Friday, October 30, 2015

The Death of the American Welfare State

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 319 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 meaning that it will be a long time, if ever, before those single families put back into the system, and most will never put back in as much as they are taking out. Those children will cost more to educate, be more likely to be involved in crime and less likely to succeed economically. But even if they weren't, the system would still be unsustainable.

Liberals act as if the crisis facing us can be fixed if we take more from the "wealthy elderly" or give them less. And the topic even came up at the CNBC Republican debate in a Social Security debate.

But the problem is not the amount of money being spent at the top on the elderly, but the diminishing prospects for paying in money at the bottom. Youth unemployment is high and job prospects are low. And the birth rate is skewed toward populations that are the least likely to be educated, the least likely to have good jobs and the least likely to pay more into the system than that they take out of it.

At the CNBC Debate, Senator Rand Paul said, "It’s not Republicans’ fault, it’s not Democrats’ fault, it’s your grandparents’ fault for having too many damn kids." But it's the other way around. Your grandparents didn't have enough kids. Neither did your parents. Neither do you.

Ron Paul had five kids. He had four brothers. That's a stable generational expansion. Without that, there's no one to pay for an older population that is living longer.

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.

Bernie Sanders admires Europe. But Europe's welfare state is imploding because of low birth rates. And so it adopted the American solution of expecting immigrants to make up the difference. But the immigrants have high rates of unemployment and low rates of productivity. Instead of funding the welfare state, they're bankrupting it even faster.

The United States takes in a million immigrants a year, many of whom also take out more than they put in. 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 doesn't 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. 25 percent of these senior immigrants were over 80. Desiline Victor wasn't an outlier. Elderly immigrants are also much more likely to become citizens, in part because the requirements for them are lower. Many, like 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.

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, late marriages, working parents, 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. 

Instead of forming a comprehensive picture, our approach is to tackle each problem as if were wholly separate from everything else. Working parents are applauded because they swell out the tax base in the short term. Young immigrants are applauded because they are supposed to swell out the lower part of the demographic imbalance. Manufacturing jobs are cast aside for modern jobs. The long term consequences of each step is ignored.

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.

The reality is that John and Julia begin their 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.

John and Julia are Obama voters. They have two children. They don't worry about the future. The future to them seems to be a bright and modern thing overseen by experts and meticulously planned out in every detail. The only dark clouds on their horizon are the Republicans and the Great Unwashed in the Red States who are resisting the future by clinging to their guns and bibles.

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. There are a number of factors responsible, but one simple factor is that work ethics and skills are no longer being passed down to a growing percentage of the population.

Liberal 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. The issue isn't "investing more in education" which is the liberal solution for everything including the imminent heat death of the universe.

It's liberalism.

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 spending completely unsustainable. On a social level alone, we don't have the people we need to pay the bills. And at the rate we are going, we will only run up more bills that our demographics and our culture can no longer cash.

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.

14 million people are now on Disability. That means that there are more people on Disability than there were people in the country during the War of 1812. Half of those on Disability are claiming back problems or mental problems. There are over a million children on Disability and the program is packed with younger recipients who are substituting it for welfare.

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 is bankrupt and doesn't know it yet. Reality hasn't caught up with the numbers. Instead the welfare state is floating on loans based on past productivity, old infrastructure and a diminishing productive population whose technological industries employ fewer people and don't require their physical presence in the United States.

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.


Anonymous said...

Can I get an AMEN.......

Anonymous said...

Renowned economist Laurence Kotlikoff recently testified at the U.S. Senate about the runaway U.S. budget. How bad is it? Kotlikoff says, “I told them the real (2014) deficit was $5 trillion, not the $500 billion or $300 billion or whatever it was announced to be this year. Almost all the liabilities of the government are being kept off the books by bogus accounting. . . . The government is 58% underfinanced . . . . Social Security is 33% underfinanced . . . . So, the entire government enterprise is in worse fiscal shape than Social Security is, but they are both in terrible shape.” So, how much is America on the hook for in the future? Kotlikoff contends, “If you take all the expenditures that the government is expected to make, as projected by the Congressional Budget Office (CBO), all the spending on defense, repairing the roads, paying for the Supreme Court Justices’ salaries, Social Security, Medicare, Medicaid, welfare, everything and take all those expenditures into the future . . . and compare that to all the taxes that are projected to come in, and the difference is $210 trillion. That’s the fiscal gap. That’s our true debt.”

Professor Kotlikoff goes on to say, “It will collapse. It is just a matter of when. I can’t say when, but all I can say it’s going to be too late. . . .

meema said...


Dennis Latham said...

It's like the 60s movie Wild In The Streets, starring a guy named Christopher Jones who only made one or two movies. In that movie, with Jones as President or whatever, anyone over 35 was to be eliminated for the good of the welfare state. They would kill off the old people and have plenty of money for the young. By the end of the movie there was a movement to get rid of anyone over 14 because over age 14 the people were all government parasites. Same basis as the Liberals. They make sure their families are taken care of, old and young, and place their elderly in place with 24 hour care after raiding their assets, but everyone else must do what they say and when because everyone else is less important.

