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Letters by a modern St. Ferdinand III about cults

Gab@StFerdinandIII -

Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

Tempus Fugit Memento Mori - Time Flies Remember Death 

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Thursday, May 12, 2011

Old age transfers and bankruptcy.

A nice idea gone horribly wrong.

by StFerdIII

The math is pretty simple. As the population ages, future obligations promised to the 'old', cannot be kept. About 30% of the North American population is over the age of 66 which is the legal age in the USA, to demand money from the state for old age. Over the average life span from age 66 until death, the average American couple will receive $1 million dollars in benefits or about $66.000 a year for 15 years [$33.000 per person], in various transfers, including pensions, subsidized health care, and other benefits depending on their income. I doubt that a majority of retired couples paid $1 million in taxes to the various socialized government programs, over their job careers. But even if some did, the system is simply unsustainable.

WSJ op-ed: According to my calculations based on government data, such married couples will begin receiving monthly Social Security checks that will, on average, total about $550,000 after inflation. They will receive health-care services paid for by Medicare that, on average, will total another $450,000 after inflation. The benefactors will be a generation of younger workers who are trying to support themselves and their families while paying taxes to finance the rest of government spending. We cannot even remotely afford to make good on these promised benefits.

Not all retired persons will receive the $1 million of course. This number is likely too high in my view. Most likely the average person will receive not $33.000 a year in transfers but something closer to $20.000. It matters not however when you do the calculations.

The humanitarian mission of trying to help the old, is an extensive reallocation of private money from the young to the old. The idea is laudable. The real world impact is not and must be dealt with. At some point as the population ages, the system must fail. We should keep in mind as well, that a high percentage of the elderly did not work full time pre-retirement, or in many cases, they never worked at all. Thus the socialized system of guarantees rewards current consumption during the pre-retirement age years; and punishes savings and investment during the same epoch. All savings and investments are taxed of course and since taxes are so high we are actually forcing people not to save. Better to consume. High marginal tax rates means diminished rewards for earning higher incomes and various taxes on capital can be seen as punishment for being frugal. The 'social safety' net is thus a perversity. It ensures that people don't worry about saving or investing during their pre-retirement lives because they now demand that the state will take care of them and that this is not only a moral program, but a mandatory one which they have 'earned'. Our culture has shifted from frugality, saving and investing in our own futures; to one of pretty elaborate spending and minimized responsibility. There is always a consequence to government interference in society.

The math is alarming. Even if the above numbers from the op-ed are too high by a factor of 2, [which they are not], the accounts can never balance out. Currently in the US there are about 50+ million retired people - about 15% of the total population. This number will increase by 30-40 million in the next 20 years. We can multiply the current level of 50 million by a low estimated average transfer of $15.000 per annum, per retired person, to generate a total welfare state subsidy to the old of $800 billion per year. This is 35% of all US federal tax revenues. As the population ages, this amount will simply go up. In 20 years time over 35% of the population will be over 66 with many living for 20 years on average. By 2030 the elderly population in the US will thus be close to 90+ million. An average yearly transfer of $15.000 per person would yield an impossible to pay number of $1.35 Trillion or 60% of all current Federal tax revenues. Federal revenues would therefore need to almost double to keep retired payments at the same % level that they are at today. This would mean a near-doubling of US GDP within 20 years [meaning that a debt default, financial implosion, banking system instability, or deep recessions are all avoided], or an explosion in US tax levels which counter-intuitively actually lowers tax revenues.

I don't see how a general declaration of insolvency is avoidable unless huge spending, entitlement and tax reforms are undertaken including the privatization of some parts of the old age welfare system. It appears highly probably that the entire edifice is simply going to collapse. The math is clear. What is also pretty clear is that the political and elitist class will do little to alter this system of unsustainability. There is too much fear-mongering about GloblaoneyWarming, or programs of 'social justice' to engage in.

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