In my post on depopulation, many commenters pointed out that the time horizon for significant depopulation is so long that it makes little sense to be concerned about it. Compared to the doubling time of population fifty years ago, the halving time of population going forward is trivial. Those critiques are valid.
But in the near term, we have what Eric Weinstein calls Embedded Growth Obligations. University faculties, law firms, public schools, and other institutions require an ever-expanding consumer base or else they will have to stop hiring new employees and even lay off existing employees. Our pay-as-you-go entitlement programs threaten to collapse as the ratio of beneficiaries to contributors falls. How does Social Security work if we extend life and have fewer workers? Many state and local government pension systems are in at least as much trouble.
Also in the short term, we may see a dramatic shift in the composition of world population. Fewer East Asians and Europeans. More sub-Saharan Africans. That also will pose some adjustment challenges.
By far the biggest liabilities that the U.S. government has are Social Security and Medicare. The unfunded liabilities of these programs alone are estimated to be somewhere between $100 and $200 trillion dollars. These programs can be put on a sound financial basis by privatizing them. Countries like Chile and Australia have privatized their versions of Social Security – replacing their pay-as-you-go systems with defined benefits models.
More and more countries will be forced to adopt such models as their demographics shift and they have fewer workers producing all the goods and services needed by growing numbers of people who rely on government transfer payments.
Because there are so many seniors – and so many seniors vote – proposing any changes to Social Security is considered political suicide, as Paul Ryan discovered a few years ago when he proposed a privatization plan. Political cartoonists lined up to depict him pushing “granny” off a cliff.
Short of full privatization, the current system can be shored up by:
• Reducing benefits or, at least, slowing the rate of benefit growth
• Raising the eligibility age for receiving payments
• Increasing payroll taxes
• Means testing recipients
Social Security and Medicare are morally questionable because they transfer money from the relatively poor to the relatively rich. The elderly in this country are, on average, by far the country’s wealthiest age group. The fact that some seniors are poor does not justify subsidizing all seniors.
The only problem for privatization is the transition costs. Generations ago, seniors got a free lunch as they paid relatively little into the program and received outsized benefits. Changing Social Security now will require another generation to pay for a lunch they won’t get to eat.
The least bad way would be to replace some or all of the FICA for Social Security with mandatory savings accounts, largely or entirely invested in equities, which can then be annuitized by exchanging the balance in your account to the government for a guaranteed inflation adjusted payment. The government would top up the annuities of those who don’t meet a certain threshold. In the long run, the government’s contribution to retirement funding most years will be minimal, but before that you’d need to come up with $1 trillion in extra tax revenue to cover the gap.
For Medicare, I’d go the other way. Rather than privatizing it, I’d go with a public hospital/clinic system that anyone can use, with a moderate means test contribution for those over a certain level of income/wealth. The public system would be laser focused on cost and outcomes on a global level, and would use tricks like the Singaporean system does to manage expenses (e.g. a bed in a public ward is free, a semi-private room costs something and a fully private hospital room costs even more). There will be no heroic efforts to attempt to save an almost certainly terminal patient at high cost, but people would be free to go elsewhere for such care, either via their own private insurance for such an event, a charity such as St. Jude’s, Go Fund Me, etc.
They are wealthy because of home equity. If the median for the age group is 250k net worth, 200k of that will be home equity.
While I was looking at those numbers I saw that something like a quarter of seniors had nothing at all.
I think you need better targeted welfare for those folks, and means test the rest.
Why the hell am I putting so much money in my 401k if your going to means test away all of my savings?
Right, if you use means testing to allow access to Social Security, many people will rationally opt not to save. The PV of Social Security annuities upon retirement is equivalent to a nest egg worth hundreds of thousands.
Social Security should be privatized with a forced savings component replacing most of the Social Security contributions we have now, say 5% employer/employee. The means test only applies to the value of that account, which people have to contribute to. They’re free to put away as much extra in another investment account as they wish.
Because they can…Okun’s bucket isn’t sufficiently leaky yet else you wouldn’t be working and saving so much.
You are equating payroll taxes with “savings?” They are more like insurance premiums.
First, insurance is for risk. When an event is unpredictable for an individual but can be predicted by the insurance company en masse and the risk spread.
But growing old and needing savings is not a “risk”. It’s a certainty. And individuals are capable of planning for it.
Even the matters that are harder to predict (how long will I live) there is private insurance to cover it (annuities, LTC, etc).
When you try to insure a risk that the individual can plan for and alter his behavior to adjust his payout, this always leads to distortion and usually a death spiral. This happens all the time.
Second, insurance has to pay out what it takes in. If it pays out more it goes bankrupt. If it pays out dramatically less than it will often be declared illegal by the state insurance commission (minimum loss ratio requirements).
