAW priced the U.S. auto manufacturers out of the market.  The Big Three are a shell of what they used to be.  With both General Motors and Chrysler requiring taxpayer bailouts to avoid bankruptcy.  And pay for their crushing pension and health care cost obligations.  For GM was paying for more people not working than they were paying to work.  Even a 12-year-old can understand that this is a business model that just won’t work.

So what will happen in fast-food restaurants if you raise the labor wage from $7.40 per hour to $15 per hour?  That’s a labor cost increase of 103%.  In the restaurant business the rule of thumb for calculating your selling prices is as follows.  You calculate your food cost then triple it.  For in general one third of a menu price goes to food.  One third goes to labor.  And one third goes to overhead (utilities, rent, insurance, etc.) and profit.  Now let’s take a typical combination meal (sandwich, fries and beverage) price of $7.50.  One third of this price is $2.48 which represents the labor portion of the price.  The increase in labor is 103%.  So we take 103% of the $2.48 ($2.54) and add it to $7.50 to get the new selling price of the combo meal.  Bringing it to $10.04.

What will customers do?  Now that the combo meal will cost $2.54 more will they just continue to eat fast-food like they once did?  Will they stop adding an extra item from the dollar menu?  Will they just buy a burger and eat it with a beverage from home?  Will they just buy from the dollar menu instead of buying combos?  Of course, with the increase in labor costs that dollar menu will have to become the $2.03 menu.  Will people stop going to fast-food as often as they once did?  Some may decide that if they’re paying for a $6 hamburger the may go to a diner or bar for a $6 hamburger.  Worried about the lost business would fast-food owners try to cut their costs elsewhere to try to continue to sell fast-food at the market price?  By hiring fewer people?  Pushing current workers to part-time so they don’t have to give them costly health insurance?  Or will they just close their restaurant.  As people just won’t pay fancy restaurant prices for fast-food.

That 12-year-old in Canada would understand how the higher labor costs would affect business.  Causing changes in buying habits.  And changes in business practices.  He would not start up a fast-food franchise if labor prices were 103% higher than they are now.  For he would have to raise prices high enough to pay the bills.  But when he did they might be too high to get people to come in and buy food.  Causing a fall in business.  And a loss in revenue.  Making it more difficult to pay the bills.  That 12-year-old would see this as bad business.  Because he understands that a business owner can’t charge whatever he wants to charge.  He has to figure out how to stay in business while selling at the prevailing market price.  And though he may love fast-food he knows that his allowance won’t be able to buy as much as it once did.  So he would reduce his purchases at fast-food restaurants.  Just as his father will probably take the family out less often because of the higher prices.  Just as single mothers struggling to pay their household bills will, too.  But the unions don’t understand this.  Or simply choose not to.  Instead they just tell the workers that their employers are greedy.

It’s a sad day when a 12-year-old has better business sense than our unions.  Then again if unions cared about business they wouldn’t have bankrupted two of the Big Three.

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