Entitled “Payback Time”, this NYT article by Steven Erlanger states that “Crisis Imperils Liberal Benefits Long Expected by Europeans”
I’d like to clarify this argument a bit with the following points:
1) It will take somewhere between 3-5% of GDP to correct the retirement funding problem given the current ratio of prices and payments.
2) The problem with any policy is in determining the degree of uncertainty with regard to the future state of production (how much the productive people in any society will earn without the historical advantage that west has had in capitalist political and economic systems.) This means that the 3-5% number could be about the same, or it could be as much as twice that amount.
3) Most of the world, Europe in particular, will need to increase military expenses as the US loses it’s ability to project the power needed to police world trade routes, and it’s citizens lose the will to do so. We do not know what this cost will be. For european countries it will likely be on the order of 10% of GDP if history is any measure, that will mean roughly doubling the wealthier countries in europe, and quadrupling the spending of the eastern fringe countries.
4) Most of the developed world will have to increase expenses on infrastructure due to aging populations. We do not know this number. Health care in particular will need to be rationed further as the cost of prolonging life continues to climb.
5) Cost of government is increasingly expensive and burdensome as productivity declines.
6) demographic changes underway, the increasing differences between american super-regions, and the lack of integration of immigrants, and the rising racial tensions, will lead to the increasing potential for political upheaval, somewhere in the 2015 – 2025 range, which would put extraordinary financial burdens on the world as regional power vacuums forced rapid reallocation of resources worldwide.
The conservative position would argue that the world system is much more fragile than we assume, and that it’s prudent to cautious in our expectations of the future.
The libertarian position would be to change from speculative policies that rely on growth and government, to calculable policies that rely upon saving and productivity, and in doing so, create both security and prosperity rather than worrying about the degree of risk we’re taking on.
The likely cost then, is somewhere between a low of 3% assuming stability, and a high of 15% of GDP over the next ten years.
The fact that this economic instability is going to be caused by demographic changes, much of which will be caused by immigration of non-integrating subcultures combined with aging dependent generations will remain the unspoken elephant in the room for years to come.