Social Security is effectively a forced savings program with a (kinda, sorta) risk free mediocre return that creates a deadweight loss via tax funding. People receive a financial, political and moral claim on future cash flows based upon their contributions. I think it would be better if people saved for themselves, having a direct claim on financial assets which they effectively own, and the government covered the difference for those who couldn’t save enough due to financial challenges (which would be true insurance).
As asdf says, old age per se isn’t really insurable as it’s an expected reality for most people with predictable costs that are similar for everyone.
Of course it’s insurable. I guess you have not heard of a reverse mortgage?
A lower population is not by itself necessarily a problem. There is more capital (consider Solow’s growth model), space, waterfront property, etc. on a per-capita basis. The expected growth obligations are mostly a mistake of over-optimism, but a variety of programs and institutions can adapt to low or negative-population-growth scenarios.
The problem is that the population decline isn’t distributed evenly.
But wouldn’t it be challenging to navigate population decline? For a while, moderate population decline means severe population decline among the working age population, along with a growing or perhaps flat elderly population. Hopefully AI/robotics help rescue us from some of the pain of that transition.
More accessible waterfront property would be great, but having real estate prices fall as a common feature in most places and most years might be difficult to adjust to, both for lenders and home owners. And I wonder how cities will adjust with a much smaller population: do places like Chicago follow the path of Detroit into a death spiral of urban decay? Some of that excess capital might just be left unused.
Detroits decay wasn’t just because of straight population decline, but a dramatic change in the composition of the population.
Look, a TFR of just below replacement causes some difficulties but isn’t by itself mean the collapse of society. And Medicare’s problems have as much to do with cost disease and politics as they do with population aging. I’m not saying that it isn’t really easy to continue failing at these things, but I’m not convinced a 1.8 TFR forces failure by itself.
East Asian TFRs are 1.0 are really disturbing though. That might really just be a death spiral you can’t overcome. Of all the places I think those societies are most able to handle it, but its worrying.
What’s especially worrying is that it doesn’t appear to be “an active choice people are making because they think its the right thing to do for their long term happiness” so much as a bunch of social failures that are leaving people unsatisfied with their fertility and other outcomes in the long run but not sure how to fix it. You could say that its a problem both for society and for individuals, neither of which seem happy with the situation.
As to Africa, they are having 4.55 kids now and are projected to be down to 3 by 2050 by the UN. Even if correct, that still results in many billions more.
What would happen if say a billion Africans came here (not that high a % of expectations)? Why not, libertarians are open borders. The United States would be 72% black, which isn’t far off from Detroit. If you think the Atlantic Ocean is too much, plug that in for Europe.
I would agree that a 1.8 TFR is pretty manageable especially with moderate immigration, but I don’t think you get populations cut in half in a century with a 1.8 TFR. A lot of countries are in the 1.0-1.5 range, and that’s a bigger problem. While America is 1.7 now, the numbers are trending down and given social trends I think 1.5 is more likely than 1.8 by 2030.
I also agree that Detroit’s urban decay wasn’t caused by population decline, but with a much smaller American population (say, 200 million) a lot of areas currently occupied today will have be empty. Cities like Detroit might well end up more or less abandoned.
Challenging new situations have always arisen, and been dealt with.
Like how when Rome fell, it all worked out for the better after a millennium of poverty and endemic warfare? Or how when Europeans came to North America, and the locals conveniently dealt with it by having 95% of their populations die of plague, most of the rest force-marched to the desert, and opening casinos five centuries later? I think you’re a little too complacent.
The Roman Empire wasn’t paradise; it was “poverty and endemic warfare.” And the European colonization of North America seems to have worked out well on the whole. I think the present state of the world justifies complacency.
The Roman Empire certainly wasn’t paradise, but it was much richer and more peaceful than what followed. It had extensive, relatively safe trade networks that allowed for considerable specialization and a certain amount of mass production. It was a millennium before their works were equaled.
As for North America, the natives have a very different opinion. Feel free to ask one. If you’re in America and you can’t find an American Indian, that’s your answer. And if we someday get exterminated and the future turns out wonderfully for our killers, I’d find it hard to call that a win.
“Also in the short term, we may see a dramatic shift in the composition of world population. Fewer East Asians and Europeans. More sub-Saharan Africans. That also will pose some adjustment challenges.”
Perhaps you ought to read & review Stephen Smith’s (an African Studies professor at Duke University) *The Scramble for Europe: Young Africa on its way to the Old Continent*, which provides some facts about this “adjustment”. Steve Sailer reviews that book here: https://www.takimag.com/article/no-continent-for-young-men/. Amazon link here: https://www.amazon.com/Scramble-Europe-Young-Africa-Continent/dp/1509534563.
