Old and Poor
I agree with most of the doomsayers who fail to find comfort in the blather about “green shoots” and predict that the economy will shortly get much worse, perhaps leading to conditions not seen in the United States since the Great Depression. Obviously we may find ourselves in a situation worse than in the 1930s, given that we are now a nation of consumers and debtors rather than producers and lenders. I think another important element of our economic troubles is receiving insufficient attention. Specifically, the consequences likely to result from the interaction of our economic crisis with our quickly-approaching demographic crisis are seemingly being ignored by most commentators.
In 1929, the median age in the United States was just above 26 years. It is now over 36 and rising fast. Thanks to fertility transition in the West, only spectacular economic growth could have staved off the economic difficulties associated with a small number of young workers supporting a large number of retirees. Now the effects of our demographic crisis will likely be much more serious. Not only will Social Security and Medicare be drained sooner than expected, but the Baby Boomers are rapidly seeing their investments wither away, causing future hardship for even those who did not foolishly expect the government to take care of them throughout their retirement.
I therefore have a question for any demographers or economists who may have some insights into this issue: what happens to a society that is both geriatric and destitute? I know we can gain some insights from Japan, which is several years ahead of us in terms of fertility decline and has experienced a long-term economic downturn, but the Japanese at least had substantial savings to help them sputter along. Most Americans were not so prudent. And, as I just noted, many of those who were carefully investing through the years are likely to see their portfolios asymptotically approach zero. If hyperinflation destroys the dollar, the situation is even more dire.
Even in worst years of the Depression it was possible for an able-bodied man to scratch out a living for himself and his family. My grandparents got along pretty well by farming — which at least kept any of them from going hungry. What does an urbanized nation of old people do in a depression? They surely can’t all be greeters at Wal-Mart. Most of them, furthermore, do not have a large number of children to whom they can turn for assistance. Fertility transition is a relatively recent phenomenon, so I do not expect we have many historical precedents from which we can gain insights.
Some economists will undoubtedly claim immigration can solve all demographic problems, but I am skeptical. Most citizens in countries with excess population (i.e. those that have not begun fertility transition or are not very far along that path) possess little human capital. Even when the economy appeared to be booming I considered it unlikely that we could solve our demographic problems by importing semi-literate peasants from under-developed countries. Now that the industries that previously employed these immigrants (construction, for example) are in the doldrums, this idea seems patently absurd.
So if our economic troubles worsen (and I suspect they will), what’s going to happen to all of those childless Americans too old to engage in any sort of meaningful labor?
I agree with nearly all of this, although I do believe some of the causation is reversed. Some libertarians are vocal supporters of open borders. This is consistent with their position as free-marketers, but frankly unrealistic with a welfare state. No less than Milton Friedman argued as such.
No, immigration will not save this country’s financial system. I would argue it does not need a demographic shift to address unsustainable budget programs, but entitlement reform. Aside from the budget numbers, unrestricted immigration from poor Latin American countries would rip at our cultural seams. We need to secure the border, the faster the better.
The demo shift is common among countries that adopt socialist policies. Europe isn’t replacing its citizens fast enough, and has runaway immigration problems from the peoples of the Middle East. (See “America Alone” by Mark Steyn.) With respect to this issue, Americans are more fertile and less dependent on government, so the demo argument does not hold too much sway with me – not yet.
The underlying cause of this financial crisis is obviously the inflationary policy of the Federal Reserve. Our capital structure is maladjusted to the needs of our population: hence the scarcity. This was disguised because of the asset bubble in housing. As the bubble popped and the illusion of wealth was lifted, the national economy (i.e., every person with economic influence) had to readjust their consumption and savings decisions. The process behind this was described in great detail by Hayek and Mises, and won Hayek a Nobel in 1974.
What should be happening is increased savings (which is) and deflation (which is not). After routing American savings for the last 7 years, the Fed has doubled down, reducing interest rates to effectively 0%. In non-jargon, what this does is encourage more present consumption, undermining the new savings, and also distort the information (price information) that businesses use to determine what is and what is not profitable. So we may see a short, fleeting recovery from the illusion of inflation, but ultimately the worst is yet to come.
By far the most dangerous event would be a collapse in the American dollar. Its effects would be tantamount to eliminating English as the common language for a month or so. Communication in vital societal aspects (everything communicated through accounting) would be completely undermined. This is kind of like a Doomsday prediction, but the Fed’s actions leave it more than just a remote possibility.
For anyone who finds this stuff useful and interesting, I offer some advice: do not look towards the academy for answers. They are intellectually (and soon will be literally) bankrupt. The gov’t response is textbook Keynsianism and Monetarism, popular macroeconomic doctrines in the ivory tower. Both of these policy prescriptions in essence promote poverty, albeit through different financial implementation. I’d hazard a guess that after a decade or so of slow to no growth, our universities are going to have to clean house. If you want solid economic reasoning, visit Mises.org. (I personally ignore their cries for anarchy.)
Some of the weirdest people are advocating open borders now. A case in point is Yaron Brook, the Israeli who heads the Ayn Rand Institute (for many years.) He advocates we invite an immediate five million Mexicans to the US to solve the housing problem. I wonder what he’d think of five million Palestinians migrating to Israel. Another ARI person said 600 million would be a good population for the US. These people must be living in an alternative universe. Adam Smith envisioned free migration of both capital and labor and that might be fine if we had a very minimal government unlike the EU which is evolving into a socialist superstate.After seeing the socialist mentality of Europe and its increasing police state as reflected in “race hate” and “holocaust denial” laws
as just two examples, I really don’t care if they die out. How
could a Turkish Germany be worse than the present group of leftist self-haters who run the country now ?
I do agree that the Fed needs to be abolished yesterday.