The Coming Collapse

Nothing lasts forever. Human societies rise, reach their peak and nthen go into decline, or possibly collapse. The US has had a great run the last 100 years or so. Even Rome did not have the global influence we see with the USA. Like Rome, American culture is altering the cultures of the world. How much of a lasting influence it has is up for debate. What is not up for debate is that America and American influence is in decline.

Here’s an interesting bit of math on the state of the country.

In 1935, the year that FDR signed the Social Security Act into law, the birth rate was 18.7 per 1,000. In 1940, when the first monthly check was issued, it had gone up to 19.4. By 1954, when Disability had been added, the birth rate at the heart of the Baby Boom stood at 25.3.

In a nation of 163 million people, 4 million babies were being born each year.

By 1965, when Medicare was plugged in, the birth rate had fallen back to 19.4. For the first time in ten years fewer than 4 million babies had been born in a country of 195 million. Medicare had been added in the same year that saw the single biggest drop in birth rates since the Great Depression.

There could not have been a worse time for Medicare than the end of the Baby Boom.

Today in a nation of 317 million, 4.1 million babies are being born each year for a birth rate of 13.0 per 1,000. 40.7% of those births are to unmarried mothers so that it will be a long time, if ever, before they pay back into the system, and most will never put back in as much as they are taking out.

 According to people who measure these things, the United States generates $50,000 of income per person. That’s the sum of all income divided by the population. That ties out to GDP close enough for economics. Experience says the American economy can tolerate about 25% of tax at the federal level before bad things start happening. That’s $3.7 Trillion in spending that the tax base can support. Once you exceed that you have to borrow and that creates trouble in future years.

Liberals and libertarians both act as if the crisis facing us can be fixed if we take more from the “wealthy elderly” or give them less. The crisis is born of demographics. It can’t be fixed by targeting the elderly because they haven’t been the problem in some time.

It’s the same crisis being faced by countries as diverse as Russia and Japan. The difference is that Russia is autocratic and has little concern for its people while Japan shuns immigration and has a political system dominated by the elderly.

The United States however takes in a million immigrants a year. In his 2013 State of the Union address, Barack Obama praised Desiline Victor, a 102-year-old Haitian woman who moved to the United States at the age of 79 and never learned to speak English, but did spend hours waiting in line in Florida to vote for Obama.

Between 1990 and 2010, the number of immigrants over 65 doubled from 2.7 million to 5 million. Twenty-five percent of these senior immigrants were over 80. Elderly immigrants are also much more likely to become citizens, in part because the requirements for them are lower. Many, like Desiline Victor, don’t even have to learn English to be able to stand in line and vote.

15 percent of senior immigrants come from Mexico largely as a result of family unification programs. If amnesty for illegal aliens goes through, before long the country will be on the hook not just for twelve million illegal aliens, but also for their grandparents.

Decades ago, Milton Friedman noted that you can have a welfare state or immigration, but not both. Cities and states tested this in the last fifty years by offering generous welfare benefits. What they found is they became welfare magnets. America is now the premiere welfare magnate in the world. If you are a poor person in Guatemala, getting to America is your only goal. Since cheap labor makes the ruling class rich, they are happy to import world’s poor into your neighborhood.

The welfare state has been spending more money with an unsustainable demographic imbalance. There are fewer working families supporting more elderly, immigrants and broken families. The Russians invest money into increasing the native birth rate. Instead we fund Planned Parenthood because liberal economic eugenics dictates that we should extract “full value” from working women as a tax base to subsidize the welfare state while discarding the next generation.

The “modern” system that we have adopted with its low birth rates, high social spending and retirement benefits is at odds with itself. We can have low birth rates, deficit spending or Social Security; but there is no possible way that we can have all three.

And yet we have all three.