“We have effectively entered a period in which we cannot trust our experts. I think that what began as a desire to contribute and to do real work, ended with an understanding that we’ve got two generations of institutional experts that are corrupted, and that we cannot wake up from this crazy fever dream that we’re all in, because we can’t figure out who we can still trust.
The doctors are compromised. The professors are compromised. The Journalists are compromised. The politicians are compromised.
About the only thing that isn’t badly compromised are people with an independent source of sustenance — individuals and very small groups are about the only thing that is free of this disease of the Embedded Growth Obligation (EGO).”
-Eric Weinstein
I like the cut of this fellow’s jib. Strong argument for the principle of subsidiarity.
Simply put, the expectations on generous entitlements need to be reset right away. It has to be something like, “we need to raise the eligibility age to 78. And you’re not going to like it but it was never meant to be retirement; that’s why the acronym for it has the word ‘insurance’ in it. You want to retire? Good; fund the gap on your own and we got you at 78 but for only xxx dollars a month.”
The great reset needs to be off expectations and not tinkering with our hybrid free market economic system.
“University faculties, law firms, public schools, and other institutions require an ever-expanding consumer base or else they will have to stop hiring new employees and even lay off existing employees.”
OMG! Anything but that! Inconceivable!
But seriously, the problem is the federal debt. Economists have a hundred and one rationalizations for the government to issue debt. Nevertheless these rationalizations are based on requiring future governments to do things like increase taxes and cut spending that are just not going to happen.
As long as we are going to engage in wishful thinking, here is an idea for handling the situation: receipts based budgeting. This would require the federal departments to operate upon fixed percentages (totaling 100%) of the previous quarter’s treasury receipts with some carryover authority to smooth out disbursements. No new debt issued. Rough off the cuff percentages: Servicing debt 30%, income maintenance 25%, health 15%, defense 10%, and the rest to the rest. Once the debt is retired, tax rates could be reduced or an emergency reserve fund created. Forcing the spending arguments to involve real trade offs would yield immense benefits. The disruption created by switching over would be enormous but a one-off, much preferable to decades more of the floundering status quo.
I see at least two major problems here. The first is, as edgar notes above, debt (although not exclusively Federal). Debt is very useful in a high-growth environment, but it’s hideous in a low-growth environment. Like many empires before us, we are failing to navigate the transition. It’s probably not a coincidence that the Federal debt started blowing up around the same time that productivity growth started to level off.
The other is cultural. The American Dream is one of continually increasing prosperity, and it’s not clear that the US would be politically stable without growth. Trump got elected with implausible promises to return growth to America, and the Rust Belt working class voted for it once (almost, but not quite, twice). Meanwhile, a lot of Democrat proposals are essentially jobs programs for college-educated would-be bureaucrats. I think we’ll see a lot more of that before we’re through, from both Democrats and Republicans.
I think that continuously increasing prosperity is possible. Trump went about it the wrong way. He tried to increase employment in a manufacturing sector that, like agriculture, has become so automated so that it is producing far more goods with far fewer people.
Despite the worries that we’re becoming a nation of hamburger flippers, over half of American employees have been working in the service sector since the 1950s, and that’s not going to change anytime soon.
One area of explosive growth is radical customization. Today we have hundreds of craft coffees, beers, and whiskeys. People are wearing clothes that have been personalized with embroidery made by numerically controlled sewing machines. We’ve even got 3D printers for cake icing!
As we’ve become more automated, people have begun to own the “means of production” as the socialists promised. Often those means translate into a laptop and a cellphone, and maybe a 3D printer.
Our economy is producing ever more “smart” machines that can drive radical customization even further. And, like laptops, cell phones, and 3D printers, those machines will quickly become inexpensive enough so that nearly anyone can afford them, and so smart that nearly anyone can learn to use them.
I’ve used 3d printers. I got my dad one for Christmas. If your problem is that you’re not satisfied with the variety of plastic widgets otherwise available and you’re willing to pay a significant premium (injection molding being much cheaper at scale), they’re a great solution. They’re also great if an elderly father needs something to tinker with so your mother doesn’t shoot him. But those are very specific needs.
The America of 1850 was substantially a country of small farmers. The America of 1950 was substantially a country of industrial laborers. The America of 2050 probably won’t be a nation of 3d printer operators; there’s just not enough demand to keep them busy.
In 2050, 3D printers will be museum pieces. My point is that the means of production are proliferating and becoming cheap enough for anyone to buy and use them.
My point is that “mass customization” is basically the sort of production that Etsy shops and Youtubers do. For a few unusually talented and business-savvy people, there’s a lower-middle-class income to be made there. As a hope for the future, I’m underwhelmed.
