Dear Colleague:

The problem with America's population size of 300 million is that it's not
big enough (to keep us solvent).

Steven W. Mosher
President

PRI Weekly Briefing
28 September 2006
Vol. 8, No. 38


300 Million, Social Security, and Solvency
By Joseph A. D'Agostino


As America's population reaches 300 million next month, we must wonder if
our nation's infrastructure can bear such a population size.  Can she
survive 300 million and corresponding increases indefinitely?  It's a good
question, because 300 million isn't enough.

As America's economic and demographic infrastructure currently stands, her
population is too small.  The baby boomers and subsequent generations have
had too few children, meaning there will not be a sufficient number of
workers in the future to support the many retirees our nation will host
over the next few decades.  This necessitates free-market reforms of our
Social Security, Medicare, and Medicaid systems along the lines suggested
by expert and long-time activist Peter Ferrara (see below), and without
which disastrous, birthrate-lowering Big Government policies will be
enacted.

Different experts come up with somewhat different numbers, but no one
disputes the long negative trend in the worker-retiree ratio--or the huge
hit that is coming.  According to the House Budget Committee, the
worker-to-retiree ratio was 5 to 1 in 1960.  In 2002, it was 3 to 1, a 40%
drop.  By 2050, it will be 2 to 1, a further 33% drop.  And at the same
time, Americans' life expectancies will increase and health care costs
will likely rise tremendously, as they have been in the past few decades.
No wonder the Social Security system is bankrupt.

"Because the baby boomers have not yet started to retire in force and
accordingly the ratio of retirees to workers is still relatively low, we
are in the midst of a demographic lull," former Federal Reserve Chairman
Alan Greenspan told Congress about four years ago.  "But short of an
outsized acceleration of productivity to well beyond the average pace of
the past seven years or a major expansion of immigration, the aging of the
population now in train will end this state of relative budget tranquility
in about a decade's time."  Six years left.

The United States' birthrate is only 2.0 children per woman, slightly
below replacement level.  The boom in children produced by the generation
that won World War II was replaced by a baby bust from the generation of
the 1960s.  The bust continues and will for the foreseeable future.  Even
the USA's current high rate of immigration will not stop the precipitous
drop in the number of workers per retiree.  According to the United
Nations, the proportion of the American population 65 or over will go from
12.3% today to 20.6% by 2050.  Those 80 or over will go from 3.6% to 7.3%.

Social Security faces an $11-trillion deficit over the long term.
Medicare faces one of $68 trillion.

Fortunately, there are solutions.  The best one is for people to have a
lot of children.  That would not only save Social Security and Medicare,
but rescue the economy in general from a dearth of workers.  It would also
reduce the pressure for high immigration levels, with their accompanying
problems.  Unfortunately, a dramatic increase in the American birthrate
isn't likely forthcoming, so to rescue our most beloved entitlement
programs, our Washington elites want to pursue a very different
strategy--one likely to depress America's birthrate even further until she
is in a European-style death spiral.  (Most European nations have very low
birthrates that spell doom for their societies.)

Since the end of World War II, federal spending as a proportion of
America's Gross Domestic Product (GDP) has hovered around 20%.  Yet, if
free-market solutions to the problems of Social Security and Medicare are
not implemented, federal spending will rise to about 40% of GDP by
2050â?"requiring a huge tax increase on working families.  That, in turn,
will prompt Americans to have even fewer children than they have now,
since financial concerns are often the No. 1 reason people choose to have
fewer children.

Some, even some "conservative" Washington types, want to strike a
compromise that will result in the feds swallowing "only" 30% of GDP.
That would mean a "mere" 50% hike in our federal taxes.

"This disastrous trend toward Big Government not only can be stopped, but
actually can be reversed through reforms that would garner broad popular
support, if structured and explained correctly," wrote Ferrara in a
September 6 "Issue Brief" for the Institute for Policy Innovation.
"Indeed, these reforms together would actually substantially reduce
federal spending as a percent of GDP."

Ferrara proposes common-sense solutions to rescue entitlements without
raising taxes.  These proposals would also give individual American
families more control over more of their own money:

*· Personal Accounts for Social Security.  The money could be invested in
the stock market and earn a solid return, instead of sitting in a
government account earning minimal interest.  Children could inherit any
leftover amounts rather than the government keeping them for itself.

*· Personal Accounts for Medicare and Medicaid.  Again, investments in
markets will multiply Americans' tax money much faster than the government
can.  In addition, individuals would have incentives to keep their health
care costs down since they could keep unused funds for themselves.  At the
rate costs are currently increasing, the alternative is to have government
bureaucrats decide what health care you will receive a la HillaryCare.

*· Pro-Growth Tax Reform.  Replacing our ludicrously inefficient tax code
with a flat tax or national sales tax would increase economic growth in
this nation enormously over time.  But care would have to be taken to
avoid hiking taxes on the large families currently benefiting from the
child tax credit.

A copy of Ferrara's article can be found in the "Publications" section of
the IPI website (www.ipi.org).

America's population problem needs solving.  We can hope her population
will increase faster from now on, and that government policies will not
get in the way.


Joseph A. D'Agostino is Vice President for Communications at the
Population Research Institute.

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