A Tale Of 2 Systems

[NATO AIR]

Thank God we aren't Europe...

http://www.nytimes.com/2005/01/04/opinion/04brooks.html?oref=login&hp

A Tale of 2 Systems
By DAVID BROOKS

Published: January 4, 2005

E-mail: [email protected]

Over the past 50 years, we've been having a big debate over two rival economic systems. Conservatives have tended to favor the American model, with smaller government and lower taxes, but less social support. Liberals have supported programs that lead to the European model, with bigger government, more generous support and less inequality.

I wonder if that debate is about to change. In the next few decades both models are going to confront a big test: aging populations. The U.S. model is going to be challenged by this problem, but the European model is flat-out unsustainable.

Populations in the U.S. and Europe are both aging, but Europe is aging faster. According to the O.E.C.D., the dependency ratio - defined as the number of people over 65 as a percentage of the number of people 20 to 64 years old - will rise to 37 percent from 22 percent in the United States by 2050. But it will go up to 52 percent from 26 percent in the European Union.

In addition, European public pensions are more generous and retirees are more reliant on them. To sustain these programs, European government spending will have to rise. According to the European Commission, demographic trends will push public spending up by five to eight percentage points of G.D.P. in the E.U.'s 15 richest members. In Germany, public spending on pensions will rise from an already huge level, 10.3 percent of G.D.P., to 15.4 percent by 2040. And that's after recent benefit cuts.

To pay for all of this, taxes will rise and public debt will increase. A Standard & Poor's survey predicts that France and Germany could see their public debt grow to more than 200 percent of G.D.P. by 2050.

Europe may find itself locked into a vicious circle: an aging population means more public spending, which means higher taxes, which means lower growth, which means higher unemployment, which means more public spending, which means more taxes and even lower growth.

The former Dutch prime minister, Wim Kok, recently released a scathing report that found that "the pure impact of aging populations will be to reduce the potential growth rate of the E.U. from the present rate, of 2 percent to 2.25 percent, to around 1.25 percent by 2040."

Already, high European taxes make the European model look obsolete. European and U.S. workers are about equally productive per hour worked. But Americans work 50 percent more than Germans, French and Italians. In the 1970's, Western Europeans actually worked more than Americans. But as taxes rose and incentives to work diminished, Europeans cut back their hours or dropped out of the labor force.

Some economists, like the Nobel laureate Edward Prescott, believe higher tax rates explain the drop in work. Others believe cultural preferences also played a big role. Either way, high taxes have made Europe less productive just as it needs high output to support its retirees.

Partly as a result, European economies have underperformed for a generation now. As Olaf Gersemann has pointed out, the U.S. economy has enjoyed an annual real growth rate of 2.9 percent over the past 25 years. That's 55 percent more than western Germany, 48 percent more than France and 39 percent more than the E.U. as a whole. Back in the 1970's, European standards of living were catching up to U.S. standards. Now American G.D.P. per capita is about 30 percent higher than Europe's and the gap, if anything, is getting wider.

Which brings us to the current moment. In Europe, everybody is aware of the problem, but the remedies are so bad that most countries avoid them. Meanwhile, we in the United States are embarking on our own debate over the future of Social Security. Many liberals are claiming that we don't need to fundamentally revamp our system because there is no crisis. To the extent that's true, it is because we have not been taking their advice for the past 50 years.

We have stuck with a low-tax, high-growth economic model. This gives us the resources and the flexibility to deal with the problems caused by an aging population without having to face, at least for now, the horrific choices that confront our friends across the Atlantic.

The question is: Will we leave our children a system as flexible, dynamic and productive as the one that was, fortunately, left to us? Or, by doing nothing, will we succumb to the same ineluctable pressures that now afflict Europe, and find that we are immobilized at the exact moment China and India are passing us by?

 

[ScreamingEagle]

Thank God we aren't Europe...

True, but we are still facing the same troubles. Can we really cope with the baby boomer bulge which starts only 4 years from now? It's predicted that social security will be in the red by 2014. That's only 9 years from now. How will the deficits be addressed?