Richard W. Fulmer says, “One area of explosive growth is radical customization. Today we have hundreds of craft coffees, beers, and whiskeys. People are wearing clothes that have been personalized with embroidery made by numerically controlled sewing machines. We’ve even got 3D printers for cake icing!”
This is the old libertarian paradigm that new jobs will keep being created, because, “human desires and demands are infinite.” It’s a nice dream–that prosperity can be maintained and increased by tweaking a little differently the flavors of coffee and alcohol drinks, and through “clothing embroidery innovation.” Some people do well by this. Some fortunes are made, but unfortunately the majority of jobs in boutique breweries and embroidery salons cannot support a modern technological society. The owners and top managers of “Starbucks” may be rich, but not the bulk of their front-line barista employees. Only professionals in the major “rent-seeking” fields like finance, medicine, higher Ed, and government sinecure jobs can do that. And the “rent-seeking fields” operate against the free market, not in unison with it.
“And the ‘rent-seeking fields’ operate against the free market, not in unison with it.”
Good point. Jobs will keep being created only if government doesn’t get in the way. And, in the United States, government is definitely in the way. To keep prosperity growing I suggest that we eliminate or pare back:
– The minimum wage, which hurts the least employable (i.e., the least skilled, least experienced, and most discriminated against)
– Certificates of need, which allow entrenched companies to decide whether they want to compete with newcomers
– Business startup regulations
– Job licensing
– Employer mandates, which increase the cost of employment
– Zoning restrictions that make it difficult or impossible for low- or medium-skilled workers to find housing in areas where jobs exist
And please don’t put words in my mouth. I did not say that we can employ an infinite number of workers by tweaking coffee flavors. All I did was to point out one area of job growth.
Jobs will keep being created only if government doesn’t get in the way.
In 2021 the world’s most dynamic economy is Stalinist. The correlation between small government and economic growth is not nearly as clear as it used to be.
if Robin Hanson’s “Age of Em” is somewhat accurate, then population decline is more than compensated for by the existence of multiple copies of every highly productive Em. And Hanson foresees this Age occurring by the end of the century, well within the depopulation event horizon
Sorry, Arnold. I had found Stanton’s column and the papers he referred to a poor framework to discuss the long-term implications of demographic changes. Now you are concerned about some near-term implications of those changes but you say nothing that can guide a serious discussion. Your reference to EW’s EGOs fails to separate clearly the two issues: how the changes affect industries in which governments have been subsidizing demand (in some, they have empowered suppliers by restricting entry), and how they affect governments’ compliance with the huge legal obligations they have assumed, including service of financial obligations. Also, it ignores the many debates about them over the past 70 years.
Your reference to rapid changes in the ethnic composition of a country’s population ignores the many debates about migration over the past 1,000 years. In the political order in which we live, the world is divided into over 200 nation-states and their governments are expected to enforce the domestic rules controlling residency and citizenship, that is, entry is not free and political rights are granted only to citizens. If Caplan and other libertarians want free entry and free access to political rights, they will have to change the world’s political order and then the question is what they are willing to sacrifice to change it.
The quote… “or else they will have to stop hiring new employees”.
Okay then the universities, K to 12 schools, and law firms stop hiring. Thus the Embedded Growth Obligation (EGO) problem is solved! As for Social Security, just cut the benefit and raise taxes. The EGO problem is solved! I know our blog host says people will not vote for higher taxes and lower benefits. I say, just wait.
EGO worries are making a mountain out of a mole hill. Millions of people want to move to the United States. There is no EGO problem. The research replication crisis and string theory are not caused by EGO. Work was already competitive before string theory. H1B visas are a natural response to political support for economic liberalization and a less unionized workforce and the fact that until the late 1990s the net benefit of a STEM education was unattractive. The space program had become smaller. There was supposed to be a Peace Dividend. The surge in automobile and electronic imports from Japan further decreased the net benefit of a STEM education. Watch this 1993 Michael Douglas movie. https://en.wikipedia.org/wiki/Falling_Down Women were more attracted to Michael Douglas on Wall Street (1987) than Michael Douglas as an engineer (1993). H1B visas just made it worse for him.
Conveniently for Eric Weinstein his EGO idea meshes with his employer’s tastes. EGO worries are purely aesthetic. Cultural aesthetic, accented speech aesthetic, language aesthetic, mannerism aesthetic, perhaps even skin color aesthetic. Some people don’t like immigrants. If it weren’t so, would the EGO idea be even worth discussing? Ryan Germany is an attorney who serves as general counsel to Georgia Secretary of State Brad Raffensberger. On the telephone to discuss the Georgia U.S. Senate elections, Trump told Germany that he has a great name. Aesthetics motivate our immigration policy. How many Obama advisors blog about men’s fashion? How many of Trumps? I tell you there is a disparity.