Anonymous said...

You are so right. There is one more thing sucking the money out fo our economy, and that is the so called "non profits". The Nature Conservancy alone has over a billion dollars worth of "non taxable" assets. Money going to non profits is free of taxes to both the donor and the recipient, that is money individuals and businesses have to make up by higher taxes.

Anonymous said...

AMEN Brother.

fizziks said...

Agree mostly, but when it comes to the decline of economic opportunities for the middle class, that is a bipartisan phenomenon that is not the fault of the Left. It wasn't the Left's idea to outsource our manufacturing to low wage countries. It wasn't the Left's idea to replace all the mom and pop stores with Wal-Marts.

MikeN said...

AMEN brother.

Kelli McAllister said...

Outstanding, albeit bitterly depressing, summary of our Magical Thinking monetary policies. We're currently staving off the collapse with the twin shenanigans of printing and borrowing money. I wonder if that (lack of) solution could sustain us through several more decades, until eventually a loaf of bread costs $1000 and the SHTF.

Common 'tater said...

Daniel, thank you for that great analysis and description of the welfare problem. However, from what I can see as one heading into the retirement horizon and from my years in healthcare, you have told only half the story, and I am not aware of anyone publicly saying what I intend to say below. Also, I apologize for a longer than usual post.

Disclaimer: While I do have some working knowledge of statistics, I am not a statistician, mathematician, nor an actuarial type person. So, if anyone out there does fit into one of these categories, please do let me know if I am wrong.

According to the info I gleaned from "info please" and that appears to be from the US bureau of statistics ( the average life expectancy in the US in 1935 was about 60 for men and 64 for women. Remember that the minimum age to collect SS was 62, and full retirement was 65. I am assuming that there were enough data points there to make a "bell shaped" or "normal" curve for the data used to project those life expectancies. The other assumption for my following opinions is that the mean (average) and the median (midpoint) are pretty close together if the data base was large enough. These would indicate that at least half the possible recipients of SS born in that year (1935) would be dead before collecting a minimum payment let alone a maximum payment.

But wait, there is more! For those that do look at statistics, if indeed the average life expectancy tables were extracted from data that gave us a "normal" curve, then how did we end up with 62 as the minimum benefit age and 65 as the full benefit age? I strongly suspect, but cannot verify since I do not have access to the data, is these numbers represent the first and second standard deviations of that data. If that is true then the system was predicated on the assumption that at least 68% of the potential SSI recipients born in that year would be dead before collecting a minimum benefit at age 62. 95% of potential recipients would be dead by age 65. I could be wrong.

Next though, is based upon actual observations and incidents. There are many families dependent upon the disability income from the disabled children. In addition to the disability monthly payment, many states actually pay family caregivers to stay home and provide care to that child to keep the child out of the hospital or long term care. The economics of that can be debated, but it points out that there are many (not sure of actual numbers) families out there that receive money from taxpayers and these entire families will not put in much, if any money into the system for many years, if at all.

So, there you are, Happy Halloween, and the trick is on us taxpayers as we pay out the treats into a system designed to fail. We have exchanged our liberty and self-reliance for a guaranteed secure future but will end up with neither.

By the way, if the Mzlm immigrants destroy our system and we end up with the same kind of medical and social support systems they left, they will just say, "Inshallah." If grandma or the new baby die from malnutrition or disease due to the failure of infrastructure or the medical system, it will be "Inshallah." In the meantime we will be blamed for not rescuing them from the systems they created and perpetuated.

Anonymous said...

I had thought the Social Security system was still in the black (i.e. not spending more than they were taking in)?
Does the federal government or state government have any idea what percentage of welfare dollars are being scammed? I've heard of people using their food stamp debit cards at Indian gaming casinos. I've heard of couples who are deliberately unmarried so that they can maximize their welfare subsidies. I've heard of people buying groceries on their food stamp debit cards for other people then basically selling the groceries for cash at cut-rate prices.

Dennis Latham said...

Common Tater:
The system could have sustained itself, but Johnson started taking the SS fund around 1968 to use for other purposes (like Vietnam War) in a large Ponzi scheme. There is no Social Security Fund. It goes into the general fund to support foreign aid and everything else under the sun. It's just another tax and they print the money to cover it. In fact, the way they print money there is no reason for any tax on anything... other than to mess with us and keep us under control. The gold standard is long gone and the tax we pay is staggering to imagine. We pay so much, you would go nuts trying to figure it out because you wouldn't have any money left and would quit working.

Empress Trudy said...

When the CCCP imploded there was nothing to replace it for more than 10 years. Life expectancy dropped 10 years and diseases no one had seen in a century reappeared. When totalitarian social welfare states eat themselves up the trail of destruction they leave in their wake isn't pretty.

nan said...

