Byline: 

Introduction

In the aftermath of the Greek fiscal crisis, there needs to be a realistic assessment of the “lifetime superpower” assumptions that have dominated political actions in most advanced economic states. Specifically, capitalistic countries cannot sustain the high social welfare standards enacted since the end of World War II? We need to institute structural reform as soon as possible. Instead of focusing on the specific differences between let us say the United States and Greece, we would be better served by recognizing the parallel problems and instituting meaningful changes. America, Great Britain, Japan, and France will exceed Greek’s current fiscal problems within a decade. Recent warnings by major credit agencies of impending downgrades from AAA levels for all of these countries reflect math reality. While Germany can temporarily bail out Greece, no nation or group of nations can save major nations. 

Unfortunately, with the disappearance of the “middle” in American politics, it is difficult to envision how we will take the necessary remedial actions. Historically, there have been bi-partisan efforts to meet challenges. However, our recent political elections reflect the danger to politicians seeking moderation. From Arkansas, Utah, Kentucky and Pennsylvania, the message is unmistakably clear—party stalwarts want strict allegiance to their specific agendas.

While each side thinks that “history is on their side” the violent street demonstrations in Greece and Thailand might indicate that more sinister solutions are in the offing. Stated differently, in the 1920’s and 1930’s, democracy faced threats from the Right and Left. One could argue that the Cold War was an extension of the battle. 

We now must recognize that the fall of the Berlin Wall might have only temporarily given solace to capitalism and democracy. That is, by “addicting the populace with ample social payouts” we really have not solved the problem of providing decent living standards to the citizenry. The problem will be exacerbated by huge immigration inflows from underdeveloped countries whose populace must leave their blighted homelands or die. Over the next few generations, world population will rise from 6 billion to 10 billion. Almost all the demographic growth will take place in poorer nations who cannot support their populations. The immigration to “so called advanced nations” will only accentuate the latter’s current fiscal problems.

Joschka Fischer, the former German foreign minister, highlighted the problem. “In Europe, we have nationalism and racism in a politicized manner and those parties would have exploited grievances if not for our welfare state. It is a matter of national security, or our democracy.” America both demographically and fiscally faces parallel headwinds.

Fiscal Deficits

In order to provide a “cradle-to-grave safety nets” countries have committed themselves to fiscal expenditures that are actuarially irresponsible. Moreover, with low birth-rates, and longer life expectancies, countries cannot expect that their remaining working population can or will support these burgeoning entitlement programs. Instead, politicians must enact dramatic changes such as cutting salaries, rising legal retirement ages, increasing work hours, reducing health benefits and pensions.

The following demonstrates the problem. In Europe in the 1950’s, there were seven workers for every retiree in advanced economies. By 2050, the ratio in Europe will drop to 1.3. America would suffer similar problems without huge immigration—legal and illegal. However, importing workers is not an answer. Over time these workers age and their families require assistance—education, medical attention, housing, etc. The consequence of importing labor to subsidize our lifestyles will only result in the need for either greater inflows of people or the same dire fiscal factors facing Europe today. 

Costs of Social Programs in France

Currently, the severity of problem is probably greatest in France. While France has a particularly daunting challenge, other countries only differ in degree.

Gross public expenditures for state pensions represent 44% of government expenditures and health care 30%. Only 50% of the French population works past the age of 50. The number of pensioners in France is now 47% of the population. The expected French deficit for their state pension will grow 10-fold over the next forty years.

While President of France, Nicolas Sakozy vows to pass pension reforms, most people remain skeptical. For example, while most French see that a pension overhaul is necessary; up to 60% say that working past 60 is not an answer. 

America’s Headwinds

America confronts similar fiscal challenges as Europe. We currently have unfunded Entitlement Programs—Social Security, Medicaid, and Medicare—that are about $53 trillion. This equates to more than $400,000 per American family. Our national debt will exceed $20 trillion by 2019. Moreover, deficits will rise after 2019 and not fall. Social Security which is temporarily in the Red will be permanently in the Red after 2016. We have just passed a massive Medical reform act that has not been funded. Instead of recognize the financial folly of this act, partisans for the medical reform claim that it will help the budget. 

No politician has addressed realistically the following problem. In 2009, government revenues were $2.5 trillion and expenditures were $3.8 trillion. To get a balanced budget (ignoring the Elephant in the room—Entitlements), we need to raise taxes by 50% or decrease expenditures by 33%. It is pure folly to think that we can address the problem either by taxing people who earn over $250,000 per year or making cosmetic cuts. In our current political environment, there is no realistic chance of resolving our problems. 

Conclusion:

To get out of the Dark Ages, medieval scholars applied the learning of classical Greek and Romans. To avoid entering a new Dark Age, we might want to study the current Greek problems and do our own arithmetic.