It is popular now to talk of race, class, and gender oppression. But left out of this focus on supposed victim groups is the one truly targeted cohort — the young. Despite the Obama-era hype, we are not suffering new outbreaks of racism. Wendy Davis is not the poster girl for a resurgent misogyny. There is no epidemic of homophobia. Instead, if this administration’s policies are any guide, we are witnessing a pandemic of ephebiphobia — an utter disregard for young people.
The war against those under 30 — and the unborn — is multifaceted. No one believes that the present payroll deductions leveled on working youth will result in the same levels of support upon their retirements that is now extended to the retiring baby-boom generation. Instead, the probable solutions of raising the retirement age, cutting back the rate of payouts, hiking taxes on benefits, and raising payroll rates are discussed in an environment of après moi le déluge — to come into effect after the boomers are well pensioned off.
The baby-boomer/me generation demands what its “greatest generation” parents got — or, in fact, far more, given its increased rates of longevity. The solution of more taxes and less benefits will fall on young people and the unborn, apparently on the premise that those under 18 do not vote, and those between 18 and 30 either vote less frequently than their grandparents or less knowledgeably about their own self-interest.
Symbolic of the many gifts bestowed by the baby boomers to the present generation of youth — aside from Botox and liposuction — was the new idea of the “intern”: an unpaid helot position predicated on the notion that the young and poorer might someday win a wage from the older and richer.
How odd that President Obama, in his soon-to-be-infamous “I have a pen and phone” boast to bypass the Congress, claimed that he would act outside the Constitution to enact his agenda and help the “kids.”
In truth, no administration in recent memory has done more to harm young people. Like some strange exotic species of the animal kingdom, we Americans are now eating our own young.
Victor Davis Hanson, “Eating Our Young”, VDH’s Private Papers, 2014-01-28
February 3, 2014
February 1, 2014
In Forbes, Ian Vasquez looks at the plight of the Argentine economy:
Argentina’s luck is finally starting to run out. It devalued its currency by 15 percent last week, marking the beginning of a possible economic crisis of the kind Argentina has become known for. Argentina’s problem is that it has followed the logic of populism for more than a decade and President Cristina Kirchner is showing no interest in changing course.
In the 1990s Argentina combined far-reaching but sometimes flawed market-reforms with irresponsible fiscal policies, culminating in its 2002 default on $81 billion in debt — the largest sovereign default in history. The country delinked its currency from the dollar, experienced a severe economic crisis, and initiated its current period of populist politics.
Those policies included price controls on domestic energy, reneging on contracts with foreign companies, export taxes, more pubic sector employment and vastly increased spending. When you don’t pay massive debts, you get temporary breathing room, so growth resumed. High commodity prices and low global interest rates that lifted demand for Argentine exports also helped produce Argentine growth.
But the government’s appetite has consistently grown faster, and, with little ability to borrow abroad, it has turned to other sources of finance. In 2008, Kirchner nationalized private pension funds worth some $30 billion, and has since nationalized an airline and a major oil company. As it drew down reserves, the government turned to printing money to finance itself, falsifying the inflation rate it says is about 11 percent, but which independent analysts put at about 28 percent. Economist Steve Hanke estimates it is much higher at 74 percent
January 3, 2014
I am going to lose my job — my salaried job with medical and dental and even a pension plan. Didn’t even know what a pension was until the employee benefits counselor clued me in, and it nearly blew the top of my skull off. For a couple of weeks I was like that lucky conquistador from the poem — stout what’s-his-name silent upon a peak in Darien — as I dealt this wild surmise: 20 years of rough country ahead of me leading down to an ocean of Slack that stretched all the way to the sunlit rim of the world, or to the end of my natural life expectancy, whichever came first.
Neal Stephenson, “Spew”, Some Remarks, 2012.
