5/6/2013 6:00 PM ET|
Will the age wars bankrupt us?
Underlying all our recent global crises is the issue of an aging population. Yet we're refusing to fund the growth and productivity our economies need.
It's clear that the next stage in the painfully slow recovery from the global financial crisis/Great Recession is a war between the young and old.
In the United States, for example, the sequester that forced automatic budget cutbacks has left payments to the older generation under Social Security and Medicare largely untouched even as it has led to a wave of cuts to Head Start across the country.
In Spain, unemployment among the population as a whole was 27% in the first quarter. But for Spaniards aged 16 to 24, it's above 50%.
It shouldn't be any surprise that the next stage in this crisis -- I'd characterize everything from the U.S. mortgage meltdown to the worsening recession in the eurozone as part of a single crisis -- is about demographics.
That’s because I think the roots of the crisis lie in demographics. Debt and demographics go together in really toxic ways, I'm afraid, and that interplay goes a long way to explaining the current mess.
I find this awfully depressing. If the global financial crisis, the Great Recession, the euro debt crisis and the very slow recovery in the United States are all caused by an aging world, the global economy is likely to show both slow growth and destructive volatility for a long time.
There's very little we can do about the aging of the world's population. And, on the record so far, we're handling the transition to an aging world really, really badly.
If our "solution" is to pit the old and young against each other, this crisis is going to be even worse than it needs be,. In a war like that, the old are almost certain to win; in relative terms, they have the power and the money. But that would mean starving the young -- the part of the global population that we need to be as productive as possible -- of the capital and intellectual resources that future productivity rests on.
Demographics isn't among the popular explanations for this crisis. And to be fair, there’s truth in most of the popular explanations, too.
- Banks and Wall Street were too greedy and too arrogant, and they did financially engineer the world into a mortgage crisis that turned into a global financial crisis.
- Governments did run up debt because of bad financial decisions made before the crisis (the shortfall in state pension plans in New Jersey and Illinois come to mind), and they haven't been very smart in their response to the Great Recession.
- The continued wave of globalization has delivered a mountain of cheap goods, but it hasn't delivered the job growth that advocates of free trade promised.
The implications of these explanations are depressing enough. Globalization will continue, and it appears to be beyond the power of governments to control. Politicians will almost certainly continue to make bad financial decisions, driven by their desire to stay in office. We're unlikely to abolish greed and arrogance any time soon. In other words, there's very little to suggest that we won't do this again sometime soon.
Demographic shifts make problems worse
But I don't think these popular explanations really illuminate why we're getting this series of crises now. I think the explanation comes down to the way an aging world -- and especially the demographics of a rapidly aging developed world -- amplifies other economic problems.
Consider Italy, often held up as the worst example, outside of Japan, of out-of-control deficit spending. Government debt in Italy was actually on a trend downward before the financial crisis hit in 2007, with government debt falling every year in the previous decade. But the crisis cut government tax receipts (Italian gross domestic product, measured in real terms, has fallen every quarter for almost two years) as Rome increased government outlays to fight the Great Recession and to try to avert a collapse of the banking system.
It's tempting to see the crisis in Italy as just more fallout from the global financial crisis, which led to the euro debt crisis, which led to an extended recession across the eurozone. But I'd argue Italy was headed for crisis before any of this hit, despite the decline in its debt-to-GDP ratio. (Although I'd certainly agree that the financial crisis made Italy's crisis worse.)
Take a look at Italy’s demographics. In 1950, it was one of the world's 10 largest countries by population. Now it’s 23rd. In 1950, it had a larger population than both Egypt and Vietnam. Now, its 61 million people are far fewer than the 85 million in Egypt or the 92 million in Vietnam. Right now, Italy's population is barely growing -- the CIA World Factbook estimates growth of 0.34% in 2013. If not for immigration, Italy's population would be shrinking.
Consequently, Italy is aging -- quickly. The median age of Italy’s citizens is now 44. Compare that with 29 in Vietnam and 25 in Egypt, or even 37 in the United States. Italy isn't quite as old as Germany or Japan -- each of which has a median age of 46 -- but it's not far behind. And the country is clearly one of the oldest and fastest-aging in the world.
Facing the consequences
What are the consequences?
I can think of three that feed right into the current financial/economic crisis and lay the groundwork for a series of crises that stretches as far as the eye can see.
First, as populations age, they get less productive and more expensive. Even if workers work longer, they gradually do retire. So a country like Italy -- along with just about every other developed economy -- is seeing a rise in the ratio of retirees to active workers. Retirement payouts rise, and so do the costs of health care.
Second, as countries age, debt loads that were -- perhaps -- supportable when more of the population was in the active workforce and when retirement and health care costs were lower become a heavier weight on the country.
Older countries have trouble carrying as much debt as they did when their populations were younger. Such countries draw down savings rather than increasing them, for example, which means that gradually a country like Italy with a huge base of domestic savings will need to attract debt buyers from outside its borders.
That's a problem if other developed countries -- including the United States, which has a proportionally smaller pool of domestic savings -- need to attract global capital, too.
Third, countries in which governments at all levels, as well as businesses and individuals, in this position become exceedingly vulnerable to wishful thinking, pie-in-the-sky assumptions and schemes of dubious credibility.
- In the U.S. mortgage crisis, sophisticated investors, including pension funds and insurance companies, were willing to believe that Wall Street could bundle mortgages to create products with higher yields and less risk.
