by Simon Black
Last month, the National Vital Statistics System of the US government. UU. He published data showing that the birth rate in the Land of the Free has been reduced to – although other – ALL THE LOW TIME.
It is the FOURTH consecutive year that the fertility rate has reached a record low in the United States, which means that the problem continues to get worse.
And it is one that has huge long-term economic consequences.
If people are having fewer babies today, it means that, in the future, there will be fewer workers in the system who pay taxes.
And the biggest loser in that scenario, by far, is Social Security.
All the long-term viability of Social Security depends on having enough workers paying taxes to support retirees who are currently receiving benefits.
This is called the worker-retiree relationship, and Social Security monitors it closely.
Social Security administrators project that they need a proportion of workers per retiree of at least 2.8 to keep the system running. If the ratio falls below 2.8, there simply will not be enough workers paying taxes to support the monthly benefits for current retirees.
Clearly, this system requires a constantly increasing population.
If you have 1 retiree today, that means there should be at least 2.8 people paying in the system.
A generation from now on, those 2.8 people will be retired, which will require that at least 7.84 (2.8 * 2.8) workers pay in the system. A generation later, those 7.84 people will be removed, which will require 21.95 (7.84 * 2.8) workers to pay in the system.
It is easy to see how this can be totally out of control in a few generations.
This brings us back to the central problem: the birth rate.
In the 1960s, the average woman would have almost 4.0 children in her life.
But this rate has been steadily declining for decades. By 2007 it had fallen to 2.12. And it has fallen every year since then, now until 1.73.
A fertility rate of 1.73 is below what demographers consider the "population replacement level", which means there are more deaths than births.
More importantly, this long-term decline in the fertility rate has had a slow and detrimental effect on the worker-retiree relationship.
In 1960 there were 5.1 workers for each retiree, according to the Social Security data themselves. Baby boomers were just beginning to join the workforce and there weren't too many people still collecting Social Security benefits.
By 1990, the proportion had fallen to 3.4 workers for each retiree. That was much lower than in 1960, but still enough to keep Social Security running.
By 2012, the proportion had already fallen to a minimum of 2.8. And since the US fertility rate. UU. Continues to decrease, the worker-retiree relationship will also continue to decrease.
Baby boomers are retiring by tens of thousands. People live longer than ever. And there are fewer people born to pay taxes to the system in the future.
Social Security knows that the fertility rate is critical for your program, and statistical factors strongly influence your long-term projections.
According to its most recent annual report, the scenario “ intermediate & # 39; & # 39; of the Social Security (that is, its conservative projection of the base case) assumes a fertility rate of 2.0.
Again, the real fertility rate in the US. UU. Now it is only 1.73 … A LOT below the Social Security assumption. In addition, the average fertility rate of 30 years in the US. UU. It is around 1.9, which is still below the assumption of Social Security.
Now, you might be thinking that immigration should regain relief. As foreigners move to the US In the US, they will join the workforce and pay taxes to the system, improving the worker-retiree relationship. That is true in theory. But you may be surprised to learn that the "net migration rate" of the United States has also been declining for decades.
After reaching its peak around 2000, the net migration rate in the USA. UU. It has decreased by more than half.
And the Census Bureau announced at the end of December that only 595,000 net migrants moved to the US. UU. In 2019; they are the lowest net immigrant children of the whole decade, and a continuation of this trend of declining migrants.
This is another big problem for Social Security; The baseline scenario of the program assumes that net migration in the USA. UU. It will be almost 1.3 million people every year.
However, the average net migration during the last decade was only 840,000 … and the rate continues to decline.
You can see the problem here: many of the most critical Social Security assumptions are totally out of place.
His assumption about the nation's fertility rate is much more optimistic than reality. His assumption about the net migration rate is much more optimistic than reality.
And with some of the most critical assumptions so out of place, it is difficult to see how they will fulfill their projections.
Ah, remember that the projection of the Social Security base case is that your primary trust funds will run out of money in 2035 … and that the program will not have enough funds for billions of dollars.
However, even this bleak prognosis is based on highly flawed assumptions … so the reality can be even worse.
This is a global problem, by the way.
Japan and Europe are in the same boat with their fertility rates, and populations in many developed countries are declining. The average age in Japan is almost 50 years, and the country sells more adult diapers than baby diapers.
In Italy, deaths exceeded births in 2019 at a whopping 212,000 … the largest figure since World War I devastated the continent. Even the world average fertility rate has halved since 1960.
All of these are critical challenges for pension and social security funds.
I said it before: there is no magic wand to fix this. No politician can spray goblin dust in their pension programs and miraculously make them solvent. It is simple arithmetic.
But if you trust yourself, you You can solve this problem with a little discipline and planning.