November 19, 2013
In Maclean’s, a look at the feel-good but economically silly reasons for senior discounts:
The seniors discount has long been justified as a way to recognize the constraints faced by pensioners stuck on fixed incomes, and as a modest token of appreciation for a lifetime spent paying taxes and contributing to society. And for those truly in need, who would quibble? But with half a million Baby Boomers — a group not known for frugality or lack of financial resources — turning 65 every year for the next few decades, the seniors discount is in for much greater scrutiny.
There was a time when the seniors discount made a lot more sense. In the mid-1970s, nearly 30 per cent of all seniors were considered poor, as defined by Statistics Canada’s low-income cut-off. But today, this has fallen to a mere 5.2 per cent. The impact of this turnaround is hard to overstate. Seniors once faced the highest rates of poverty in Canada; now they enjoy the lowest level of any age group: The poverty rate among seniors is almost half that of working-age Canadians.
Thanks to a solid system of government support programs, the very poorest seniors receive more income in retirement than they did when they were of working age. The near-elimination of seniors’ poverty is widely considered to be Canada’s greatest social policy triumph of the past half-century.
This tremendous improvement in seniors’ financial security has dramatically changed the distribution of income across age categories, as well. In 1976, median income for senior households was 41 per cent of the national average. Today, it’s 67 per cent. Over the same period, median income for families where the oldest member is aged 25-34 has fallen in both absolute and relative terms.
Then there’s the vast wealth generated for the Boomer generation by the housing and stock markets (only some of which was lost during the great recession). The stock of wealth in housing, pensions and financial assets held by the average senior family is nearly double that of working-age households. Accounting for the financial benefits of home ownership and rising house values, Statistics Canada calculates the true net annual income of retired households rises to 87 per cent of a working-age household’s income. In other words, non-working seniors are making almost as much as folks in their prime earning years, but without all the expenses and stressors that go with a job, children at home, or middle age. Not only that, the current crop of seniors enjoys historically high rates of pension coverage. The much-publicized erosion of private-sector pensions will hit younger generations who are currently far from retirement.
November 7, 2013
April 4, 2013
Once upon a time, back in the far-distant past, public sector workers got lower wages but better job security, benefits, and pensions than their private sector counterparts. Over the last few decades, the public sector wages caught up and surpassed the private sector, and if anything the benefits and pensions got better. The Fraser Institute calculates that currently there is between a 9% and a 12% premium paid to public sector workers for similar jobs (and that understates the overall differential):
Comparing Public and Private Sector Compensation in Canada examines wage and non-wage benefits for government employees (federal, provincial, and local) and private-sector workers nationwide. It calculates the wage premium for public-sector workers using Statistics Canada’s Labour Force Survey from April 2011, after adjusting for personal characteristics such as gender, age, marital status, education, tenure, size of establishment, type of job, and industry. When unionization is included in the analysis, the national public-sector “wage premium” (i.e., the degree to which public-sector wages exceed private-sector wages) declines to 9.0 per cent from 12.0 per cent.
Aside from higher wages, the study also found strong indications that Canada’s government workers enjoy more generous non-wage benefits than those in the private sector, including:
- Pensions: 88.2 per cent of Canadian government workers were covered by a registered pension plan in 2011 compared to 26.4 per cent of private-sector employees.
- Early retirement: Government employees retired 2.5 years earlier, on average, than private-sector workers between 2007 and 2011.
- Job security: In 2011, 0.6 per cent of government employees lost their jobs — less than one sixth the job-loss rate in the private sector (3.8 per cent).
To ensure public-sector compensation is fair to both taxpayers and government workers, the report argues that better data collection is needed and suggests that Statistics Canada should gather data on wages and non-wage benefits more regularly and systemically than it does now. In addition, comparisons between the public and private sectors should focus on total compensation, not just wages or specific benefits such as pensions.
About one in five Canadian workers is in the federal, provincial, or local government civil service or related organizations, and only 15% of Canadians are self-employed. The vast majority of government workers are unionized, while the reverse is true in the private sector.