- National governments in Spain, Ireland and the United States, to name just three, were willing to believe that they could extend economic booms on a wave of credit even as incomes stagnated.
- Pension programs at the national, local and corporate levels were willing to believe they could finance hefty payouts because returns would be 8% a year.
- Individuals were willing to adopt a "What, me worry?" attitude about their future finances because rising asset prices would make up for slow growth or no growth in incomes.
The alternatives -- cutting benefits, raising taxes, using earnings to fund pension plans -- were much more painful than simply believing that the snake oil being peddled as medicine would work.
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Okay, that's an extreme example, but if every successive generation is just a bit dumber than the one before it, you can see where that's going.
If nothing else, the future of Mankind depends on education, knowledge and action.
The population has always aged. Now problems are caused by a globally aging population? I think the problem lies in where and how the money was spent that this aging population paid in for so many years before they were "aged". The US government is an overloaded freight train going down a steep, dangerous mountain grade with no brakes. It's a system that, due to it's inherent design can only fail in time because simply put, it never shrinks. This bears repeating..it never shrinks. Always growing, all the while continually re-designing itself (spending) which require's it to have to eat more (taxes) to sustain itself. When the gorging finally reaches the point that it overtakes the available food...then some very real and very serious trouble will occur.
Jubak...pass me the bong please...
When I was in grade school,the kids had savings accounts with a local bank.We would all bring in
our pennies, nickels and dimes each week to depoist into our accounts. We could use our $$
anyway we wanted,clothes,cars,higher education.One thing we all learned money does grow.
BUT we were not FROM the "OWE ME" generation.
America will never get back to where we once were,we had SMART LEADERS,.....once.
Yeah, it is all the fault of my generation for not all dying at the age of 40. I thought of Logan's Run as well, and other similar writings from the 60's. I also know that what goes around comes around and those of you who are blaming people for getting old, useless and being a burden, you will be in the same position yourself down the road. I hope you all remember your position today very well. Sounds like some of you want an apology from "old people" for breathing your air.
Back in the day, many people used to go into politics because they saw a problem and thought they could help with a solution. Today, not so much.
Well, I've experienced an age war in the job market. Despite showing competency in technology and working on some cutting edge technologies, I've been turned down in job interviews by young interviewers who tell me that I'm "over qualified" - which is PC speak for "too old". These youngsters think that experience is a bad thing.
The company I left downsized me because I was” too old and expensive”. That despite my productivity being much higher than the younger people that they replaced me with (heck, I used to spend time correcting their mistakes). I wasn’t the only person downsized – they dumped 80% of their experience and credentials. How did it work out? They were unable to win many contracts, and lost money on the few contracts they did win. After a few years they went bankrupt. But I’m not gloating because I don’t like seeing the suffering that their management put everybody through. The executives had golden parachutes, the rest of us got unemployment.
Anywhere we have age-based job discrimination we have an age war. If the kids don’t want us seniors to help the economy then they deserve to have to support us.
Populations have aged since the dawn of time. What's changed is the attitudes of those who reach the age of reason and those who who are passed it. Americans today are aging out of the prosperity being an American once had value. A government that is more focused on supporting its Big Businesses to keep wealth growing and takes that from individual Americans isn't new either. What's changed is the total reliance of Big Businesses on taxpayers. And we wonder why the Middle Class is tapped out? The bigger problem is getting the wealthiest Americans to stop asking for more, more, more and learn to live on the salaries they earn at the same stagnated rate as the Middle Class and working poor. Something wrong with expecting wealthy people to shut up and be satisfied with what they earn and stop trying to live outside their class?
There is light at the end of the tunnel. More Americans are watching their state taxes being used to support businesses while taxes increase year after year with zero reciprocity from these businesses. No hiring and no job creation...just stuffing more and more tax dollars into business while roads and bridges crumble and education, emergency services and defense take the hit. So we watch America crumbling while the 1% minority live it up and the corporate socialists who live off our tax dollars never have a worry about biusiness bills and bankruptcy. Wake up America....Is this what the Founding Fathers had in mind for your tax dollars? Funneling as much of it to businesses who stuff it into offshore tax free accounts, get their taxes reduced, don't hire or create jobs and all while you work to live and live to work?
Remember what Nancy Reagan once said? "Just say NO!" Say No more to tax increases that hurt you more than those who receive it. Say NO to higher and higher costs for your medical care, housing, groceries and clothing. NO is such a great word...It brings the high flyers on your tax dollars crashing landing back down to earth. Why allow a bunch of greedy people to refuse to tap into their profits to pay their own payrolls and business bills? The stupid idea that prices can go higher and higher and higher with no limits is insane. We are already seeing the result of that kind of thinking.
What's unfortunate about this article, though surprisingly insightful and accurate, is that it barely touches the cause of this house of cards we're living in. Our debt was made possible by a collection of Ponzi Schemes promising more than was possible without consequences. These Ponzi Lies would have been impossible to sustain if their support had never existed which allowed for the carefree decisions of yester-year. If you want to resolve the crisis you need to attack at its source. Remember, Remember the 23rd of December, 1913. The author makes a very good point, however, about the solution: The answer is painful to accept; so much so that it becomes a question of will countries (across the Globe) willingly plunge ahead; indulging their self-annihilating desires and encouraging the self-destructive cycle; pretending and hoping that things will magically change? Or will they try a new road?
Please note that a lack of population growth in the West seems to be part of the problem. Of course, having children demands that one moves beyond oneself, perhaps too much for the narcissistic generations we have raised of late.
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