Sunday, July 26, 2009

Childless Societies and Socialism Don't Mix

I have to credit Mark Steyn through his book America Alone for much of my understanding on this topic but it has to continually be revisited because so many people still don't understand.

Socialism is built on transfer payments - if you enact a new entitlement program today, it means that some group of people will receive benefits from a fund that they did not pay into. This is exactly what happened with the creation of Social Security. There was a generational offset built into the program from the beginning - the elderly in the late 30s who received the first Social Security checks did not pay into the system what they eventually took out of the system which means that it was now up to their children (and the children of others) to support these elderly.

This story is echoed in slightly different ways through all Socialist programs. In order to pay for exsiting entitlements, it requires a large workforce that creates wealth so that the government can tax it to fund programs. No large workforce, no wealth, no programs. Well, as Steyn has pointed out, what happens when the workforce dwindles? What happens when there are fewer and fewer children to take the jobs to create the wealth to provide the taxes to support the Socialist programs?

That is the horrific situation that Western Europe, long Socialist, has found itself facing. For decades, the birth rate of European couples has been declining. We probably all still have the perception that Italian and Spanish families are large - we can all picture the family around an oversized table heaped with traditional pasta, rice and seafood dishes.

Well, take a look at this graph created by UN data by Globalis. Below in table form:

Juxtapose these figures with the Debt/GDP data from this old blog post which shows that Italy has a debt/income ratio of 103.7%. That means that they owe $104 for every dollar they create. AND they have a rapidly declining birthrate. How does this ugly story end?

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