February 4, 2013
In the Wall Street Journal, Jonathan Last looks at the demographic changes on tap for the United States as the fertility rate continues to drop below replacement:
The fertility rate is the number of children an average woman bears over the course of her life. The replacement rate is 2.1. If the average woman has more children than that, population grows. Fewer, and it contracts. Today, America’s total fertility rate is 1.93, according to the latest figures from the Centers for Disease Control and Prevention; it hasn’t been above the replacement rate in a sustained way since the early 1970s.
The nation’s falling fertility rate underlies many of our most difficult problems. Once a country’s fertility rate falls consistently below replacement, its age profile begins to shift. You get more old people than young people. And eventually, as the bloated cohort of old people dies off, population begins to contract. This dual problem — a population that is disproportionately old and shrinking overall — has enormous economic, political and cultural consequences.
For two generations we’ve been lectured about the dangers of overpopulation. But the conventional wisdom on this issue is wrong, twice. First, global population growth is slowing to a halt and will begin to shrink within 60 years. Second, as the work of economists Esther Boserups and Julian Simon demonstrated, growing populations lead to increased innovation and conservation. Think about it: Since 1970, commodity prices have continued to fall and America’s environment has become much cleaner and more sustainable — even though our population has increased by more than 50%. Human ingenuity, it turns out, is the most precious resource.
Low-fertility societies don’t innovate because their incentives for consumption tilt overwhelmingly toward health care. They don’t invest aggressively because, with the average age skewing higher, capital shifts to preserving and extending life and then begins drawing down. They cannot sustain social-security programs because they don’t have enough workers to pay for the retirees. They cannot project power because they lack the money to pay for defense and the military-age manpower to serve in their armed forces.
Update: Kelly McParland on the plight of some older workers: “If they’d never worked at all, and gotten by on social assistance, they might still have a financial lifeline.”
It would be cruel (and maybe unfair) to say they made their own beds, but it remains the fact that a great deal of the trouble they face results from the refusal to brook a more prudent approach to public finances for so many years. Programs that were unaffordable were pushed through time and again, paid for by more and more borrowing. When crises developed, the borrowing increased while spending was only rarely curtailed. The curse of deficit financing is its snowball effect: annual shortfalls pile up, pushing up the carrying costs, creating a self-perpetuating ever-expanding spending crisis. When a recession inevitably arrives, there are no reserves to deal with it, and even more borrowing ensues.
After so many decades of pretending it could go on forever, without there being a reckoning, the generation that created it is discovering how wrong they were. Not only is it destroying the retirement dreams of so many near-seniors, it’s preparing a poisoned legacy to hand to the next generation, and perhaps the one after that, unless they recognize the need for greater discipline and finally accept the pain that will necessary to put the process back on a sustainable track.
Canada is fortunate that it faced up to its debt crisis 15 years ago and is still benefiting from that fact, but the public memory is short and there will always be pressure to turn a blind eye to debt, and legislate for today. No wonder people get more conservative as they get older. They understand the price that has to be paid for putting costs off to tomorrow.
February 2, 2013
“The welfare state we have is excellent in most ways. We only have this little problem. We can’t afford it.”
Based on this report in The Economist, we really should strive to be more like Sweden, and not for the reasons most Canadians would expect:
Sweden has reduced public spending as a proportion of GDP from 67% in 1993 to 49% today. It could soon have a smaller state than Britain. It has also cut the top marginal tax rate by 27 percentage points since 1983, to 57%, and scrapped a mare’s nest of taxes on property, gifts, wealth and inheritance. This year it is cutting the corporate-tax rate from 26.3% to 22%.
Sweden has also donned the golden straitjacket of fiscal orthodoxy with its pledge to produce a fiscal surplus over the economic cycle. Its public debt fell from 70% of GDP in 1993 to 37% in 2010, and its budget moved from an 11% deficit to a surplus of 0.3% over the same period. This allowed a country with a small, open economy to recover quickly from the financial storm of 2007-08. Sweden has also put its pension system on a sound foundation, replacing a defined-benefit system with a defined-contribution one and making automatic adjustments for longer life expectancy.