Rand Paul is exactly right. It works both ways. If the greatest generation didn't have 10 kids each, and only had 2 or 3 like previous and current generations, you wouldn't have the big bulge of boomers in the middle.

On the other hand, if the boomers had 10 kids each, they would have enough children to pay for their generation.

nan said...

The leftists OWN most of the blame. They're the LBJ "Welfare State" crowd or whatever they called it (Great Society). Leftists LOVE to set up entitlement systems for themselves but they never budget for any of them. Same with social security, same with Medicare and Medicaid.

Do you think Nanny Pelosi (who doesn't know how to read) can do any math? I mean it's very easy math at that and the democrats never did it. Then they conveniently blame the GOP.

Same with obamacare. No one did any math and the GOP didn't have ANY say in it. Now notice, the GOP will get blamed in Congress because it's not funded.

The democrats set up ALL the entitlement programs to wipe their behinds that's not what our federal government was created for. It was created to mind our commerce and protect our shores.

Anonymous said...

It is a mistake to think the left is well-meaning but wrong. Economic collapse resulting in chaos and revolution is not a bug for them, it's a feature. Cloward-Piven and Marxism explains a lot.

Bilejones said...

Anonymous, I first stumbled across Kotlikoff in the late 90's. His analysis then was that the US Government was about $60-$70 trillion in the hole. An amount that he then thought was about equal to all the national wealth if an interested buyer could be found.

As sure hell, that''s no longer the case.

Unknown said...

Here in NYS fully half ( HALF ! ) of our citizens are receiving State/taxpayer funded healthcare. About 3 million Medicare and 6.4 million Medicaid. Most frustrating to me is that most 'folks' and organizations CHOOSE to remain blissfully unaware of this FACT. I belong to an organization known as Farm Bureau. This issue is discussed not at all - not in the local county organizations nor at the state level - and I am fairly certain many other associations and union organizations CHOOSE to ignore the situation as well. At least Medicare has a payroll dedicated funding stream workers can see in their pay stubs. Medicaid - a far larger juggernaut - comes out of the general fund and property taxes. It now swallows up nearly half (about $60 Billion) of the State budget. Oddly -one of the reasons the Governor is pushing for the $15/hr minimum wage is to staunch the sign ups for Medicaid. A wondrous side benefit to the federally forced signups for healthcare 'insurance'. Since enactment of ACA Medicaid rolls in NYS have increased by about 2 million. Only about 850,000 qualified for the insane paid/subsidized plans -- a minor abomination used to enact ACA that I predict will be eliminated -- an adjustment in income requirements will force all into Medicaid at some point. The effective Federalization of healthcare by ACA enactment will see to it that ALL States comply with this reality - no one can escape from her on out.

Anonymous said...

I seem to remember a famous revolution's motto being: "no taxation without representation". Does anyone here feel they're being represented by the current regime? Does anyone here want their tax dollars going to support islamic apartheid terrorist states like Pakistan or the PA?

Fat Man said...

I wrote a long erudite comment, and hit the wrong button and flushed it down the bit bucket

Sultan: I think you have hit on a very deep issue in political theory. We have known the theoretical reasons why socialism must fail since Ludwig von Mises published the "Economic Calculation in the Socialist Commonwealth" in 1920. The theory was confirmed in the real world circa 1990, when the Soviet Union and its satellites collapsed.

But, you (and Mark Styne and David Goldman) have demonstrated that even the mild forms of Socialism practiced in Western Europe and North America, destroy the family, which is still most fundamental institution of society, and blunt the incentive to reproduce.

These socialist societies are now looking at not just bankruptcy, but at complete disappearance. Clearly, the lucky ones will go bankrupt first.

Fat Man said...

Poetry digs under the surface of events. It is prophecy. It holds our inmost being up in front of us and demands we inspect it. Some truths can only be accessed that way.

Leonard Ha'Kohen Ha'Navie has foretold our future:

"Destroy another fetus now, we don't like children anyhow.
I've seen the future, baby: It is murder."

"Things are going to slide, slide in all directions.
Won't be nothing, nothing you can measure anymore.
The blizzard, the blizzard of the world has crossed the threshold and it has overturned the order of the soul"

"Your servant here, he has been told to say it clear, to say it cold:
It's over, it ain't going any further.
And now the wheels of heaven stop, you feel the devil's riding crop
Get ready for the future: it is murder"

Ben Jacobs said...

A belated comment. People in the old days knew that they needed to produce children in order to sustain them in their old age. Not in retirement homes, but by producing food or whatever.
Somehow social security seemed to sever this connection, as if the government was managing an annuity for each citizen. But the truth, as you demonstrated, is that nothing changed and we were fooled.

Unknown said...

Scarely, but the truth.

Amen to that.

Post a Comment