I routinely explain that entitlement programs are a ticking time bomb, and I castigate politicians who want to kick the can down the road (or make a bad situation even worse).
This is a global problem, not merely an American problem.
In large part, this is a story of demographic change. A modest-sized welfare state is not what libertarians want, but the math works if there is a traditional population pyramid – meaning relatively few old people, lots of working-age people, and then an even bigger generation of children (i.e., future workers).
But as I’ve explained in my four-part series about demographic change and fiscal crisis (here, here, here, and here), that is not the world we live in today. And it definitely won’t be the world we live in tomorrow.
Let’s look at some new – and very depressing – evidence.
We’ll start with this map of Europe, which shows that the fertility rate in every nation is below (in some cases far below) the replacement rate of 2.1 needed to keep a population from shrinking.
And keep in mind that many European nations have large welfare states rather than modest welfare states (see here, here, and here to understand how Europe already is in deep trouble).
Expanding from Europe to OECD nations, this next visual shows how fertility rates have dropped over the past 40-plus years.
The declines are especially dramatic for the developing nations that have become part of the OECD.
Next we have two slides from a recent presentation to a conference on demographics.
The first slide summarizes the problem.
And the second slide shows that immigration is not a long-run solution (echoing my 21st Theorem of Government).
I’ll close with the observation that there are two possible policy responses to these global demographic trends.
- First, politicians can raise taxes and incur more debt in hopes of propping up their welfare states, but then suffer bankruptcy and economic crisis.
- Second, can adopt big entitlement reforms such as personal retirement accounts so that demographic change doesn’t mean fiscal disaster.
Sadly, I have an informed guess about which option most politicians will choose.
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Image credit: Pedro Ribeiro Simões | CC BY 2.0.