In the European model that we have adopted, men and women are supposed to spend their twenties being educated and their thirties having two children. These Johns and Julias will work in some appropriately “modern” field building apps, designing environmentally sustainable cribs for the few children being born or teaching new immigrants to speak enough English to vote. Then they plan to retire on money that doesn’t actually exist because they are still paying off their student loans.

John and Julia began marriage with tens of thousands in debts, only one of them will work full time, while the other balances part time work, and they will do all this while being expected to support social services for new immigrants and a native working class displaced by the outsourcing of manufacturing jobs, not to mention the elderly and the entire bureaucracy that has grown around them. If John and Julia are lucky, they will find work in a technology field that is still growing, or, more likely they will pry their way into the social services bureaucracy which will keep on paying them and cover their benefits until the national bankruptcy finally arrives.

In this post-work and post-poverty economy, those most likely to have children are also least likely to work or to be able to afford to have those children.

Birth rates for women on welfare are three times higher than for those who are not on welfare. Within a single year, the census survey found that unmarried women had twice as high a birth rate as married women. These demographics help perpetuate poverty and feed a welfare death spiral in which more money has to be spent on social services for a less productive tax base.

Children raised on welfare are far more likely to end up on welfare than the children of working families.

Fertility rates fall sharply above the $50,000 income line and with a graduate degree; that has ominous implications in a country whose socio-economic mobility rates continue to fall.

Progressive activists still talk as if we can afford any level of social service expenditures if we raise taxes on the rich, but workers can’t be created by raising taxes. Everything that the left has done, from breaking up the family to driving out manufacturing industries to promoting Third World immigration has made its own social welfare spending completely unsustainable.

By 2031, nearly a century after the Social Security Act, an estimated 75 million baby boomers will have retired. Aside from the demographic disparity in worker ages is a subtler disparity in worker productivity and independence as senior citizens are left chasing social spending dollars that are increasingly going to a younger population. ObamaCare with its Medicare Advantage cuts was a bellwether of the shift in health care spending from seniors to the welfare population.

Increasing welfare is only a form of Death Panel economic triage that doesn’t compensate for the lack of productive workers. It’s easy to model Obamerica as Detroit, a country with a huge indigent welfare population and a small wealthy tax base. The model doesn’t work in Detroit and it’s flailing in New York, California and every city and state where it’s been tried.

After a century of misery, the left still hasn’t learned that there is no substitute for the middle class. It’s not just running out of money, it’s running out of people.

The welfare state has no future. It is only a question of what terms it will implode on and what will happen to the social welfare political infrastructure when it does. The violence in Venezuela and the slow death of Detroit give us insights into the coming collapse of the welfare state.

The flaw in the math posted above is that income is not distributed equally. Half of the population is made up of children. Some portion is too old to work, 10-15 percent, and some are broken in some physical or mental way. We know that half the work force is not working. That means the bulk of earnings are in the hands of a tiny minority. The super rich don’t pay taxes. It is why the Reason Magazine guys noted that there seems to be a hard cap of about 19% on tax receipts.

Economists, who have been wrong about every prediction they have made since Keynes first published, argue that the gaps can be bridged with credit creation from central banks and unlimited borrowing. This is being tested now. Obama has been borrowing and spending like you would expect from his kind. Debt is piling up at record rates to record levels. The fact that we have not had an Argentine collapse is proof it will never happen, according to the profession that is never right.

One thought on “The Coming Collapse

  1. Great post and scary as hell. Not mentioned is that in a post (real) work world in which a tiny minority of people are employed in truly necessary professions is that the best chance a non-STEM, non-finance person has at attaining a middle class life is through a teaching or government job. Corporate America and the right have destroyed labor (and they are also huge proponents of immigration) and turned careers into jobs into gigs. I don’t understand the macro people who think debt isn’t a problem. If interest rates rise then the cost of servicing the debt will rise and those costs are already sky high.

    Ultimately, the issue is that the economy needs very few workers these days but we somehow have to give everyone an income. That’s why Cowen’s beantopia prediction sounds like the future.

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