Most daringly, it has introduced a universal system of school vouchers and invited private schools to compete with public ones. Private companies also vie with each other to provide state-funded health services and care for the elderly. Anders Aslund, a Swedish economist who lives in America, hopes that Sweden is pioneering “a new conservative model”; Brian Palmer, an American anthropologist who lives in Sweden, worries that it is turning into “the United States of Swedeamerica”.
[. . .]
This is not to say that the Nordics are shredding their old model. They continue to pride themselves on the generosity of their welfare states. About 30% of their labour force works in the public sector, twice the average in the Organisation for Economic Development and Co-operation, a rich-country think-tank. They continue to believe in combining open economies with public investment in human capital. But the new Nordic model begins with the individual rather than the state. It begins with fiscal responsibility rather than pump-priming: all four Nordic countries have AAA ratings and debt loads significantly below the euro-zone average. It begins with choice and competition rather than paternalism and planning. The economic-freedom index of the Fraser Institute, a Canadian think-tank, shows Sweden and Finland catching up with the United States (see chart). The leftward lurch has been reversed: rather than extending the state into the market, the Nordics are extending the market into the state.
Why are the Nordic countries doing this? The obvious answer is that they have reached the limits of big government. “The welfare state we have is excellent in most ways,” says Gunnar Viby Mogensen, a Danish historian. “We only have this little problem. We can’t afford it.” The economic storms that shook all the Nordic countries in the early 1990s provided a foretaste of what would happen if they failed to get their affairs in order.
January 28, 2013
January 16, 2013
When you draw it down long before retirement to pay ordinary living expenses:
This trend has been in place since the financial crisis, but the fact that it is accelerating is extremely disconcerting. First off, this is not the kind of behavior that should be witnessed in an “economic recovery.” Second, we need to remember the huge percentage of Americans on food stamps and/or disability. As we have discussed previously, many of them also have jobs. So essentially, a wage and a check from the government is still not enough to survive. They still need to tap into a loan from their 401k plans.
From the Washington Post:
More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.
[. . .]
“We’re going from bad to worse,” said Diane Oakley, executive director of the National Institute on Retirement Security. “Already, fewer private-sector workers have access to stable pension plans. And the savings in individual retirement savings accounts like 401(k) plans — which already are severely underfunded — continue to leak out at a high rate.”
A report due out this week from the financial advisory firm HelloWallet found that more than one in four workers dip into retirement funds to pay their mortgages, credit card debt or other bills. Those in their 40s have been the most likely culprits — one-third are turning to such accounts for relief.
December 18, 2012
Andrew Coyne briefly praises the CPP before advancing a plan to (eventually) supplant it entirely:
By most measures, Canada’s retirement income support system is an outstanding success. The poverty rate for Canadian seniors, with just 4.4% living below half the median income, is among the lowest in the world. The Canada Pension Plan, once careening towards insolvency, is now on a sounder footing. Millions of Canadians contribute to their Registered Retirement Savings Plans every year, with a view to replacing more of their income than the 25% covered by the CPP; Tax-Free Savings Accounts are a fast-growing alternative. For most people, then, the pension system works well. There is no evidence of a generalized pension “crisis.”
[. . .]
Suppose an additional levy were tacked onto CPP premiums. Only instead of going into the regular CPP pot, the funds would accumulate in the contributor’s own personal fund — like an RRSP, only compulsory. To avoid wasting money on management fees, funds would be invested strictly passively (ie buying the indexes), with the particular asset mix varying as the investor aged: more stocks when younger, more bonds when older.
Any increase in benefits would thus have to be fully funded; at the same time, since legal title to the funds would rest with the contributor, there would be no way politicians could raid the kitty. Moreover, with such a direct link between contributions and the size of their nest egg, contributors would be less likely to see the rise in premiums as a tax increase, and more as savings, mitigating labour market effects, at least on the supply side.
On its own, this would be vastly preferable to CPP expansion. If we liked the results, we might even think of going further. Over time, one could imagine migrating more and more of the regular CPP over to these mandatory personal accounts, allowing the CPP fund to be slowly wound down. Rather than simply expanding the CPP, the challenge of population aging presents an opportunity to reform it.
