Of Two Minds – The Demographics of Financial Doom

April 8, 2022

Whether we admit it or not, collapse is the default “solution.” That destiny has already been written by demographics.

The saying “demographics is destiny” encapsulates the reality that demographics–rising or falling trends of births
and deaths–energize or constrain economies and societies regardless of other conditions.

Demographics are long-term trends, but the trends can change relatively rapidly while policies remain fixed in the distant
past. This disconnect between demographic reality and policies has momentous future consequences. An appropriate
analogy is the meteor wiping out the dinosaurs; in the case of demographics, this equates to the complete financial
collapse of the retirement and healthcare systems.

As this article below mentions, extrapolating the high birth rates and falling death rates of the 1960s led to
predictions of global famine.

As death rates declined and women’s educational and economics prospects brightened, birth rates fell, a trend that
now encompasses most of the world.

As a result of the Green Revolution (hybrid seeds and hydrocarbon-based fertilizers), the Earth supports more than
twice as many humans as were alive in the 1960s (3.5 billion then, 7.9 billion now).

Now the problem is a shrinking working-age population that will be unable to support the financial and healthcare
promises made to the retired generations.

Birth rates in developed nations have fallen below replacement rates, which means populations are shrinking and
populations are aging rapidly, i.e. the average age of the populace is rising..

One side effect discussed in this article is the decline of the cohort of young males and the rise in the average
age reduces the likelihood of conflict:

Children of Men’ is really happening–Why Russia can’t afford to spare its young soldiers anymore.

I remember reading similar research in the mid-1970s that identified a strong correlation between the relative size
of the cohort of young males and the likelihood of war.

If the cohort was above a specific percentage of the total population, war was likely. One example was Germany in the
1930, which had a large cohort of young males under the age of 25.

This may partially explain the increasing reliance on economic war (sanctions) and cyberwarfare–nations no longer
have large enough cohorts of young males to field armies where high casualties are a reality.

What the article mentions in passing–the demographic impact of social values and political power–is worth exploring.

In broad brush, several trends are visible in many nations and cultures.

One is that having children has gone from being an economic necessity or benefit to a tremendous financial liability
in the developed world.

A Danish friend once commented that only wealthy families could afford to have three children now in Northern European
countries. The same can be said of the U.S. and many other countries, once we consider the higher demands now placed
on parents.

Where in the good old days of previous generations, parents were deemed adequate if they provided a roof over the
kids’ heads, basic meals and clothing. Education was left up to the public schools, and public college was low-cost,
should the child want to continue their education.

(The University of Hawaii tuition was $89 and student fees were $27, for a grand total of $117 per semester from 1971
to 1975, $780 in today’s dollars. I was able to support myself, pay all my university expenses and carry a full
class load on a part-time job–in one of the two most expensive cities in the nation, Honolulu.)

In a fully globalized “winner take most” economy, parents with aspirations for a top 20% career and lifestyle for
their children have a much more demanding burden.

Parents seeking to give their children a leg up must provide costly enrichment lessons and juggle complicated
schedules of after-school classes. Prestigious universities now expect more than mere academic excellence;
applicants must show evidence of leadership, civic engagement, etc., and even public universities are outrageously
expensive.

Another trend is the cultural bias of favoring the elderly in terms of government support.

As workers increasingly lived long enough to actually retire, social and political values supported government
funded pensions and healthcare for retirees.

In the high birth rates 1940, 50s and 60s, governments greatly increased benefits for the elderly / retired, as
everyone assumed there would always be 4 or 5 workers for every retiree. Relatively few people lived to age 80 or older.

The steady decline in birth rates and the steady increase in longevity have dropped that ratio to less than 2 workers
for every retiree. In the US, there are 127 million fulltime workers and 69 million Social Security beneficiaries
(including disabled). That is less than 2 fulltime workers for every beneficiary.

In a recession, Boomers will continue retiring en masse while the workforce will shrink. A ratio of 1.5 workers to
every beneficiary isn’t that far away.

Is there any doubt this ratio is unsustainable financially? No.

These two trends are a double-whammy on those young adults having children: the costs of raising kids is much higher,
the expectations are much higher while the government support is heavily weighted to the elderly populace, which is
exploding as people now live into their 80s and 90s. (My Mom is 93, my Mom-in-law who we care for here at home is 91,
our neighbor’s Mom is 99, and so on.)

We have elderly friends who retired from federal government jobs at age 55 after 30 years of service and have
collected 40 years of retirement. Is this financially sustainable? No.

The actuarial foundations of Social Security and Medicare were based on 4 or 5 workers per beneficiary and average
lifespans around 70. Retirees were expected to collect benefits for 5 to 7 years, not 25 to 30 years.

These systems are fundamentally unsustainable at current retirement ages (55 for many government workers, 62 for
“early retirement” Social Security and 67 for full benefits and Medicare at 65), current longevity trends and less
than 2 workers per retiree.

The only way to reverse these demographic trends would be for government support for retirees taking a back seat to
government support of children and young parents, greatly reducing the financial burden of having children.

The only way an economy can support a massive population of elderly is if there are enough young workers entering
the workforce to keep the society and economy functioning.

Forward-looking populations would realize supporting parents and children is the only way to support future retirees.

But humans aren’t very forward-looking; we want all the good stuff now. So the elderly support politicians who
promise their benefits are sacrosanct and untouchable–except to increase them.

Almost all elderly people vote while a much lower percentage of young people vote. So the government continues
supporting the elderly even as the population of elderly explodes and the means to provide this support are in free-fall.

Retirement ages have barely budged, increasing a mere two years in 40 years from 65 to 67, while lifespans have
greatly advanced and the worker-retiree ratio has collapsed.

Open-ended healthcare expenses are an invitation for profiteering, fraud and unnecessary or even harmful medications
and procedures. By some estimates, 40% of the $1.5 trillion dollars spent on Medicare and Medicaid annually is
paper-shuffling, fraud and needless medications and procedures.

A third trend is female workers wanting a fulfilling career and children, too.

With childcare costing $25,000 or more annually, one parent may essentially be working just to pay the childcare
costs for two children.

A fourth trend is relying on high birth rate immigrants to substitute for native-born workers is no longer viable,
as birth rates have plummeted in nations that provide immigrants.

As the saying has it, something’s gotta give. Doing nothing will lead to the collapse of the programs benefiting
the elderly while the birth rate continues declining.

All these values and programs assumed high birth rates, high worker-retiree ratios and modest costs for raising
children were forever. They weren’t.

Now we need a new set of values that reduce or eliminate the financial burdens on parents raising children. It
would be nice if we could afford to pay for everything we want but printing money to do so just collapses the
entire system.

Personally, I would raise all retirement ages to match the rise in lifespans, limit Social Security benefits to those
with no other pension or retirement income, limit publicly funded extraordinary
healthcare measures for people over the average lifespan, tax revenues rather than labor, and pay all childcare
and after-school programs expenses currently paid by parents, plus a modest sum per child that can only be spent
on after-school enrichment classes and programs.

That seems common-sense to me, but I’m open to other permutations of hard choices.

Hard choices lead to better outcomes than collapse, but few have any stomach for hard choices. Politicians who
make hard choices that require sacrifices of powerful lobbies and voting blocks lose elections.

The fantasy that we can “print our way out of any problem” is strong because it’s so convenient and apparently
so successful–at first.

Whether we admit it or not, collapse is the default “solution.” That destiny has already been written by demographics.

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Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

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