The size of the problem should not be underestimated. The government will owe an estimated total of about $9 trillion more to current workers when they retire than it will have collected from them in taxes. This Social Security liability is more than twice the official national debt. It is larger than the total value of the United States gross domestic product.

http://www.socialsecurityreform.org/problem/index.cfm

 

[Bonnie]

All the more reason to privatize as much of our Social Security savings accounts as possible. This is something we really need to do, but because it's such holy grail to Democrats and AARP is such a powerful lobby they will selfishly fight any reform in the offering. It lays on the shoulders of Republicans to take the plunge. I wonder if those in the Roosevelt administration took any of this into consideration when they made this the foruth arm of our government???

 

[hylandrdet]

All the more reason to privatize as much of our Social Security savings accounts as possible. This is something we really need to do, but because it's such holy grail to Democrats and AARP is such a powerful lobby they will selfishly fight any reform in the offering. It lays on the shoulders of Republicans to take the plunge. I wonder if those in the Roosevelt administration took any of this into consideration when they made this the foruth arm of our government???

This whole nonsense is based on the concept that you can actually pace your spending in order to afford such an account. It's been proven; the average american can't. Why? Because our economy relies on our citizens spending money.

President Bush is going down as the most hypocritical president in history. His previous "Tax Relief" was based on the concept that he'd expected us to spend it on the economy; Now, he want us to keep our money? Something's going to give. This is why I may be the only calm Democrat in this forum; the rope is growing every single day...

 

[MtnBiker]

This whole nonsense is based on the concept that you can actually pace your spending in order to afford such an account. It's been proven; the average american can't.

I can manage my money in order to contribute to a retirement account beyond social security. Why is it you believe the government is a better manager of your money than you are?

 

[Bonnie]

This whole nonsense is based on the concept that you can actually pace your spending in order to afford such an account. It's been proven; the average american can't. Why? Because our economy relies on our citizens spending money.

It's not nonsense, people need to be responsible for themsleves and their own futures, government doesn't have the money to take care of everyone..........The system is going broke. People can easily save enough money to live on if they save early enough, look at those who have 401 ks. By the time most people retire their homes are paid off, hopefully their credit is on track.

President Bush is going down as the most hypocritical president in history.

Only by liberals standards, which means nothing, and what specifically does that have to do with SS??

His previous "Tax Relief" was based on the concept that he'd expected us to spend it on the economy;

Yes and it's working to help stimulate the economy!

Now, he want us to keep our money? Something's going to give.

Yes he wants us to spend some and save some, it's really quite simple. The same way you tell children how to manage money. Liberals always approach money
as if it's a zero sum concept......

This is why I may be the only calm Democrat in this forum; the rope is growing every single day...

This makes no sense at all????????????????

 

[MtnBiker]

His previous "Tax Relief" was based on the concept that he'd expected us to spend it on the economy; Now, he want us to keep our money? Something's going to give.

Do you have any concept of savings and investment? When a person saves money or invests into an IRA or 401K it is not like the money sits idle in Algore's lock box. That money is put in to the economy through investment of companies.

 

[ScreamingEagle]

All the more reason to privatize as much of our Social Security savings accounts as possible. This is something we really need to do, but because it's such holy grail to Democrats and AARP is such a powerful lobby they will selfishly fight any reform in the offering. It lays on the shoulders of Republicans to take the plunge. I wonder if those in the Roosevelt administration took any of this into consideration when they made this the foruth arm of our government???

Yes, but I don't see Bush's plan to privatize ss for the future as any plan to address the BIG PROBLEM staring right at us in the face, right NOW!

What is the Republican solution to address the Boomer problem? Why isn't Bush addressing this problem as well? Is he just going to leave it to the Democrats in 2008 to raise taxes? Is that the only solution? And if that is what happens, won't that affect our economy, much like what we see in Europe?

 

[Bonnie]

Yes, but I don't see Bush's plan to privatize ss for the future as any plan to address the BIG PROBLEM staring right at us in the face, right NOW!

What is the Republican solution to address the Boomer problem? Why isn't Bush addressing this problem as well? Is he just going to leave it to the Democrats in 2008 to raise taxes? Is that the only solution? And if that is what happens, won't that affect our economy, much like what we see in Europe?

I do get what you are asking, but at this point I don't see any easy fixes. He really hasn't laid out any details yet, all just rederic. I suppose we will have to wait to see exactly what he is proposing.