Bloomberg opines that the economic divide between human generations is skewed in favor of the old – and it’s getting worse.
A significant proportion of recent economic growth has relied on borrowed money — today standing at a dizzying 325 percent of global gross domestic product. Debt allows society to accelerate consumption, as borrowings are used to purchase something today against the promise of future repayment. Unfunded entitlements to social services, health care and pensions increase those liabilities. The bill for these commitments will soon become unsustainable, as demographic changes make it more difficult to meet.
. . .
The prevailing approach to dealing with these problems exacerbates generational tensions. The central strategy is “kicking the can down the road” or “extend and pretend,” avoiding crucial decisions that would reduce current living standards, eschewing necessary sacrifices, and deferring problems with associated costs into the future.
Rather than reducing high borrowing levels, policy makers use financial engineering, such as quantitative easing and ultra-low or negative interest rates, to maintain them, hoping that a return to growth and just the right amount of inflation will lead to a recovery and allow the debt to be reduced.
. . .
In 1970, in the U.S., there were 5.3 workers for every retired person. By 2010 this had fallen to 4.5, and it’s expected to decline to 2.6 by 2050. In Germany, the number of workers per retiree will decrease to 1.6 in 2050, down from 4.1 in 1970. In Japan, the oldest society to have ever existed, the ratio will decrease to 1.2 in 2050, from 8.5 in 1970. Even as spending commitments grow, in other words, there will be fewer and fewer productive adults around to fund them.
. . .
A final revealing measure is the concept of lifetime net tax benefit, which measures the benefits received over a person’s life by calculating the difference between all taxes paid and all the government transfers that he or she has received and will receive. A 2010 study from the International Monetary Fund found that in the U.S. the lifetime tax burden was positive (tax paid was less than benefits received) for all age cohorts above 18 years, with the largest benefit accruing to those over age 50. But the figure for future generations is negative (benefits received will be less than taxes paid), meaning they’ll have to meet the obligations of their elders.
. . .
There’s more at the link.
This is a potentially explosive problem. It’s bad enough in the First World, where the Baby Boomers and their older children are now retiring en masse, and consuming all the resources they’ve built up during their lifetimes (not to mention drawing Social Security or the equivalent as well, all paid for out of current taxation). (I’m at the latter end of the Baby Boom period myself, but I’m not drawing down on anyone’s pension. I rely on my writing to earn a living, so I don’t have to feel guilty about such things – thank heavens!)
However, in the Third World it’s far, far worse. The hordes of Africans trying to get into the European Union by hook or by crook are economic migrants, not refugees. They’re desperate to find somewhere – anywhere! – they can make a living, because there’s nothing for them in their countries of origin. Those who make it across the Mediterranean find themselves competing for government support with the elderly and the poor who are already there – and they’re putting up a stiff fight for ‘their share’. It’s already placing great fiscal pressure on the governments involved. Only those who are determined to stop the refugee/migrant flood at their borders (e.g. Hungary) appear to have any chance of dealing with the problem successfully.
The USA is, of course, confronted by the same problem, stemming largely from South America. President Obama appears to have turned a blind eye to it, even going so far as to encourage illegal aliens to cross our borders. Thankfully, President Trump is trying to stop that – but there are already millions, perhaps tens of millions, of illegal aliens already here. We have to kick them out to avoid their economic drain on our limited resources . . . but, because they have nothing left where they came from, many will do anything and everything they can to avoid being sent back. They’re already clogging up the court system for years to come as they fight against deportation. (Their hope, of course, is that if they drag things out long enough, a new President will take office, one more disposed to be sympathetic towards them.)
Even without Third World migration, we have enough of a problem paying for the needs of all Americans. Inevitably, the older population will be forced to relinquish at least some of the benefits on which they’ve come to rely. Social Security payments are already hobbled by being linked to a risibly small and inaccurate inflation rate (which we’ve discussed here before). Real consumer prices are rising at an annual rate five to ten times higher than the official rate of inflation. Therefore, seniors who rely on Social Security to fund their retirement are in for a shock. Medical costs are also rising at a horrendous rate. It’s virtually certain that older people, whose medical expenses are much higher per capita than those of younger folk, will have to do without more and more government-subsidized treatment. If they can’t pay for it themselves, they’ll have to do without – and perhaps die without it, too.
I don’t have any solution to offer to this conundrum . . . unless it’s the young killing off the old out of sheer frustration – and since I’m rapidly approaching elder status myself, I don’t take much comfort from that!