Debt, Demographics, and Destiny

Friday, May 4, 2012

Nicholas Halks
On the Right and Never Wrong

Debt, Demographics, and Destiny

            On April 15, on Meet the Press, Treasury Secretary Timothy Geithner adamantly told host David Gregory, that there is, “no risk of that” of America facing the catastrophic debt problems which rocked Greece’s economy.

            Mr. Geithner gave that very same answer, in the same month of 2011, when faced with a different query. Last year the question posed, was whether there was a risk of the United States credit rating ever dropping below AAA rating. To which he replied, “no risk of that.” Four months later came the Congressional debt limit ceiling battle, the precipitous plunge of the stock market, and for the first time in history, the downgraded US bond rating.

            Mr. Geithner’s artful assurances about the United States systemic debt crisis are about as useful as last year’s calendar.

            This country does indeed face some very hard decisions regarding its profligate spending, aging population, and unrestricted immigration. While, compared in terms of GDP, Greece may be tiny to the United States; our debt to GDP ratio is on a parallel trajectory as theirs. The demographic dilemma facing the two countries is also worthy of evaluation

            Consider first, Greece, with a 2011 population of 11.2 million.

            More then 24% of Greeks are aged 60 or older. Every year, 10 Greeks die for every nine which are born. It is a population growth is below replacement rate. Meaning the country of Greece is aging, and slowly passing away. This low birth rate finally culminated with Athens’s financial ability to pay pensions and benefits crumbling like feta cheese.
            Over the past year the world has watched Greeks object to the devaluation of their currency and ECB imposed austerity measures with violent protests.

            Yet what does the future hold for Greece by mid-century?

            In the year 2050, the population will have fallen to 10.8 million. The percentage of Greeks aged 60 or older will have jumped to 37.4% of the entire population. Perhaps a better illustration of this unsound economic model is that while today, there are four Greeks under 60 for every Greek over 60. By 2050, each Greek over 60 will only be supported by 1.7 Greeks.

The conclusion is staggering, barring a colossal devaluation of the Drachma, pension funds will collapse.
     Like Greece, America too must face her demographic destiny. Our native born population has been reproducing at below replacement levels for 30 years. Instead, it has been aging at a rate little slower than Greece. Today, 40 million people in the United States are ages 65 and older, but this number is projected to more than double to 89 million by 2050.

            With this expansion of seniors comes skyrocketing outlays in entitlement spending from programs such as Social Security, Medicare, and pensions. But the revenue necessary to pay for these growing expenditures is not certain.

2009 marked a milestone for the United States: only half of the country paid federal income taxes, according to the Heritage Institute. The authors of the report explain, “The percentage of people who do not pay federal income taxes, and who are not claimed as dependents by someone who does pay them, jumped from 14.8 percent in 1984 to 49.5 percent in 2009.” American taxpayers continue to decline in number.

America’s solution, if one desires to call it that, to its aging population and loss of taxpayers has been massive immigration from the third world. Currently, more then 1.2 million legal immigrants enter every year. They are accompanied by an estimated 1 million illegal aliens, whom are predominantly poor and uneducated.

This replacement of the native born Americans, in theory, should offset the aging population, in terms of workers supporting retirees.

But this halcyon thinking defies reality.

Lyndon Johnson’s Great Society programs did not exist when the earlier waves of immigration came before 1965. Yearly expenditures on these programs are well in excess of $1 Trillion. Though they are far from alone in their consumption of these assistance programs, immigrants are devouring a far greater percentage then native born Americans.

Instead of supporting current and future retirees by funding entitlement programs, the majority of immigrants are receiving taxpayer money. According to a 2010 study by the Center for Immigration Studies, 57 percent of households headed by an immigrant (legal and illegal) with children used at least one welfare program.

Households with children with the highest welfare use rates are those headed by immigrants from the Dominican Republic (82 percent), Mexico and Guatemala (75 percent), and Ecuador (70 percent).

Those with the lowest use rates are from the United Kingdom (7 percent), India (19 percent), Canada (23 percent).

Like the Greeks, Americans have an aging population, without the tax revenue to support their promised entitlement programs. As the baby boomer generation has only just begun to hit age 65, these expenditures for programs such as Social Security and Medicare will only soar higher. Sadly, the tax payers in the country have declined to such a degree that half the country pays no federal tax at all. Add to this, the influx of immigrants, whose consumption of welfare programs is much higher then was ever imagined and one can see that the American model of entitlement spending is indeed on the road to ruin.

 Though the systemic problems are deeply intertwined, our Treasury Secretary should have the courage to tell Americans the truth:

Without far-reaching spending cuts on everything, we as a country will indeed face a debt crisis not unlike Greece though probably far worse.

Yet, what is the likelihood of Mr. Geithner telling us how it really is?

“No risk of that.”


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