August 13, 2012
Walter Russell Mead wonders if the Chinese economy actually hit its peak in 2008 and will not be able to get back to that level of performance:
According to The Diplomat, the long term outlook is even more depressing. China will have to confront a series of structural challenges if it is to continue to achieve the kind of dynamic growth that lifted the country from economic backwater to emerging great power in just three decades.
The most obvious challenge is demographics. A RAND study observed that the proportion of the Chinese population of working age peaked in 2011 and began slowing this year. The share of the elderly population is rising. Healthcare and pension costs will soar as a result. So will labor costs. Investment and savings will diminish. In short, China may face the prospect, unknown in human history, of growing old before it gets rich.
The environment presents another dilemma. Like many rapidly industrializing economies, China sacrificed environmental protection at the altar of economic growth. But the effects of this approach have taken a toll: already, argues The Diplomat, ”Water and air pollution today cause 750,000 premature deaths and around 8 percent of GDP.” And as Via Meadia recently pointed out, the political costs of this approach are starting to mount as well. An outbreak of NIMBYism has forced many local officials to cancel major industrial projects as ordinary Chinese citizens demand an end to environmentally unsound development.
Of greater concern is that China has backed away from market reforms in the last decade and embraced a version of “state capitalism” that emphasizes the state far more than it does capitalism. But as state-run entities have become more powerful, their political backers — and financial beneficiaries — have an even greater stake in blocking attempts at reform.
H/T to Jon, my former virtual landlord, for the link.
July 30, 2012
An interesting story in the Toronto Star:
After 40 years as a registered nurse, Yvonne Gardner never thought she’d have to beg to get her federal pension benefits.
For 14 months, the Toronto retiree has been struggling to prove to Service Canada that she’s eligible for the $500 monthly Old Age Security (OAS) pension.
In the latest twist, she was asked for copies of plane tickets for all of her travels in and out of Canada since moving here from England in 1975 — a mission impossible — as proof she has lived here the minimum 10 years required to qualify.
Deprived of the pension she was counting on, Gardner, a native of Suffolk, England, is 10 months behind in rent on her one-bedroom downtown apartment and faces eviction.
If this woman’s issue is typical, then I will probably also have problems claiming OAS, as my family came to Canada in 1967 and I know for certain that we did not retain any of our travel documents from that far distant time.
However, the story is in the Toronto Star, which certainly has been willing to creatively tell stories that make the government look bad in the past. Here’s a comment on the story that has to be a joke:
I have no idea why this person thinks the story has anything to do with Capitalism, but he or she is certain that the answer is Socialism. Doesn’t much matter what the question is, I guess.
June 18, 2012
June 8, 2012
James Miller in the National Post:
Nineteenth century political theorist and former U.S. congressman John C. Calhoun once wrote, “…the necessary result, then, of the unequal fiscal action of the government is to divide the community into two great classes… to divide it into tax-payers and tax-consumers.”
Throughout history, this is precisely how the dynamic between government and the people has played out. Politicians make careers out of redistributing wealth. Persistent inflation and the running up of public debt have proven that governments are incapable of spending within their means. Retaining elected office hinges too much upon buying votes.
With the post-war boom years came increasing amounts of tax revenues. This was all too enticing for politicians to pass up. Entitlement programs were created to ensure a steady supply of votes. Mr. Moore is correct in alleging that younger generations were thrown to the wolves for these promised benefits as they had no say in the matter and are now forced to foot the bill.
At the same time, millennials themselves have been fooled through years of pervasive government and nanny-state decrees into not only expecting entitlements but also misunderstanding the value of prudence. Living standards only rise when the majority of the public produces more than it consumes. This age-old lesson has been slowly forgotten with years of the expansionary welfare state and popular economic theories which favour consumption. When youth are made to believe the most important rule in all economics is “in the long run we are all dead,” is it any surprise when financial discretion takes a back seat to overindulgence?